Written by VIKTOR
Compiled by: Deep Wave TechFlow
I spent considerable time researching the last bull run, the different narratives that were popular at the time, profit maximizing rotations, the best performing coins in 2021 and the logic behind their massive gains.
This new cycle will not be exactly like the previous one, but there are many lessons we should remember because history is similar, especially in financial markets, where much of the prosperity comes from the way the human brain thinks and that will never change.
Let’s get right to the point.
General experience in bull markets
New coins perform well, old coins underperform
A significant trend in the 2021 bull market is the poor performance of old coins. Almost all coins in the 2018 cycle will perform well in 2021.
Ripple (XRP), Stellar Lumens (XLM), Bitcoin Cash (BCH), NEO, XEM, IOTA, EOS, Dash, Monero (XMR), Zcash (ZEC), and Tron (TRX) never reached their previous highs again (in USD terms) and they have essentially only fallen relative to BTC since 2018.
Of course, apart from BTC and ETH, the only good performances among the major legacy coins came from BNB, Cardano (ADA), Ethereum Classic (ETC) and of course DOGE.
This is a screenshot of CoinMarketCap’s rankings in December 2017. I highly recommend you look at these historical snapshots for a few dates to help you understand how the cryptocurrency market "rotates."
Most coins underperformed BTC before the bull market really started
When we are in the middle of a bear market and think we are close to the bottom, it is obviously the best time to buy BTC and ETH and hold until the next bull market.
But by the same logic, you might also be tempted to buy altcoins because they have a high beta against BTC and should therefore perform better. Even though this is true for some altcoins, it wasn’t entirely true during the last bull run.
Most altcoins underperformed Bitcoin during the Bitcoin rally in late 2020 until early 2021, when they suddenly started taking off.
The good news is that by holding BTC and ETH until the bull market begins, you are not really missing out on excess returns.
If history repeats itself, this is what we should expect: BTC (and maybe ETH too) should have a period where it takes off on its own, while altcoins lag behind, BTC market share rises, and then suddenly the rotation begins, and that’s when the altcoins start going crazy rise.
But I don’t think this is exactly what has happened or will happen: what we have seen over the past few months is that $BTC has risen simultaneously with BTC dominance, just like in 2020, but this time from June 2023 to now , we have seen many coins outperform BTC.
BTC market share
My explanation is:
For long-term investors, the bottom to buy is $BTC (and $ETH, even if in hindsight not touching ETH in 2023 was the best idea) in November 2022, while the time to buy the right altcoins is Around June 2023
There's a lot of variation in altcoin performance: $ETH underperformed $BTC in 2023, some older altcoins also underperformed $BTC over the past few months, and some altcoins have significantly outperformed the market
Still, we haven’t seen the altcoin mania phase yet, which I expect will be a full blown frenzy when BTC breaks out of its past high price (69,000).
Most gains are concentrated within a few months
Most of the gains in these cryptocurrencies are concentrated in a fairly short period of time. Almost all performances occur within a few months, especially on altcoins.
For example, in the last bull market, it was from January to May 2021, and then from August to November. The market is in a period of “all up, no down” and your new opponents are retail investors who have given up on cryptocurrencies for 3 years.
These are the critical moments when you need to put 100% of your energy into the market. There is a famous GCR tweet that sums up what you need to do during these times:
Here are a few examples to give you an idea of how rapid and concentrated the rise has been:
$CHZ: Grew 30x in one month from February to March 2021
$BNB: 8x growth in 20 days in February 2021
$DOT: Grew 8x in two months from January to February 2021
$SUSHI: Grew 6x in one month, January 2021
$AAVE: Grew 6x in one month, January 2021
$HOT: Grew 35x in 2 months February-March 2021
$JOE: 60x growth in two weeks in August 2021
Don’t let post-traumatic stress disorder (PTSD) from a bear market rob you of your chance to make crazy gains during bull and copycat seasons
If this is your first market cycle, there's a good chance you'll enter the market too late, let your investments soar at irrational valuations without making timely profits, and then bounce back and forth between many gains. However, if you're reading this, chances are you've been through the last cycle and survived a particularly brutal bear market in 2022. In a bear market, you have to be alert to every rally and be ready to short every time an altcoin rallies on some catalyst. This behavior will be rewarded. However, in a bull market, this completely changes: coins rise higher than you think. You have to be ready to benefit from it.
Here are a few examples of some tokens that have seen crazy gains in a fairly short period of time in 2021, and the very large valuations they have reached:
In January 2021, $DOGE increased nearly 10x in one day, when it was already a billion-dollar token
$THETA’s market cap rose from $1 billion to $12 billion in 3 months
$RUNE’s market cap grew from $200 million to nearly $5 billion in 5 months
$FIL once reached an FDV of nearly $400 billion
$ICP launched with $250 billion in FDV
$AXS’s market capitalization rose from $200 million to $10 billion in 5 months, and its FDV was $43 billion at its peak
$GALA’s market capitalization reached $5.4 billion at its peak in 2021, compared with the project’s market capitalization of just $5 million at the beginning of the year
$TEL’s market cap increased from $10 million to $30 billion (300x) in 5 months
The evolution of total cryptocurrency market capitalization during the last bull run
The main narrative of the 2021 cycle, and the best returns:
DeFi 1.0：
DeFi became the new thing in cryptocurrencies in 2020, offering new use cases and something fresh out of nothing. DeFi is the focus of the market in the summer of 2020, which is why it is called “DeFi Summer” and we can describe it as the beginning (or pre-start) of the bull market.
Add a Ponzinomics aspect to the whole thing and you have a recipe for huge gains. The two biggest winners in DeFi with strong fundamentals are $AAVE and $SNX. From bottom to top, these have returns ranging from 500x to 1000x. We can also mention $SUSHI, which grew 30x between November 2020 and March 2021.
Everything L1
The L1 trade is the most persistent trade in cryptocurrencies and one of the most valuable trades of the last cycle: the main winners of this trade are $SOL, $LUNA, $AVAX, but also include $FTM, $ADA, $BNB , $EGLD.
The market places a very high premium on Alt L1s, meaning that on average, their value (market cap or FDV) is higher than other categories, such as applications. Once you know this, you know you have to engage with this narrative. It quickly became clear that this was one of the themes of the 2021 bull run, as some of them were almost the best performing coins from the start until the Terra-Luna crash in May 2022.
The lesson here is: once you understand what the main theme of the cycle is, you simply go with the flow. The second lesson is: Layer 1 (Alt L1) transactions never go away. This is a dominant theme in 2021, but in fact it was already the case in 2017 and will be the case again in 2023-2024.
alt L1 Ecosystem Playbook
In cryptocurrencies, whenever a coin rises, traders look for coins that are correlated with the rising coin, or that should logically follow the rise. This is why, when an L1 network currency rises, people start looking for all the tokens in this network's "ecosystem" because these tokens have smaller market caps, so are expected to rise more dramatically, and as L1 currencies "beta".
Typically, the main ecosystem coin is the network’s dominant decentralized exchange (DEX), and that’s where some crazy gains were made during the last cycle:
For example, BSC had its peak season in the first 2 months of 2021, so $BNB started a massive rise from $40 to as high as $700, while $CAKE, as the main DEX on BSC, basically rose in a month 50 times. For some traders, $CAKE is their best trade of the entire 2021 bull market.
The second example is within the Avalanche ecosystem: like most coins, $AVAX had a strong start at the beginning of 2021, but fell sharply (-70%) in May before recovering the most in August 2021. One of the strongest currencies. Naturally, people started looking for beta coins, with the Avalanche DEX coin $JOE rising 50x in two weeks. Pangolin ($PNG) is another major DEX on Avalanche, but its price has “only” quadrupled in the same time frame.
In addition to DEX, you can also consider meme coins, money markets, perpetual DEX, CDP (over-collateralized stablecoins), and launch platforms. I think now in 2024, people are more inclined towards "the main meme coin on the X chain" than "the main dex on the X chain".
original universe
On October 28, 2021, Facebook announced its rebranding as Meta, and that the new company's focus is "building the metaverse." This immediately triggered an extreme wave of speculation in the cryptocurrency market: Metaverse mania began.
There are three coins that lead this narrative: $SAND, $MANA, and $GALA. They were both up close to 10x in a month, and the only thing you had to do was buy them after Meta announced its plans, even though they were already up 20% after the news.
At the time, the market was nearing the peak of its euphoria, and with the Meta announcement came traditional financial and real-world news, so it was a very strong narrative that continued for a month or so.
What’s more, the metaverse is closely tied to gaming, and while one major crypto, $AXS, went absolutely crazy during the summer of 2021, gaming the metaverse was another powerful catalyst as people then started looking for the “next Axie Infinity” ".
The lesson here is: Understand technology and real-world trends outside of crypto, because in a risk-on environment, if a technology trend is somehow related to crypto, it will definitely become a narrative in crypto, as we are in this metaverse and seen in Gamemania.
The narrative of 2024 that most resembles the Metaverse of 2021 is AI: ChatGPT’s launch didn’t happen at a time when the market was in a bull run and the overall AI narrative was concentrated in time, so there wasn’t a month of full-blown AI mania (as opposed to Metaverse mania), but AI coins performed very well during the bubble period of January-February 2023, which was the most risk-on environment of the year, then AI coins performed well again in October/November 2023, and now again in February 2024.
I think many AI coins are primarily virtual software, but I don’t want to ignore a narrative that is so powerful in the technology world. Some of the wildest gains this cycle will come from the AI sector.
Meme Coin
Meme coins were some of the best performing coins in the last cycle. $DOGE started 2021 with a market cap of $600 million. Over the next 5 months, thanks to strong promotion by Elon Musk, the price of $DOGE increased 150x to its peak, reaching a massive $90 billion market cap.
A few months later, a great rotation occurred, with $SHIB, another doge-themed meme coin, reaching a market cap of $40 billion, up from being worth less than $5 million at the beginning of 2021.
Many other meme coins have reached insane valuations: $SAFEMOON ($17 billion at its peak), $ELON (over $1 billion), $AKITA ($1.5 billion), $FLOKI ($3 billion).
Meme is definitely here to stay, and it is likely that some meme coins will be the best performing coins in the new cycle. In cryptocurrencies, the main thing that drives prices is not fundamentals, but narrative and speculation, and meme coins take this to the extreme.
NFT
NFTs are a completely new cryptocurrency category and narrative in the 2021 bull run (technically, it’s not new, but it is new to the market), and it’s where some of the craziest gains are happening.
When we say “NFT” we mostly mean collections of avatar images, the first (and OG) one to go crazy was CryptoPunks, which saw its floor price jump from 5 ETH in January 2021 to 20 ETH in March, and then It rose to 100 ETH again during the summer! A year ago, in the summer of 2020, the floor price was just 1 ETH.
A large number of NFT PFP series have been launched, the most successful one besides CryptoPunks is obviously Bored Apes, but we can also mention Pudgy Penguins, Art Blocks (not the PFP series), Doodles, Cool Cats, etc.
Thoughts on cycles: How to play with narrative rotation to maximize profits?
Crypto trading is a game of rotations from one narrative to another, and while it’s nearly impossible to accurately capture all short-term rotations, there are some lessons we can remember. Some narratives remain strong throughout the bull run, such as L1 network trading never stopping, but most trends last around 1 month, which is the first thing to know. The main part of the rally usually occurs over a period of a few weeks to a month, after which fatigue sets in and the market's attention shifts to other things. Of course, this is a very rough pattern, and some coins manage to outperform in consecutive months, but generally, if people have been talking about something for a month in a row (think Metaverse in November 2021), pay attention This trend may have exhausted itself.
As we go through a bull market, people tend to increase risk. This means that the dominant narrative in the early stages of a bull market may have some strong fundamentals, but as time goes on, traders will be looking for more and more that are riskier, higher rewarded, and make less and less sense.
For example, in 2020-2021, $LINK (strong fundamentals) was the best performer in the bear market, then we had DeFi Summer, which introduced a new paradigm, which was DeFi (strong fundamentals), and then we had BTC rise trend, and then in the first part of the bull market, some DeFi currencies were the best performers ($AAVE, $SNX, $RUNE, $UNI).
In the following months, the market became increasingly speculative, virtual items were overvalued to billions of dollars in FDV (Metaverse, Gaming), and ultra-high-yield pure Ponzi economics was regarded as French The future (Olympus DAO $OHM). At this point, when all these top signals appear in the market, you may look to exit, or at least significantly reduce your risk. Seeing a plethora of crypto games launch (e.g. via LaunchPad) with ridiculous valuations ($1 billion) while they offer nothing but what they promise is a good sign that we are getting closer to the top. Of course, take all of this with a grain of salt as the crypto market continues to become degen (DeFi Summer has been Ponzi economics, new meme coins are constantly being launched and traded, etc.) and if you’re looking, you can pretty much Find "top signals" anytime in crypto.
If a coin performs best in bear markets, it cannot perform better than bear markets throughout the bull market cycle. At least, that's the case for 2021, but this is a unique bull market in that it is clearly divided into two parts (pre-May 2021 and post-July 2021). Many coins that performed strongly in the bear market peaked around May 2021 or even before: $AAVE $SNX $RUNE $THETA $KSM $SUSHI.
In the second half of the bull market, look for new narratives (Metaverse, NFTs in 2021) and be prepared to accept things that are increasingly irrational, introducing new Ponzi economics, and becoming religious (next section will be introduced in detail).
Signs of a huge rally…and then a huge sell-off
Crypto tends to amplify many human psychological biases and emotions, which are often the catalyst for more extreme rallies and the catalyst for more extreme selloffs. It seems particularly important to identify two such examples of catalysts:
“Protagonists” and the admiration of some crypto characters
Crypto markets love “protagonists,” who are often idolized and will be the reason some cryptocurrencies rise. You can easily find a central figure behind some of the rising coins in 2021:
SBF (Sam Bankman-Fried) is seen as a genius, which is one of the reasons for the incredible performance of $SOL (Sam is a bull and supporter of $SOL) and the reason why $FTT is rising
CZ is a Binance leader and this is part of $BNB’s success
Su Zhu is regarded as a god-like investor/trader with billions under management, and he is a bull on Avalanche, the catalyst for $AVAX
Elon Musk is one of the main reasons $DOGE rises to nearly $100 billion market cap
Do Kwon is the founder of Terra Luna, and his “confidence” (to say the least) may have played a role in $LUNA’s (initial) success
Richard Heart, the colorful man behind $HEX, is adored by Hexicans
Charles Hoskinson, the father of Cardano, may be one of the main reasons $ADA has reached a huge market cap
Andre Cronje, the central figure in Fantom ($FTM) and co-founded a number of other projects, is considered a genius by some
Daniele Setagalli leads 3 wildly rising projects: $TIME, $SPELL and $ICE
Two types of protagonists stand out: either a "genius" or a "community leader/worshiped by the community." Keep this in mind and prepare for the next bull market.
Religion x Ponzi = The Coming Rise and Dump
The second and third catalysts are: religion and “Ponzi-like” token economics. Interestingly, these often appear together. Ponzi economics usually means very high returns that are ultimately unsustainable in some form. Religion is harder to explain, but a few examples will illustrate the point:
Luna is one of the best examples: Do Kwon is the charismatic leader, there is an obvious component of Ponzi economics, namely the 20% Anchor earnings on UST, and it is somewhat like a religion, as community members say for example Call yourself a "Lunatics" and if you challenge the sustainability of the UST model you will be opposed and attacked by them
Olympus DAO ($OHM): The main catalyst for this is Ponzi economics, which is basically a crazy high staking yield. You may remember that Olympus has a leader who is a Twitter anonymous named "Zeus"
Daniele Setagalli's project clearly has "degen features": Wonderland is an Olympus fork with higher yields, while Abracadabra has a "degenbox" product that enables people to cycle their UST and earn a leveraged Anchor yield, If i remember correctly. The community that has gathered around Daniele Setagalli is known as the “Frog Nation”…
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