After the article "Return to Common Sense for Investment" published on April 23rd, a friend sent me his thoughts. Many of these views I found to be extremely insightful. Today, I will share some of these brilliant perspectives with everyone.
"To some extent, I feel that the price increases in the previous bull markets of this industry were purely driven by continuous narrative hype + a small pool, where just a small amount of capital entering would cause a surge, directly convincing most people."
This summary is spot on.
Let me add a bit: In the price increases of previous bull markets, the crypto ecosystem did emerge some remarkable innovations. ICO, DeFi, Non-Fungible Token in my view all count, and I do not deny these.
However, these innovations alone certainly cannot create the crazy scenes we once witnessed. Because some classic projects born from these innovations are still difficult to compare with traditional good companies in terms of cash flow, and when we try to value their governance tokens with limited value using cash flow methods, we find these governance tokens are overpriced.
But is this exaggerated surge unique only to the crypto ecosystem?
No.
Even the most despised A-shares have experienced this.
During the first A-share bull market from 1991 to 1993, the Shanghai Composite Index rose from a low of 127 points to a high of 1,558 points in just two years, a 12-fold increase.
This increase is in no way inferior to Bitcoin's price surge in the recent two market cycles (2019 ~ 2021, 2022 ~ 2024).
Note that this is the index's increase.
I couldn't find the increase of those speculative stocks back then, but we can imagine how dramatic the individual stock increases would have been in that environment.
I think they must have told stories just as compelling as Bitcoin, with equally "imaginative space".
It seems there's nothing new under the sun.
However, the crypto ecosystem and A-shares have a quite obvious difference.
When A-shares emerged, they faced only the Chinese mainland market still undergoing reform and opening up. That market was small in scale and size. Yet, even so, it could create such a huge bubble.
When the crypto ecosystem emerged, it directly faced the global market, an unrestricted, permissionless market. The scale and size of this market are far larger than the former A-shares, so it's not surprising that the crypto ecosystem could create such a massive bubble.
History doesn't repeat, but always rhymes.
"Regardless of whether it's blockchain, in the early stage, there must be enormous wealth effects, whether it can generate real value or sustain continuously, until the story can no longer be told. Or rather, this characteristic is not unique to the blockchain industry, but blockchain just happens to fit this more fundamental financial market feature."
I think this comprehensively summarizes the characteristics of financial markets in their early stages. A-shares could stage such stories in their early days, let alone the crypto ecosystem.
So the bubble we see in the crypto ecosystem is not special or exceptional.
Since it's not special or exceptional, the bubble will eventually burst, and things will ultimately return to their original state.
"In the early stage, there will definitely be many gamblers, 100%, because the pool is small. But once the pool becomes large, this approach is 100% unsustainable. From this perspective, pump is a microcosm of the blockchain industry, and its rise and gradual decline completely mirror the blockchain industry's development history so far."
This passage expresses a very important point:
That is, a gambling-based approach is 100% impossible to sustainably push this ecosystem forward.
Its brilliance lies in vividly portraying the entire development process of this game using pump.fun, an application that rose during this market cycle, and pointing out the unsustainability of such an approach.
Writing here, what I want to express is:
I have always been very optimistic about the future development of the crypto ecosystem. But while being optimistic, we cannot ignore the serious problems it currently faces, and we cannot "deceive ourselves" by thinking these problems are "normal", special, or exceptional.
By recognizing these problems, returning to common sense and origins, we can better walk the road ahead and assess and participate in ecosystem projects in a healthier manner.
