If Copycat Season is a huge casino, which card table should you choose?

Author: tzedonn

Compiled by: TechFlow

After a crazy fourth quarter, it's time to calm down and reflect. In just three months, many major changes have occurred in the market.

This time the situation is different from before.

Everyone is looking forward to the arrival of the "copycat season" (i.e. the moment when the blue line exceeds the orange line), and like in 2021-2022, the prices of all copycats have exploded. However, since the launch of the Bitcoin ETF in January 2024, the gap between Bitcoin (BTC) and the TOTAL2 index (representing the total market value of the copycat) has been widening.

In past copycat seasons, investors often shifted Bitcoin’s gains to higher risk assets, driving the copycat market to rise across the board. This phenomenon has formed a classic capital flow model .

But now, Bitcoin’s capital flows have been completely out of touch with other cryptocurrencies, forming an independent ecosystem.

Bitcoin’s capital inflow is mainly driven by the following three aspects:

1. ETF : Currently, ETF funds hold a total of 5.6% of the world's Bitcoin;

2. Microstrategy : This company holds 2.25% of Bitcoin and is a continuous buying institution;

3. Macroeconomic factors : including interest rates, political situations (e.g., the U.S. sovereign wealth fund or other countries may purchase Bitcoin).

On the other hand, the outflow of Bitcoin mainly includes:

1. The U.S. government : Currently holds about 1.0% of Bitcoin and says it may not be sold;

2. Bitcoin miners : Due to daily operational needs, miners will sell part of Bitcoin regularly;

3. Bitcoin Whale : These investors who hold large amounts of Bitcoin have increased by about five times since the market lows in 2023.

Obviously, the driving factors of these capital flows are completely different from those of the counterfeit market.

Copyright Market: Are there enough players?

The counterfeit market can be compared to a casino.

Only when the capital flows well in the casino (i.e., the net inflow of funds is high) is a good time to participate . Choosing the right gambling table (i.e., investment target) is also important.

The sources of capital inflows in the counterfeit market are as follows :

New capital inflows :

• For example, in 2021, a large number of retail investors entered the crypto market, bringing new funds. However, the current inflows through Phantom/Moonshot or TRUMP token offerings, as well as the growth in USDT/C market capitalization, seem to be insufficient to support the market.
• In addition, certain specific assets may also benefit from capital rotation. For example, some investors never invest in Meme, but may start to focus on “AI Meme” because these investments are more likely to be rationalized.
• Leveraged funds obtained through decentralized finance (DeFi) platforms (such as Aave, Maker/Sky) or centralized finance (CeFi) platforms (such as BlockFi, Celsius). From an institutional perspective, the CeFi market has now become less active after experiencing a collapse in 2021. In the DeFi field, IPOR __ The index (used to track USDT/C borrowing rates) shows that the rate has dropped from about 20% in December 2023 to about 8% now.

Token repurchase and destruction: Make players ' chips more valuable

• The "repurchase and destroy" mechanism in crypto projects is similar to the owner of the card using revenue to increase the value of player chips.
• A typical example is the HYPE Insurance Fund, which repurchased 14.6 million HYPEs at a price of $24 per coin, worth approximately $350 million.
• However, most crypto projects do not achieve sufficient product market fit (PMF), making it difficult to significantly affect the token price through repos (such as JUP's repo case).

The outflow of casino funds: Who is cashing in on chips?

1. Large-scale fund withdrawal incidents

In January, two large-scale capital withdrawal events occurred in the market:

• Trump incident : Funds grew from $0 to $75B, and then quickly dropped to $16B;

• Melania Incident : Funding grew from $0 to $14B and then dropped to $1.5B.

These two incidents conservatively estimates that more than $1B of liquidity was removed from the crypto market ecosystem. In other words, if someone earns over $10M in a deal, they are likely to transfer more than 50% of their earnings to the OTC market.

2. Tool-driven continuous fund withdrawal

In addition to large events, some tools are also continuously extracting market funds:

• Pump.fun : The cumulative income reached $520M in about 1 year;

• Photon : The cumulative income is about $350M ;

• Bonkbot, BullX and Trojan : The cumulative revenue for each tool is approximately $150M.

These tools gradually remove a large amount of funds from the market through decentralized small withdrawals.

3. Cabal extraction and pre-sale mode

Cabal extraction and pre-sale models often mark the end of the market cycle. This is because a few people will withdraw huge amounts of money at this stage and transfer it to the OTC market. As the cycle approaches the end of the process, the duration of these events becomes shorter and shorter:

• Pasternak : lasted only about 10 hours;

• Jellyjelly : lasted about 4 hours;

• Enron Pump : lasted only 10 minutes.

This rapid outflow of funds is vividly called the "euthanasia roller coaster" because it has allowed the market to experience a brief and violent volatility.

4. Unlocking funds for venture capital ( VC )

Venture capital institutions convert crypto assets into US dollars by unlocking funds to return allocated investment income (DPI) to their limited partners (LPs). For example, in the TIA project, VCs pulled a lot of money from the crypto market in this way.

5. Deleverage ​ ​

There is also a phenomenon of deleveraging in the market, such as reducing the lending rate of USDT (Tether). This behavior will lead to a gradual decrease in leveraged funds in the market, which will further affect liquidity.

(The original image is from tzedonn , compiled by Shenchao TechFlow)

Choice of copycat: How to find your card table?

In the crypto market, choosing the right investment target is the key to success. This process can be compared to choosing a suitable poker table.

When the market is active (i.e., with a large number of players participating), your potential returns will be higher, but only if you choose the right token.

This investment is called a “poker game” because it is essentially a zero-sum game.

In this game, the project either:

1. No income or value can be generated ;

2. Attributes the generated value to the token .

The only possible exceptions are the following two categories of items:

• L1 often used , such as SOL and ETH;

• Products that can generate high income , such as HYPE.

It should be noted that some investors bet on the "basics" that the team can generate sustainable income in the future, but in the short term, I am more pessimistic about this.

The situation in 2025: Too many tables, but too few players.

By 2025, competition in the crypto market has become more intense, and finding the right investment target is more difficult than ever. This is because there are too many "poker tables" (i.e. token projects) that exist simultaneously on the market.

Here are some data:

• About 50,000 new tokens are launched every day through Pump.fun;

• Since the launch of Pump.fun, more than 7 million tokens have been launched, with about 100,000 of which have finally entered the Raydium platform.

Obviously, there are not enough investors in the market to support all these token projects. Therefore, the investment returns of counterfeits show a strong trend of differentiation.

Choosing the right investment target has become an art, and the following aspects are usually considered:

1. The strength of the team and the product ;

2. The narrative behind the project ;

3. Communication and marketing effectiveness .

Kel once wrote a wonderful article that discussed in detail how to choose a counterfeit investment target.

what does that mean?

1. The copycat is no longer a "high beta value Bitcoin". Previous investment theories believed that "holding a copycat without holding Bitcoin" could yield higher returns, but now this strategy may no longer apply.

2. The importance of asset selection increases. With the Pump.fun platform lowering the threshold for token issuance to almost zero, choosing the right copycat becomes more important than ever. Inflows in the market can no longer drive all token prices to rise on average.

3. Copy investment is more like a poker game. Although comparing counterfeit investment to poker games sounds a bit pessimistic, this is indeed a true portrayal of the current market. Maybe in the future I will write an article exploring the true long-term use cases of cryptocurrencies.

Has it reached its peak? At present , the market may have peaked in stages, but the future trend remains to be seen.

When will the next copycat season come?

The traditional "four-year cycle" theory may have failed because the trend of altcoins is gradually moving away from the influence of Bitcoin (BTC).

In the future, the altcoin market may be triggered by some unexpected events, such as phenomenal events like "GOAT".

In the long run, the prospects of the crypto market are still worth looking forward to, especially under the influence of the introduction of US Sovereign Wealth Fund (US SWF), governments that support Bitcoin, and stablecoin-related bills.

The future is full of uncertainty, but also full of opportunities. Good luck and have a good time!