Coin World News Report:
Recommendation to hold projects with strong fundamentals and Meme attractiveness.
Article by:
Ryan Watkins
Translation by: TechFlow
“In their ponderings, the faint sound of omens reached their ears, and they listened devoutly, while the people outside remained unaware.” – C. P. Cavafy
The crypto economy has repeatedly proven to be the fastest investment choice when monetary policy is eased. Syncracy believes this time will be no exception, especially with the push for institutionalization and regulatory clarity. However, the key difference today compared to past cycles is that returns are unlikely to be driven by a single thematic trend but are more likely to be decentralized.
Unlike previous cycles, this market rebound has not been sparked by innovation but by Bitcoin ETFs and institutional commitments. This has led to a lack of clear direction in subsequent speculative capital flows. Unlike 2021, there is no excitement from emerging DeFi or NFTs this time around – just a general sense that the economic environment is improving and infrastructure is maturing. At the same time, the number of assets in the crypto economy has increased by 10 to 100 times, making it difficult for the entire industry, and even the entire asset class, to rise synchronously. As a result, speculative capital flows lack clear direction, and many cynically suggest that the only guiding logic is “financial nihilism” – perhaps the only notable technological advancement in this cycle is the introduction of more efficient infrastructure for launching and trading tokens.
Currently, the challenge faced by this asset class is that many “legitimate” projects are not cheaply valued. While they have only just shown signs of overcoming cyclical impacts and transitioning to long-term growth, the average application has a price-to-earnings ratio of 44 times. Although some projects stand out with reasonable valuations in the traditional stock market, overall, these projects still need to grow to match their valuations. While there is reason to believe that these applications are undervalued in the long run, especially compared to non-monetary blockchain infrastructure with P/E ratios of about 200 times, it is not clear whether there is any urgency to make long-term investments on an absolute basis.
At the same time, people are becoming increasingly tired of projects supported by venture capital that go public with high valuations but lack fundamental support. As long-term winners emerge in the crypto economy, the problem of excess infrastructure in the industry becomes more apparent, and venture capitalists who have overfunded this infrastructure are likely to face losses due to capital misalignment. Retail investors have recognized this and are now refusing to blindly purchase new tokens as their potential for growth has already been fully (or even over) priced in the private market.
In this situation, as speculative interest in this asset class increases and reasonable investment opportunities are limited, investors are increasingly inclined to invest in “Internet-famous” assets. These assets lack a clear valuation framework, making them highly reflexive and prone to forming bubbles. For example, tier-one assets are still traded based on relative valuations to BTC and ETH, which themselves are considered non-sovereign currencies with no intrinsic valuation. Similarly, AI tokens are also traded based on relative valuations, although this is because AI is a promising but difficult-to-quantify emerging field. Meanwhile, Meme coins completely abandon the illusion of value and are priced purely based on market attention.
The appeal of Meme assets in the crypto market is further amplified by the increase in short-term speculative behavior, a phenomenon known as the “quick money trap.” In an investment environment increasingly influenced by social media and gamified trading, herd mentality and instant gratification are distorting investors’ psychology, and retail speculators are chasing short-term gains at a faster pace. This phenomenon is not surprising as it reflects a broader trend of the global economy shifting towards instant commodities and services. Just as consumers expect food to be delivered quickly to their doorstep, retail investors now expect instant returns through mobile trading apps like Robinhood. Increasing evidence suggests that these trends are reducing the efficiency of the stock market. Syncracy points out that these trends are also distorting the crypto market – few market participants can see beyond two weeks, let alone two months or two years. For many, trading has quietly turned into a form of gambling.
So, as a fundamentally oriented investor, how should one navigate this situation? Taking these perspectives into consideration, it is recommended to hold projects with strong fundamentals and Meme attractiveness. While assets purely relying on fundamentals can generate returns, their valuations have a bottom line and a ceiling, making them less attractive to retail investors unless they are small-cap stocks. On the other hand, purely Meme assets benefit from market reflexivity but have limited appeal to institutional investors due to oversupply, speculation, and high volatility. Assets like SOL combine these two characteristics, offering a dual advantage – a solid foundation in reality, active on-chain activity, and the ability to attract speculative capital from both retail and institutional investors, who typically price them relative to ETH and BTC. Non-large-cap assets like TAO also fit this description, with accelerated economic growth and speculative enthusiasm focused on the potential of decentralized AI – TAO is known as the “AI currency.”
Overall, Syncracy believes this asset class is beginning to differentiate between Bitcoin and stablecoins. Bitcoin and stablecoins have reached a period of productivity stability, while other assets are at most in the early stages of enlightenment. From many adoption standards, the crypto economy is similar to the late 1990s internet bubble period – at that stage, the revolutionary potential of the internet had become evident, but valuations were astonishingly high, and a fundamental framework for evaluating internet companies had not yet formed. As mentioned earlier, Bitcoin may have already gone through this uncertain stage and is on its way to becoming the globally adopted “digital gold.” However, other asset classes are showing signs of a speculative frenzy similar to the late 1990s.
“We always overestimate what we can accomplish in two years and underestimate what we can achieve in ten.” – Bill Gates.
Although many view this speculation as negative, we see signs of progress. Encouragingly, real projects are starting to trade more based on fundamentals, similar to stocks, and are being forced to provide value back to token holders. This is a positive change that indicates that investors in the public market are becoming savvier, prompting new projects to launch with more reasonable valuations. Optimistically, this could potentially compress the returns of venture capital and drive capital into the public market, better allocating it to emerging long-term winners. The crypto economy needs to digest these changes in order to take the next step as an asset class.
During this period, it is evident that we must go with the flow rather than against it. We are witnessing significant structural changes – from the decline of venture capital to the increasing influence of institutional investors – which will take time to fully manifest. The allure of this speculative chaos is that the market provides an excellent opportunity to own digital platforms that serve as commodity currencies, offering highly attractive asymmetrical growth potential and institutional-level liquidity. This opportunity will not exist forever, but during this period, the game rules of the market are capital, meme, and speculation.
Special thanks to Chris Burniske, Sean Lippel, Qiao Wang, and Ansem for their feedback and discussions.
