Author: Meng Yan

Original Link: https://mp.weixin.qq.com/s/Y8DuXVCPk22kNM1rs07HcA

The current state of the Web3 industry and the crypto market can be summarized in one sentence: crypto prices are decent, but the industry is in a deep bear market. This situation has never been seen before in the history of this industry. Previously, prices and volume either both rose or fell together. The current scenario, where there is a severe divergence between volume and price, is the first of its kind in over a decade of the crypto market’s existence.

Although the situation seems peculiar, the reason behind it is actually quite simple — lack of liquidity. Many people are asking, “Why do crypto prices and total market capitalization appear to be fine while the industry is so depressed?” Actually, this question is being asked the wrong way. Don’t forget, the U.S. federal funds rate is still at a historical high, and macro liquidity is in a tightening cycle. In this cycle, both the stock market and crypto market are naturally expected to be in a bear market. So, the real question is, why are crypto prices decent when the industry is in a deep bear market?

1. Structural Changes

Unusual events always have a cause. Beneath the surface divergence between crypto prices and the industry lies a major structural change in the underlying market. Few people realize that at the beginning of this year, the crypto market underwent a fundamental, structural transformation. The approval of a Bitcoin ETF marked the emergence of a nearly completely independent digital currency market outside the originally free-flowing crypto market — the U.S. stock market. This is essentially a watershed event in the history of crypto development. The current divergence between crypto prices and the industry is a new phenomenon emerging under this new market structure.

Because there are now two markets, two seemingly contradictory scenes have emerged. The “decent” crypto prices are being created in the U.S. stock market, while the “depressed” industry is taking place within the crypto market.

The rise of Bitcoin since the second half of last year has mainly been driven by ETFs. The funds entering these ETFs are essentially staying in the hands of Wall Street and have not entered the free crypto market, let alone nourished innovative crypto projects. On the contrary, the crypto market is still suffering from a capital drought caused by high interest rates and the pressure of AI. Without the injection of external liquidity, industry contraction is inevitable. The various distressing phenomena currently occurring in the crypto industry are manifestations of this capital drought.

A true bull market will only arrive when liquidity turns toward easing. Conversely, when liquidity eases, capital will once again flood into the crypto market, and a bull market will inevitably follow.

There are increasing signals that the Federal Reserve’s rate-cutting cycle is only a few months away. The federal funds rate is currently at a historical high. Optimistically, this rate-cutting cycle may last for a relatively long time, providing a long era of stability for the industry to develop. Pessimistically, after a period of rate cuts, inflation could soar, forcing the Federal Reserve to hike rates again, confirming a chaotic era. I personally hold a cautiously optimistic view of the future, but even in a chaotic era, 2025 is likely to be a good year.

In the long term, there will be a great battle between the two markets, but it will be nothing more than a fight for supremacy, and the two will coexist for the long term.

2. Four Promising Sectors

Many are speculating about which themes will explode in the next bull market. Here, I share my views and reasons. This is not investment advice, and I am not responsible for the outcomes.

BTCFi

Why will BTCFi be one of the most anticipated sectors in the next cycle?

First, Bitcoin (BTC) is the only consensus asset that can bridge both the U.S. stock market and the crypto market in the next cycle. Ethereum (ETH) isn’t there yet, and others are even further behind. Only BTC has the potential to link the consensus and liquidity of these two markets.

Second, BTC has a massive scale — it’s enormous. If BTCFi can mobilize just 5% of BTC assets in the next cycle and combine them with some derivatives, the scale could reach the hundreds of billions.

Third, the infrastructure issues that have long hindered BTCFi’s development have been largely resolved. Whether it’s the Lightning Network, sidechains, BTC Layer 2, or bridging BTC to EVM chains through cross-chain bridges, whether it’s multi-signature wallets or BTC Script smart contracts, the current technical capabilities are vastly superior to those of the previous cycle. In BTCFi today, almost anything is possible.

Fourth, there’s a change in the mindset of the BTC community. BTC hodlers and ETH fans are two fundamentally different groups, with significant differences in growth paths, beliefs, and mindsets. BTCFi struggled to develop in the past mainly because BTC hodlers weren’t interested. However, with the explosion of the Ordinals ecosystem last year, the BTC community underwent two changes. First, a group of active participants, seasoned by DeFi, joined the BTC community. Second, even among the traditionally conservative BTC hodlers, a small portion has started to change their mindset and is now willing to actively participate in the construction of BTCFi.

Besides these four more straightforward reasons, there’s a deeper reason why I favor BTCFi. Those who’ve been in the industry for years may recall that before 2018, BTC had ample liquidity and activity. However, following the painful crash of the 2017–18 ICO bubble, particularly with the rise of stablecoins, BTC largely retreated to its role as digital gold, and its activity significantly decreased. Many began to consider BTCFi a nonstarter. But those familiar with the history of global currency and finance know that this is a problem humanity has faced and solved before.

During the gold standard era, which lasted for several centuries, gold, as the standard currency, faced a similar dilemma. The core issue was that while gold was trusted because it retained value and resisted inflation — forming the basis of its consensus as the standard currency — people tended to hoard it. However, currency needs to circulate, and money that doesn’t flow isn’t good money. In other words, the conflict arose between gold’s role as a store of value and its role as a medium of exchange. So, what was the solution?

In September 1717, Newton, as the Master of the Royal Mint in Britain, proposed pegging gold to the pound. This was another monumental contribution by Newton, beyond his achievements in mathematics and physics, though economic illiterates often fail to recognize it, wrongly accusing Newton of wasting his later years. In fact, Newton created a flexible reserve for gold. On the one hand, he met people’s desire to safely store raw gold, and on the other, he used the highly active pound as a voucher, gradually forming a dual-layer currency creation system that satisfied both security and liquidity, driving rapid economic and trade expansion. During this golden era of human economic history, gold rarely appeared in its raw form in economic activities, but it was indispensable in all aspects of economic activity.

I believe BTCFi is now at a similar historical turning point. If BTCFi can develop well in this cycle, it could become the anchor of the entire crypto economy, actively and dynamically participating in the crypto economy in the form of “vouchers,” while ensuring secure storage. This would powerfully and sustainably drive the growth of the crypto economy. This is the fundamental reason why I am optimistic about BTCFi.

Meme

Those who know me are aware that I am not a supporter of memecoins, which is a reflection of my personal values. However, despite this, I still include meme as one of the four sectors I am most optimistic about.

This isn’t because meme is currently one of the few sectors in the bear market that continues to create stories, but because the underlying logic of meme is showing increasing advantages in addressing the moral dilemmas of the crypto world.

Meme coins have two main advantages. The first is easy to understand: low entry cost. The second advantage is more profound: meme coins prioritize fairness and transparency over value promises.

What’s the biggest difference between meme coins and so-called value coins? Value coins first promise value, while meme coins first promise fairness and transparency. I’m not saying meme coins are truly fair — there’s often plenty of manipulation behind the scenes — but compared to value coins, the information asymmetry in meme coins is generally less severe.

Which is harder, value or fairness? Wang Yangming said, “Removing the bandits from the mountains is easy; removing the bandits from the heart is hard.” It’s relatively easier to assign value to an asset, but much harder to distribute that value fairly. Value coins start with what’s easy and then face what’s hard. Because the regulatory mechanisms in this industry haven’t been established, every value coin team will face the temptation of opportunism once value emerges. This is the real test, and very few pass it. Once a value coin team betrays its promises, the coin loses both fairness and value. In contrast, a meme coin may have no intrinsic value and may function purely as a gambling game, but it starts by ensuring a relatively fair distribution of information. On this foundation, it’s even possible to add value to a meme coin through secondary development. This process of starting with what’s hard and then moving to what’s easy is much simpler than trying to rebuild fairness in a worthless value coin.

Please don’t misunderstand me — I strongly advocate for crypto to move toward value creation, and I work hard to do well with value coins. But I also have to admit that for many, favoring meme coins is a rational choice.

Therefore, I believe that in the next cycle, although the chances of an individual successfully picking a winning meme coin remain low, meme coins as a sector will continue to thrive. Moreover, I believe there will be some value-driven secondary developments within the meme sector, where third-party teams develop applications around existing meme coins, thereby injecting value into them.

Stablecoin Payments

Some people think that blockchain has no applications beyond speculation, but that’s a huge mistake. The largest current application on the blockchain is payments, and the fastest-growing segment within payments is stablecoin payments.

Strictly speaking, including stablecoin payments as one of the four sectors is a bit of a cheat, because the explosion of stablecoin payments is not something in the future; it’s not a guess, nor does it require risky predictions. It’s an already established trend.

Previously, within the crypto industry, stablecoins were widely used as the main token assets for investment and incentives. But the latest trend is the gradual penetration of stablecoins into cross-border trade. Especially in the past year or two, a large number of small and medium-sized cross-border traders have begun to use stablecoins for B2B settlements at scale within their supply chains. In this field, the advantages of blockchain payments — such as settlement upon payment, minute-level settlement times, and transaction records that are verifiable for life — are fully evident. Once accustomed to these benefits, it’s hard to give them up, and there’s no need to spend time convincing users.

The only current obstacle is regulation.

There is a widespread misconception in the crypto world that major countries will inevitably suppress and crack down on stablecoin payments in the long term. As the design team behind the ERC-3525 digital voucher standard, we’ve engaged in deep discussions and collaborations with central banks and multinational financial organizations over the past two years, and I can tell you this perception is completely wrong. From the Bank for International Settlements to the World Bank, from central banks in some Southeast Asian and African countries to international commercial banks with extensive cross-border operations, they fully recognize the advantages of stablecoins and understand that this is an unstoppable trend. Consequently, they are actively learning and embracing stablecoins.

This time, it’s not a false alarm or mere posturing — it’s based on relatively mature theoretical thinking and some practical experience. The main issue they face now is how to implement anti-money laundering (AML) and counter-terrorism financing (CTF) measures — obligations that any rule-of-law country and responsible financial institution must fulfill — while generally accepting stablecoin payments as a legitimate means of payment. A significant portion of the major research in this area that we’ve encountered revolves around this issue. Once this issue is resolved, stablecoin payments will flood the entire financial industry like a dam breaking.

Stablecoin payments will undoubtedly be the first successful segment within Real-World Assets (RWA). Many believe that RWA will explode in the next phase, but I think it’s still not ripe overall. Only when stablecoin payments, as the vanguard of RWA, achieve significant growth, will other RWA assets begin to gain momentum, which will likely take at least another cycle. However, the overall upward trend in the RWA sector is undeniable, and patient capital will gradually start to position itself within RWA.

Web3 Social

In the next phase, a leader in the Web3 social sector will emerge — this is my boldest prediction. The topic has been hyped for a long time, and every attempt so far has failed. So why do I believe a breakthrough is imminent? The main reason is the emergence of new ideas and solutions, with Solana Blink and TON as prime examples.

First, it’s important to understand that Web3 is the value internet, and a Web3 social network is essentially a social network where value can be transacted. In other words, Web3 social is an addition to Web2 social, not a complete overhaul. Functionally, Web2 social networks have already perfected content management, so there’s no need for Web3 social networks to start from scratch. Building a new social platform that dedicates 99% of its resources to replicating what Web2 social networks have already mastered, and then convincing users to abandon their accumulated social assets to migrate entirely to a new platform, is not only extremely difficult but also very foolish. Why not simply add a value layer to the existing Web2 social networks, allowing users to make payments, conduct transactions, and perform other value operations within their existing social networks?

This idea is so simple and intuitive, yet it took years for entrepreneurs in the Web3 social sector to realize it. Fortunately, with the emergence of TON and Solana Blink, this barrier has finally been broken. What do TON and Solana Blink have in common? They add a value layer to already established social networks in prime Web2 locations, rather than building anew in a remote area and hoping people will relocate for ideological reasons or value propositions. In other words, they let Web3 run to find traffic, instead of expecting traffic to find Web3. Many people miss the forest for the trees, focusing only on the current state and failing to see the trend. They get caught up in analyzing data, criticizing TON for having traffic without value or mocking Blink for making a lot of noise without much substance. While these critiques may be valid on the surface, they overlook the major significance of this paradigm shift in Web3 social network development. I’m not saying TON and Blink are guaranteed to succeed, nor am I saying they will be the ultimate winners. Just like how WeChat had MiTalk before it, and TikTok had Musical.ly before it, the key is that they have pointed in the right direction and will attract even better innovators to follow — that’s what’s most important.

Social is and always will be the king of applications — this was true in the Web2 era, and it will be true in the Web3 era as well. There is no logical flaw in Web3 social; previous failures were simply due to incorrect thinking. Now that this barrier has been broken, we will undoubtedly see rapid development in Web3 social payment and social transaction products, which will significantly shape the Web3 landscape for the next decade. I am very confident in this.

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