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Crypto Market: Eight Recommendations for Embracing the 2023 Recovery.

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History may not repeat itself, but it always rhymes.

Original Title: "Cryptocurrency Market: Eight Suggestions for Welcoming the 2023 Recovery"

Source: Byte, DeepQuant Founder, DeepGo Web3 Builder

At the end of the year, there is always a special feeling lingering in the heart, especially in 2022, which is a memorable watershed. The cryptocurrency market has had many sad moments, but at the same time, it has also provided opportunities for many people. These days, I have read some year-end research reports, most of which are superficial. It seems that I haven't written a memo for a long time, so I will speak my mind this time.

In the year-end report of DeepQuant public account, the author made a prediction on the market recovery in 2020. DeepQuant2020 Outlook: There are always people looking up at the stars, which is roughly accurate. If you are interested, you can check the historical messages on the public account. Although history does not repeat itself, it always rhymes.

预测不重要，重要的是对策

"Prediction is not important, what's important is the countermeasure."

First, pour a pot of cold water. Don't take the predictions of so-called "masters" too seriously, which is about as likely as a monkey throwing darts. Maybe everything I'm saying is wrong, but that's the awe every "Popperian" scientific rationalist should have. A true trader predicts the market, but more importantly, faces their own inner self and establishes strict investment discipline.

The author's words are all suggestions or strategies, not golden rules, let alone trend judgments. The longer you stay at the gaming table, the more you see, but don't just watch the excitement, and don't get caught up in it. Instead, review and practice every "battle" you face, and there are always relevant "disaster recovery" plans for the future, no matter what the situation is.

Face the bleakness and stay sober

There is nothing new under the sun, the best stories involve the most killings. 2022 is indeed shocking, with the instability of the Luna stablecoin, the downfall of the self-proclaimed big player Three Arrows Capital, and the collapse of the money-spending FTX. However, in the author's opinion, there is nothing novel about this. The author first translated a Bitcoin book in 2015 and is familiar with financial history. In 2014, there was the Mt. Gox incident where 850,000 bitcoins were stolen by the exchange itself.

Not only the cryptocurrency market, but also the traditional financial market rarely sees "too big to fail". Famous hedge fund guru Soros once said: "The history of world economy is a continuous drama based on illusion and lies. To gain wealth, one must recognize the illusion, invest in it, and then exit the game before the illusion is recognized by the public." Whenever there is a liquidity crisis, someone always has to bear the burden, most of the time it is the herd.

So if you can't achieve professionalism, you can learn from Buffett's "survival", recognize your ability circle, don't blindly trust "masters", "big shots", "prodigies", think independently, don't touch what you don't understand, and don't try to make the last penny. Restrain your greed and fear, and adhere to these basic principles to survive.

Be Alert to Liquidity Crisis

In our "September 2022 Briefing" and "October 2022 Briefing" to investors, we have repeatedly warned that the market liquidity crisis is intensifying and the death spiral is an eternal outcome. If you understand the operating principles of the trading market, you should not harbor any illusions about your own abilities.

Currently, most of the market is algorithmic trading. When liquidity declines, many arbitrageurs and CTA traders will fall like dominoes. This is an objective reality that is not determined by personal subjective will and is difficult to be reversed by any heroic figure, not even CZ.

If the market continues to decline, there is a high probability that Bitcoin will fall below $15,000. Once a snowball effect begins, it may fall below $10,000 within a month. A similar situation occurred on March 12, 2020, when several major exchanges briefly halted trading, similar to a "circuit breaker," which prevented the situation from worsening.

Seize the last great opportunity

The above may indeed be the saddest story, but do not be afraid, this is the last great opportunity. The recovery speed after an avalanche will be faster, and the market often explodes when in despair, listening to thunder in silence. Of course, the author hopes for a slow market recovery rather than an avalanche.

Xiongmo Whale Worship, don't worry about not having fun anymore. Big players outside the circle have been wanting to enter, but they lack good timing. They will only re-enter the market when the prices of core assets drop. Institutional decision-making factors cannot avoid three points: returns, risks, and certainty, which are only guaranteed at the bottom of the cycle.

The cryptocurrency market is focused on Bitcoin, which serves as a benchmark for other altcoins. Thanks to the efforts of countless practitioners over the years, Bitcoin is no longer just a pipe dream and is closely related to the monetary policy of the Federal Reserve, similar to technology stocks. With the gradual end of the Federal Reserve's interest rate hikes, the new bull market is about to arrive. You only need to be rich once in your lifetime, so seize the biggest opportunity.

新牛市更要快速行动

translates to

New bull market requires faster action

If you miss 2023, it will be like missing the Internet boom of 2005-2008 due to the popularity of the Internet. The acceleration of Web3 will be much greater than that of the Internet at that time. The author currently recognizes three tracks that have the potential to become the main driving force for market recovery.

DeFi: Decentralized Finance, from the great migration of CEX

SmartFi: the combination of AI and DeFi, creating a more efficient wealth generation mechanism.

SocialFi: Not just a simple on-chain social network, but a Web3 society where users have ownership rights.

The strategies for the three horses are 6, 7, and 8. Everyone has the cognitive estimation and it is not difficult to integrate knowledge and action. The difficult part is to act quickly and strictly abide by the discipline.

CeFi Crisis, DeFi Opportunity

The FTX exchange's explosion is not a disaster for the cryptocurrency industry, but rather the aftermath of traditional finance. We need to analyze the differences specifically and not blur the line by thinking that the cryptocurrency market is a big scam. Although FTX is a cryptocurrency exchange, it operates outside of centralized regulation and decentralized finance, without the endorsement of centralized regulation or the transparency of decentralized finance. The wrongdoing of CeFi should not be borne by Crypto and DeFi.

Therefore, the remaining knowledgeable people have begun to pay attention to the value of DeFi and have started to migrate in the past two months. In fact, the DeFi Summer that started in 2020 was just a frenzy of wealth effect. In the next two years, many traditional market makers and asset management institutions still prefer centralized exchanges, and retail investors also tend to buy financial products on CEX, after all, laziness is human nature.

Until the FTX incident sounded the alarm, it was a blessing for DeFi practitioners. The demand for trading, wealth management, and asset management in the original stock market will migrate to DeFi, and transparent value will once again be highlighted. Wealth creation mechanisms are important, and attention can be paid to trading aggregators, machine gun pools, yield optimizers, risk control infrastructure, etc., which may once again give birth to YFI and other thousand-fold coins.

Understanding the enormous potential of SmartFi

Many friends in the Web2 industry want to enter the Web3 industry. My suggestion is that now is the best time for Builders to enter. Entering before 2020 is too early and it is easy to get lost in the bubble. Although some applications have been implemented in the past two years, many NFT and GameFi are still not sustainable.

After the tide recedes in 2022, we will know who is swimming naked, and at least there will be fewer pitfalls. We are currently at the turning point of a new cycle, and joining top-tier exchanges (currently Binance and Coinbase), investment research institutions with cognitive methodologies, or Web3 projects with clear directions are all good choices.

Regarding SmartFi, it is not yet widely known. The author's definition is the combination of artificial intelligence and DeFi. It is strongly recommended for students with an AI background to join, whether it is applying AI to crypto quantitative trading or applying cutting-edge AIGC technology to DeFi mining and GameFi gold farming. All of these efforts aim to improve efficiency, and the author is also paying attention to innovative projects in this area.

SocialFi's opportunity to break out

There is a clear trend that the industry is moving towards going mainstream, and every bull market is the result of going mainstream. In the 2017 bull market, ICOs were the key to lowering the threshold for token issuance. In the 2020 bull market, liquidity mining was the key to lowering the threshold for market makers. In the 2021 bull market, NFTs are the key to shortening the chain of fan economy. Going mainstream is inevitable.

Web3 social networking has always been attempted, but has not yet achieved large-scale popularity. One reason is that the paradigm shift in social networking is already a major challenge. In 2017, the author discovered in VC research on the social networking track that the existing market pattern of social networking is difficult to break, and users need strong motivation and user-friendly strategies to migrate to new social products.

In the past 20 years of the Web2 social product history, there have been some explosive products that quickly faded into obscurity. It is easy to acquire customers at the beginning, but difficult to retain them in the long term. In an innovative social product, once user stickiness is established, the cost of transfer becomes higher and the network effect becomes stronger. Similar to Tencent, there will be a wide moat.

On the other hand, as a practitioner in the encryption industry, I have found many problems in building Web3 social products. It is clear that the next generation of "Facebook" is not blockchain communication or token-based social networking. Users do not establish relationships for the sake of socializing in Web3 for efficiency.

It is worth noting that Vitalik Buterin proposed the concept of SBT (Soul-Binding Token) in May 2022. The author is inclined towards non-transferable tokens, which may truly establish a Web3 society. Web3 social innovation poses great challenges for product managers, requiring versatile talents to fully understand various elements, choose the inevitable entry scenarios, and formulate feasible GTM strategies.

Summary

The era of relying solely on narrative has passed, and Ponzi schemes without sound mechanisms are difficult to sustain. A new bull market requires a new paradigm, and we are all eagerly anticipating the recovery of the bull market in 2023. After all, those who can survive 2022, whether institutions or retail investors, are the "heroes" of the crypto world. It is precisely because of everyone's hard work that the Web3 world exists.

In the new bull market, Web3 applications will be widely implemented. First and foremost, the PMF (Product-Market Fit) of the product is crucial, with a focus on the project's GTM (Go-to-Market) strategy. Currently, the market is in a bearish state mainly due to the exhaustion of traffic and liquidity. Looking at the recent actions of top players such as Binance, it is clear that the need to break out of this situation is imminent.

The author has been researching the blockchain industry since 2017 and later went all in on the cryptocurrency market, always believing in the long-term value of cryptographic technology. After experiencing two bull and bear cycles, one naturally understands that "the warm spring water of the Yangtze River is known to the duck first." Do not let the noise of trading interfere with your judgment. In this industry, long-term building is the most important, and one should believe in the power of compounding knowledge over time.