Examining the Difficulties and Opportunities of the Crypto Market from the Perspective of Financial History

Author: 0xSheldon@TPTrade, Jerry@TPDAO

Introduction

If we look at the rise and fall of Athens, the origin of world financial history, we are pessimistic - finance only serves money, allowing money to make more money; and the prosperity and diversified development of finance rely on war, which is bloody and tragic.

But the ups and downs of New York give us confidence. The crisis of Wall Street's impending demise has occurred more than once, but it has never failed but prospered. This is because New York finance has been injected with the gene of "optimizing capital allocation" from the beginning. It is worth mentioning that in the development of modern finance in New York, the role of funds is indispensable and plays a very special role.

So, what about the crypto market?

The Rise and Fall of Athens

Taking Athens as an example of the origin of world finance, we can more easily see that the essence of finance is exploitation. Look at how cruel the "Six-One Farmer" in Athens was - the borrower had to use five-sixths of the harvest as interest, and could only keep one-sixth for himself; if the five-sixths of the harvest was not enough to pay the interest, the creditor had the right to sell the debtor and his children into slavery.

With its special geographical location, among the Mediterranean civilizations, Athens rose with commerce, but was destroyed by finance.

The colorful Athenian civilization once represented the light of human civilization. In the war situation, Athens, which was heavily dependent on the commercial economy, had to seek financial support - maritime credit appeared, primary banking formats also appeared, and temples also began to do lending business... Finance brought economic prosperity to Athens, but under the impact of money, once defeated, the sense of civic duty that had been used to participate in the war disappeared. What is more serious is that the citizens' former sense of morality has also been lost. Moral decline will follow an irreversible ratchet effect - that is, people's consumption habits are irreversible after they are formed, easy to adjust upwards, and difficult to adjust downwards.

It can be said that the destruction of Athens began from the internal collapse.

New York's Ups and Downs

The first choice for understanding the typical representative of modern financial history is undoubtedly the ups and downs of Wall Street, and one of the most exciting elements is funds. When the financial market develops to a certain extent, individual investors are becoming less and less important on Wall Street, and more and more funds are handed over to institutional investors to manage. In 1961, the trading volume of individual investors accounted for 51.4% of the total trading volume of the New York Stock Exchange, and institutional investors accounted for 26.2%; in 1969, the share of institutional investors rose to 42.4%, and the share of individual investors' transactions fell to 33.4%.

The biggest driving force behind the subsequent bull market was the sharp increase in the turnover rate of institutional investors' portfolios, which promoted the steady increase in trading volume. In 1955, the annual turnover rate of mutual funds was about 1/6; in 1960, a turnover rate of 50% was already a normal thing; institutional investors were still conducting block trades (buying and selling securities in quantities of 10,000 shares or more each time is called a block trade).

In the late 1960s, people blamed Wall Street for the bear market. Just like the argument that "Wall Street is about to die" during the Great Depression in the 1930s, it appeared again.

However, Wall Street not only did not perish, but on the contrary, Wall Street ushered in a new round of victory. Thanks to the timely promotion of the Securities and Exchange Commission, technology came to save Wall Street. This thing can happen because New York finance, which emerged under the wave of the industrial revolution, has an excellent gene of "financial empowerment of industry", and Wall Street has assumed the role of "capital optimization allocation".

This is enough for countries around the world to learn, and it will also be applicable to the crypto ecosystem.

New Crypto Opportunities

Benefiting from the support of Wall Street brought by Bitcoin ETF, this bull market is still only a bull market for Bitcoin so far. Therefore, we believe that the reason why this round of "bull market cannot be bullish" is that the crypto market lacks the motivation of "native crypto funds".

There are many analyses of the reasons why the bull market is not bullish, and the most mainstream one is that VC coins and meme coins complement each other. We believe that this is still caused by the lack of "native crypto funds" in the crypto market.

VC institutions that can discover high-quality projects are extremely rare. A large number of VC institutions choose to follow the investment, which leads to an inflated valuation before the VC coins are listed, resulting in a situation where the coin peaks as soon as it is listed; and the leeks who have seen the 100-fold coins are still immersed in them, so they are keen on meme coins, but their fate is more tragic than a life-and-death struggle. Most meme coins will return to zero, and 100-fold meme coins are one in a million.

Analogous to the ups and downs of New York finance, in the history of the development of the crypto market, this round of bull market is the moment when "native crypto funds" stand in the C position (the concept of crypto funds here excludes venture capital funds, and specifically refers to quantitative hedge funds and value investment funds that focus on the secondary market).

Compared with crypto funds in the traditional financial market, they must have the ability to invest in currencies other than Bitcoin and Ethereum. Whether it is quantitative investment or value investment, they have their own logic and keen sense of smell.

Obviously, whether it is the crypto funds in the traditional financial market or the "native crypto funds", they are all passionate about money; but for the "native crypto funds", faith is more important. In 2021, a large number of traditional financial funds and excellent traders from traditional institutions who are passionate about money flocked in, but after the baptism of 2023, those who remain are still passionate about this industry.

The activeness of the secondary market will bring prosperity to the primary market. It is precisely because the market has not withstood the baptism that the development of "crypto applications" that was originally expected has also fallen into shackles. In the crypto world, the performance of the public chain has been greatly improved, cross-chain interoperability has made great progress, and basic elements such as NFT and DID have been continuously improved. "AI+Web3", "DePin" and gamefi/chain games that have had a practical basis in the previous cycle are just thunder and rain. The reason for the restriction is that the role of "finance empowering industry" and "finance promoting capital optimization allocation" in the crypto market have not yet been played.

The starting point of all these changes should be the breakthrough of this round of "bull market is not bullish". The key factor to the breakthrough lies in "native crypto funds". We believe that the role, status and function of "native crypto funds" and the value opportunities they bring will gradually emerge in this cycle. Will you be among them?