Intervene one or two quadrants in advance, and when everyone realizes that the cycle is coming, choose the opportunity to exit.
Title of the original text: “Blockchain Market Rotation”
Author: Zuo Changbai, Cobo VP, responsible for quantitative financial business, former co-founder of TokenInsight
“Merrill Clock” is an asset allocation model derived by Merrill Lynch through statistical analysis of more than 30 years of data in 2004. It guides different stages of the economic cycle by linking asset rotation and industry strategies with the economic cycle. Asset allocation.
The blockchain industry, counting from the birth of Bitcoin, has only existed for 10 years, and the entire digital currency assets account for a small percentage of financial assets. It is in its infancy and there is no clear direction for the application of blockchain. The industry has always been in a state of groping, and it is also extremely susceptible to the impact of the big business cycle. Trying to make asset allocation recommendations for the subdivisions at different points in time seems a bit far-fetched and difficult to quantify. This article is just an observation and summary of prices and emotions in the past few small cycles. I hope that it can provide some inspiration and help for your future investment and entrepreneurial directions.
Different development directions of blockchain
From its birth to being well-known, the blockchain industry has always been advertised as a decentralized asset. This feature is firmly imprinted in the minds of all investors and the public, but in the process of technological development, it has also derived another A different direction is to use the blockchain as a centralized organization for the underlying tools, which has also become the current mainstream development direction.
On the vertical axis of what problems the blockchain can solve, whether to use the blockchain to solve financial problems or to integrate more with the physical industry has always been difficult to conclude, especially in the blockchain industry in China, including countries The government’s attitude towards the blockchain often swings on this vertical axis.
Here are a few typical examples that have already happened. Because the industry is developing rapidly, it is not guaranteed to cover the actual use scenarios of the next wave.
- High degree of decentralization, financial attributes: ICO, DeFi,
- High degree of centralization, financial attributes: STO, DCEP
- High degree of decentralization, industrial attributes: privacy (identity), data storage, games
- High degree of centralization, industrial attributes: traceability, copyright, supply chain finance
The degree of centralization is on the horizontal axis, and the direction of integration with the real economy or finance is on the vertical axis
Market transformation led by sentiment, capital and supervision
The reason for the volatility of returns of different asset classes at this stage is largely due to emotions. When the direction of the entire industry is not so clear, everyone is looking for the so-called “killer app”. The ups and downs of emotions will largely determine the price of assets. The so-called “price is belief, belief is price.”
When the 13 years of Bitcoin, 17 years of ICO and 20 years of DeFi box opened, everyone was looking forward to a complete subversion of traditional finance. A weakly regulated + global financial market would soon enter a bubble stage. But the development of technology is not transferred by will and price. When everyone finds that 99% of the projects are scams and cannot be implemented, and 99% of the tokens have no price support, it is easy to rush to withdraw funds, resulting in high asset prices. fall.
Every big ups and downs will inevitably attract the attention of supervision, and entrepreneurs under the supervision of supervision will more of the stories told in the previous round and approach the direction that supervision is more acceptable, and the market hotspot will gradually shift to something like STO. Direction. At the same time, regulators and traditional large companies will also find a direction consistent with their own strategic goals from each round of blockchain development, such as the digital currency issued between central banks.
The implementation of centralized financial applications is due to strong supervision, and the entire process will consume a lot of enterprises. It is difficult for startups to survive the long policy evaluation period and reach the profitability stage. At this time, many more grounded use blockchain as a database. Yes, projects that can quickly make profits are even more accepted by developers. We have seen a large number of companies become “outsourcing companies” and survive the so-called “blockchain winter”.
When the market is very sluggish and developers and funds are converted to centralized landing projects, both capital and developers will find that entrepreneurship is facing great challenges. On the one hand, there is no explosive growth and no new problems are solved, so the hot spots begin to turn to In the direction of centralization, entrepreneurs will have faster business development with the support of tokens. After this process, more and more projects have entered the currency issuance cycle, and the problem can be solved better through the distribution of tokens + technology landing.
As more and more projects are issued, and the lack of decentralized, close to industrial project supervision, it will gradually give entrepreneurs a positive signal, allowing market investors to rediscover new decentralized financial applications. Push into the peak again and start a new cycle.
The switching of asset prices and the ups and downs of emotions do not move horizontally and symmetrically. It is difficult for us to draw this transfer cycle as a clock. It is more often in a spiral shape. The time in the upper right is short, the explosion is strong, the price fluctuates greatly, and it is in the lower left. The period of time is long, the price fluctuation is small, and the relative income is more stable.
Choosing the right time for intervention
So how can this periodicity be used? According to past experience, one or two quadrants are involved in advance, and when everyone realizes that the cycle is coming, they choose to exit. And don’t join after each cycle has a clear trend, so there is a high probability that you will be stuck.
For example, for the star projects in the DeFi cycle we are currently in, if you enter at the end of last year or at the beginning of this year and exit when the market peaks with projects such as sushi, there is a high probability that there will be good returns . At the current stage, locking high-yield borrowing and asset management in advance, the return must be better than when all funders are looking for mainstream currency value-added solutions in the next cycle, and then start looking for team allocation.
In addition, at the current stage, if you invest too much in early-stage private equity projects, the risk-return ratio will be relatively poor. It is very likely that the project will enter a new round of bear market before it goes online, and you need to wait for the next cycle to resolve the set.
Of course, there is a strange phenomenon in startups. The projects that lead the next wave are generally produced at the end of the last wave of bull market. The best companies start their own business in the last round, get enough financing, through the development of technology products, survive the long wait, occupy more market share, and lead the way when the market matures again.
Find the next holy grail
At the same time, we need to explore, in this process, what are the real infrastructure and what can pass through the bull and bear. From our top chart, we can see that when an asset attribute is more difficult to divide and appears in more quadrants, it has the ability to traverse the cycle.
Here are a few areas that have slowly taken shape, and news of them can be heard at all stages. Such as payment (stable currency), bitcoin, custody & wallet, data, asset management, lending, mining, etc.
The first thing to bear here is payment, especially the application of stablecoins. As the cornerstone of connecting this industry with the traditional world, the issuance of stablecoins is the gas of the entire industry and the bottom of the industry. It can be said who occupies more stablecoin market, Whoever gets the holy grail of the entire industry, only companies with the highest reputation can issue stablecoins. In addition to the US dollar stablecoin, there will be more and more currency mappings, including the mapping of BTC and other assets on other chains.
Custody & Wallet: Because of the particularity of the digital currency industry, without the safe custody of assets in the custody and wallet industry, the market cannot develop. Only when this market segment develops can it face the entry of new users and more institutions on a large scale.
Asset management: Through trading methods, the value of assets is maintained and increased. There is extremely high demand at all stages. The supporting quantitative team, market makers, derivatives, and exchanges continue to help the market provide liquidity, so that assets can be better Pricing.
Mining: Mining-related industries also belong to the market segment that can pass through the bulls and bears. Related chips, mining machines, mining pools, and financial services will have relatively fixed and clear demand in most stages.
What kind of problems the blockchain can solve is more like asking the meaning of life for entrepreneurs. The meaning of life is to explore the meaning of life. It is necessary to ask what problems the blockchain can solve. It is the problem that entrepreneurs need to solve through entrepreneurship. The biggest risk for entrepreneurs is the investment of their own time. They must combine their own advantages with the general trend and hot spots. The so-called follow the trend and take advantage of the trend to seize the next trend.
