Crypto market returns to 2018, Stay or Leave?

原文标题：《 Foresight Ventures：请回答 2018 》

Original source: Hippy, Foresight Research

"I don't understand bull markets, but I understand bear markets all too well."

- 18 years high entrance small leek said

Writing in the front

Recently, there are many old friends and I talk about "dream 2018", there are also many old leek began to write "bear market survival guide", more new friends in this round of bull market entrance eager to know what the market will be. Seeing the eager eyes of these new friends reminds me of myself listening to the boast of the old leek in 2018, full of confidence in the future market, but didn't know what was waiting for me was a long bear as long as three years.

Of course, writing this article does not mean that we are judging that the market is about to enter a bear market. We are simply recalling what the digital currency market was like in 2018 and thinking together about how to Live long and prosper as participants in the digital currency market during the ups and downs.

Market overview - fishes and dragons mixed with strange forces disorderly god times

The secondary market peaked in January 2018, with the total digital currency market valued at over $800 billion, about a third of the value of ATH in 2021. At that time, the market was flooded with copycat coins. The proportion of Bitcoin reached the lowest 33.39% on the day of the market peak, and the market was still immersed in the bubble of the myth of 1CO making wealth. Looking back at the top 20 currencies by market capitalization at that time, all of which were public chain tokens and BTC counterfeits, today only 6 currencies remain on the list and 11 new ones have emerged.

Public chain/protocol

The first is the reshuffle of the public chain/protocol market. In 2017-2018, the market is still mainly in the infrastructure development stage. The public chain and protocol layer is the focus of the market, sharding, DAG, BFT and all kinds of Proof of Bullshit  There is no end to it. Each public chain tries to solve it in a variety of ways. The impossible triangle of "efficiency, security and decentralization".

Public chain overview in the first half of 2018

In such a market environment, investors in the primary market basically open their mouth to be consensus standards, and close their mouth to be TPS. Today, they study how directed acyclic graph solves asynchronous problems, and tomorrow they think about how Byzantine general realizes point-to-point communication. However, most of the public chains are in the early stage of development, and there are few projects online on the main network. The first level investment can only start from the angel stage, but no one knows whether it can be landed. Such a market environment has given rise to a large number of pseudo technology projects. A white paper with several consulting platforms can start financing, and the project can only look at the technical solutions, but there is no data or finished products to verify. Everyone is looking for the next generation public chain besides BTC and ETH. In 18 years, someone told me it was called EOS.

(Foresight Ventures remains bullish on Cosmos Ecology and various new public chains)

In addition to general-purpose public link solutions, many projects have chosen to take a different approach, adopting vertical solutions for specific application scenarios, public links for the Internet of Things, storage, privacy use, and protocols for data, security, transaction and other scenarios. Most of the projects stay before the mainnet goes online, even in the early development stage, only a few of them are really made. The incomplete infrastructure leads to the shrinking demand of the application layer, which has few uses other than transfer payment, clearing and settlement and the use of ETH smart contract 1CO coin. However, traceability, identity credit, distributed computing and other scenarios are more difficult to solve.

An overview of agreements in the first half of 2018

Of course, there are still a lot of teams that are still developing and doing things through the bear market, eventually settling into the blue-chip giants that we see today, and the basic components that we use.

Chain to change

在 1CO 的造富效应传遍祖国大江南北之后，大量传统行业的公司想要通过区块链技术解决行业或者自身的问题，「链改」 的风潮迅速兴起。这其中有不少富有信仰渴望投身技术革命的有识之士，也有趁着热度割一把韭菜的牛鬼蛇神。链改风潮横跨 P2P、手机、电商、溯源、AR/VR、SaaS、游戏等等板块，只有你想不到，没有我改不到。似乎区块链的出现能解决一切线上线下无法解决的痛点，但对于大部分项目而言，最终解决的问题其实只有一个——项目方的财务问题。

Trading dig

After a slight dip in sentiment, most investors are looking to invest in something that generates cash flow, with exchanges being the first choice. "Trade mining" exchanges, led by Fcoin, have sprung up. In order to achieve a cold start of the exchange, Fcoin issued FT based on the volume of users for trading incentives. At that time, the Yield was only 30-40% a year, but users who had not experienced Yield Farming flocked to the market. As the popularity soared, FT tokens rose a hundredfold in a few weeks and collapsed due to the design flaws of the mining mechanism. But the innovative model stuck, and a large number of exchanges began to use "trading mining" as a selling point to raise Taiwan dollars. The exchange, like Internet companies, is about long-term products and operation capabilities, and the discovery and capture of high-quality assets. Most of the exchanges that followed were short-lived; only a few survived.

Death spiral

After the secondary market reached its peak, the primary market "flourished" for half a year through a variety of strange hot spots. It came to August 2018, and the most exciting part of the bear market came -- ETH death spiral. As ETH was used for financing in a large number of projects in the last bull market, there was a large amount of ETH in the hands of project parties and primary investment institutions that had not been realized. When ETH fell, investors began to sell, and the project side also reduced their holdings. As the anchor of the shanzhai currency market, ETH's decline led to the decline of the whole market. Project parties, investors and traders began to reduce their holdings of various copycat coins, and the death spiral began. ETH fell from $400 to $200 to cut in half. After two months of sideways trading, it fell all the way to $89, and the primary market was completely declared dead. Most investors in the last bull market in the original accumulation of 50-80% or more retracement, 1CO glory has long disappeared.

STO, EOS/Tron dApp, and others

During the two months of the market sideways, the primary market also attempted to complete some small works: first, the compliance oriented ST (Security Token) and STO (Security Token Offering), which is simply a form of asset tokenization. From the Asset anyway: spreads over gse-backed loans security  Process to Asset Backed Token. It has assets or cash flow as value support, but it is essentially another form of 1CO that is close to regulation. Given the market downturn, demand for primary offerings was already shrinking, so the STO concept never took off.

The second is the outbreak of EOS dApp, a large number of games, spinach projects appear on the EOS chain. The EOS dAPP, represented by BetDice, generated 8.2 billion RMB in two months and attracted hundreds of thousands of users. Decentralized exchanges, wallets, mining robots and other related services built on EOS have grown so rapidly that they have even led to explosive speculation of EOS RAM. For the first time, the ecological situation of the whole public chain with fire from the application end was realized. However, projects on EOS are mainly based on spinach properties. Transactions of spinach-type dApp account for 90% of all transactions, and the life cycle of its users is basically kept within one month. The game of stock capital leads to the rapid collapse of EOS application ecology. Later, Tron tried to follow the EOS model, but within a few weeks, its user data and activity dropped off a cliff.

The most desperate moment is yet to come as the primary market has since entered a phase of speculation, with bitcoin trading at around $6,000 for three months before plunging to $3,000 in November.

Market participants - stay or leave

exchange

Exchanges are among the best cash-flow players in the digital currency industry and have survived the bear market the longest, dominating the upstream of the industry chain as a conduit for the issuance and circulation of assets. However, under the background of bear market, assets have no wealth-making effect, spot trading volume shrinks seriously, and users' trading habits also change from buying coins to trading contracts, thus giving birth to many contract exchanges.

April 2018 exchange trading rankings

The chart above shows the exchange trading volume rankings for April 2018, with contract-focused BitMEX taking the top spot, followed by the three regional exchanges in China and abroad.

BitMEX and OKEX were the early places to trade contracts and were the places of choice for most people at the time. In the second half of 2018, most exchanges began to develop contract trading business. Huobi opened the contract trading area Huobi DM at the end of 2018, and Binance started the business of USDT perpetual contract after acquiring JEX in September 2019. On the spot side, Binance launched the Launchpad concept in the first half of 2019, followed by a wave of IEO listings independent of the broader market as major exchanges started to launch their own IEO clones.

During the two years of 2018-2019, the head exchange basically maintained its original position, and Binance gradually topped the list through innovative operation methods and management mode. For smaller exchanges, some can continue to generate revenue by retaining existing clients, while others wind down operations in a downsized market.

Project party

Before we look at the situation on the project side, let's first look at the financing situation for bull market projects. The following figure shows the public offering data of the top ten projects in 2017. It can be found that the valuation and financing amount of the projects at that time were very large, and the financing amount of large projects was basically tens of millions to hundreds of millions of DOLLARS. By the first half of 2018, early white paper phase projects valued at $100 million were standard. Therefore, for the project side of bull financing, most projects do not have capital problems.

Top 10 digital asset crowdfunding projects by amount of funding in 2017

Here, we classify project parties into funded and issued projects, funded but not issued projects and unfunded projects.

As for the funded projects, those who issued coins in the first half of 2018 hardly need to consider the issue of market value management and maintenance, as a large amount of funds are still entering the market. There are many cashing projects at the peak represented by EOS. Blockone is a master of cash management. At the peak of the market, it sold the raised funds into cash and US Treasury bonds, successfully avoiding the bear market. Some of the project parties did not sell, and after the ETH death spiral in August, the capital in their hands was greatly reduced. Some teams chose to give up currency price maintenance and concentrate on development, while more project parties chose to lay down completely. In the first half of the year, the project side that did not successfully issue coins began to delay the issuance of coins, or did not issue coins, which is commonly known as running away. For those who have not yet raised funds, most of them have changed the direction of the project. Some choose To leave the blockchain industry and return To the traditional market, while some switch To the blockchain industry and do some To G services.

Institutional investor

In 2017, the primary market was mainly dominated by individual participants. It was not until the beginning of 2018 that a large number of Token funds and traditional VCS entered the market began to appear. Some of these institutions are professional investors from traditional finance and Internet sectors, while others are early digital currency players and big money holders with primitive accumulations. The chart below lists some of the well-known domestic investment firms in the market at that time, as well as A16Z, Pantera, Hashed, Kenetic, etc. If compared with the current list of investment institutions, it can be found that most of the domestic institutions have withdrawn from the historical stage, and the reshuffle of the primary market participants is quite thorough.

The institutional iteration is not obvious in the first half of 2018. Everyone made a lot of money in the last wave, as long as they got the amount of money, raising, exiting and cashing out is not a problem. But when the market goes down, most projects break, return to zero or even do not issue currency. A large number of institutions with no investment ability could not withdraw from the projects invested in the sea before, so the tide of rights protection in the primary market began to rise. A lot of Saft deals were resold, including star projects like Filecoin, Algorand, Difinity, which later grew a thousandfold. For institutions that still believe in the market and have the ability to invest, they are beginning to transform. In addition to asking for money from project parties, some funds are beginning to find ways to generate cash flow, so secondary asset management and quantitative trading have become popular choices.

SAFT, which was resold in late 2018

Media, community and other services

For service agencies, the decline of the primary market is devastating. Market hot spots cool down, financing shrinks, project parties disappear, the demand for media publicity and public relations drops rapidly, and service agencies lose their main customers and income sources. As the wealth of all market participants declines, the networks and resource connections accumulated in the past are losing their usefulness. The original agent investment community began to run away and disbanded, and the investment exchange community was gradually transformed into a single group with contracts. Service organizations without cash flow and revenue began to fade away.

Investment logic - shift from the local path to the research path

I started studying the digital currency market at the beginning of 2018. Before entering the industry, I worked in securities research. I believe in fundamental analysis and despise technical analysis. When I set out to invest in the primary market, I started with the fundamentals of the project, looking at technical solutions, consensus mechanisms, token models, release rules, and team quality. Although I am not from a technical background, I still read a lot of papers, white papers and technical articles, and have in-depth study of commonly used solutions in the market. I am full of longing for the blockchain world.

Later, when I really threw myself into the market, I found that fundamental analysis was basically ineffective in the inefficient market. How can you make a second-best investment judgment in a situation where there is no data to back it up, only concepts and theories? I tried to sort out the following logic from the limited data and due diligence information:

-Technical proposal: project progress, technical interest, technical feasibility;

- Market heat: number of media reports, roadshow, community data, search index;

- Economic model: token allocation scheme, token functions, token unlocking, financing and valuation;

-Team background: founding team background, consulting team background, investment team background;

However, in the actual operation of most investment funds, this set of investment system is gradually transformed into two -- token and team. Investment has become extremely simple, investment projects only look at two points: one is when the token on the institute, the proportion of the first release, unlock time is reasonable; Second, who is the consultant, who will invest, who will come to the platform. So the primary market investment has become a thorough follower behavior, there is a list of institutions we bear in mind, basically is ranked the top investment institutions invested, other institutions will inevitably follow the investment. In the primary market more and more atrophy, the above logic eventually degenerates into the logic of holding. Incubation, holding, market value management become the last means of harvesting stock market.

The slow recovery of markets over the past two years and the emergence of a variety of statistical tools have made fundamental analysis useful in the digital currency world. At Defi Summer 2020, research-driven investors finally made money for the first time by mining on-chain data, transaction data, business models, and project mechanics. The digital currency market is also gradually transforming from ineffective to efficient, and the holy grail of investment is no longer bowing to the makers, but to the market participants who really strive to research and build.

What do we get?

Through sorting out the investment hot spots, market participants, investment logic and other aspects of the bear market, and then comparing with the current market situation, we can easily draw the following conclusions:

1. The market volatility is huge, investment targets and market participants have experienced a huge reshuffle. The Beta of the industry is very large, but how to keep the profits of Beta through the bear market is difficult, which requires strong investment ability and forward-looking judgment of the market trend. More than 90% of the incompetent people were eliminated in the bear market, and more than 90% of the unreliable projects were abandoned by the market. The great waves swept away the sand, and the essence of the industry was precipitated.

2. The market is getting better and more efficient. With the worldwide recognition of digital currency and blockchain technology, a large number of professional investment institutions and capable industry builders have continuously entered the digital currency industry in the past few years. There are fewer scam projects, more teams doing things, and the industry's players and fundamentals have changed dramatically.

3. Markets are rewarding long-term thinkers and people who build hard. To have a firm belief, persistence is victory. 2018 was just the beginning of the bear market, and the most painful phase was actually 2019 and 2020, when the whole market was in a state of half-life. When market participants are unable to expand their business from any Angle, faith in blockchain will collapse. I'm sure everyone who was in the business at the time asked themselves these questions over and over again: Is Bitcoin a tulip bubble? Will the bull market continue? Most people's hopes faded in the waiting. But there are always some long-termers who are still working on projects, still investing in them, still supporting them. They also have the courage to give their time or money to something they believe in. Some of these people have become head agencies, some have become blue chip projects, and the market has rewarded them thousands of times over.

The final story

Finally, A short story for you: On April 19, 2019, my colleagues and I had a meeting with a guy whose wechat profile picture was a curly hair. He told me they were going to set up a contract exchange, and I didn't think it was any different from the BitMEX model. I asked him a few questions about BitMEX, but he didn't have a good answer. I went to their website and looked at the transaction data. There were only a few transactions a day. In addition, the market is very cold, we have no plan to make more investment in the primary market, so we quickly passed this project. Later, I saw him live at the American hearings, and he had a nameplate on his chest that said, "Mr Bankman-fried."

In the end, I hope everyone can survive the coming market cycle, the bear market sow, the bull market harvest.

Data Source:

Global Blockchain Industry Panorama and Trend Report (First Half of 2018)

Research Report on Digital Currency Exchange 2018 by Chaintower Think Tank

DappReview "80 days 8 billion, the undercurrent under the cold winter surge -- EOS DApp ecosystem explosion you don't know"

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