Cryptocurrency Market Undergoing Periodic Adjustment, Patience is the Best Strategy in the Short Term
Cryptocurrency Market Summary:
1. Since BTC broke its all-time high in March, it has been unable to maintain a significant upward trend. With the market’s pessimism about the US interest rate and the lack of mainstream narrative, the cryptocurrency market is undergoing a periodic adjustment. The best strategy in the short term is to be patient. In the long term, we believe that the overall bull market will arrive in late 2024 to 2025.
2. It is expected that the Ethereum spot ETF will be approved for listing on July 4th, which will be positive for market sentiment and the Ethereum ecosystem. The S-1 document required for the Ethereum spot ETF review has received feedback from the SEC and is required to be modified and submitted by June 21st (this Friday).
3. FMG released a deep research report on DePIN, proposing three major trends in the DePIN track: the integration of DePIN mode and consumer goods; the edge device economy and sharing economy based on Web3 phones; and the release of DePIN liquidity through the RWA mode.
4. The Meme frenzy represents the market’s “narrative-less phase.” Due to the current lack of narrative in the market, combined with a large number of unlocked and high FDV (Fully Diluted Value) altcoins, investors have turned to Meme speculation. This round of Meme narrative has a more solid foundation compared to the previous cycle, including institutional investor participation, trading platforms providing liquidity, and increased community involvement.
5. The recent two large-scale airdrops (ZKSync and Eigenlayer) have sparked discussions of “ZKscam” and “EIGENscam” in the days following the airdrops. If the airdrop mechanism of a project is not appropriate, it can cause significant dissatisfaction within the community. Airdropped tokens are distributed to users with low retention rates at almost zero cost, and more than half of the tokens will be immediately sold. It is expected that project teams will gradually lose interest in airdrop operations, and they will still need excellent product capabilities and market promotion capabilities.
I. Market Overview
1.1 Cryptocurrency Market Data
As of June 19th, the total cryptocurrency market capitalization was $2.38 trillion, a decrease of 5.92% from the beginning of the month. BTC’s market dominance reached 53.92%, slightly higher than the 52.66% at the beginning of the month. The cryptocurrency fear and greed index is trending downwards and is currently at a neutral level.
As of June 19th, the combined market capitalization of Bitcoin and Ethereum has decreased by 3.5% since the beginning of the month, while Altcoins have dropped by 15%.
Based on the previous two Bitcoin halving patterns, there is a 12-18 month gap between the halving event and the market’s peak. The upward trend is not immediate but accompanied by fluctuations and periodic declines. This halving occurred on April 20th, 2024, and it is expected that the market will start to improve by the end of 2024.
Although net inflows this year have been stronger than last year, they are still significantly lower than the levels during the 2021/2022 bull market. The inflow of funds is not enough to support the arrival of a bull market. According to JPMorgan’s estimate, the net inflow of funds into the cryptocurrency market so far this year has reached $12 billion. Among them, Bitcoin spot ETF has a net inflow of $16 billion. Since January, the Bitcoin reserves of exchanges have decreased by about 220,000 coins ($13 billion), indicating that most of the funds flowing into spot ETFs are actually transferred from existing digital wallets, rather than new funds.
1.2 Macroeconomic Monetary Environment
After the CPI was released lower than expected on the evening of June 12th, the cryptocurrency market experienced a general rise for a few hours. At the FOMC meeting at 2:00 am on June 13th, the Federal Reserve unexpectedly indicated through the dot plot that there would only be one interest rate cut this year, lower than the three cuts in March. After that, the cryptocurrency market began to weaken.
According to CoinShares’ statistics, there has been a significant outflow of funds since March 22nd, with a total outflow of $600 million (week number, by 6/15). Among them, Bitcoin outflows reached $621 million, while ETH, LIDO, and XRP saw a small inflow of funds. According to sosovalue data, BTC spot ETF has been in a daily outflow state since June 13th.
1.3 Cryptocurrency User Predictions
Triple-A released a report on the global cryptocurrency ownership status in 2024, which shows that the global cryptocurrency user base will reach 562 million people in 2024 (equivalent to 6.8% of the global population), higher than the 420 million people in 2023.
Cryptocurrency holders aged between 24 and 35 account for 34% of all cryptocurrency holders, making them the largest age group in the cryptocurrency community.
II. Cryptocurrency Market Hotspots and Narratives
2.1 Integration of AI and Crypto
Nvidia estimates that there are over 40,000 companies worldwide using GPUs for AI and accelerated computing, with a developer community of over 4 million people. Looking ahead, the global AI market is expected to grow from $515 billion in 2023 to $27.4 trillion in 2032, with an average annual growth rate of 20.4%. At the same time, the GPU market is expected to reach $400 billion by 2032, with an average annual growth rate of 25%.
Bitwise analysts predict that the combination of AI and crypto will unlock a market worth $20 trillion. Decentralized computing power networks, as a track strongly tied to the concept of AI, are one of the vertical fields in the cryptocurrency industry with the most potential for real demand.
2.2 Meme Narrative
Memes have gradually been accepted by the mainstream cryptocurrency market, and more and more people agree that consensus is value, and existence is justified.
At the institutional level, according to a report by Bybit, institutional investors’ investment allocation to meme coins has increased by over 300% this year, reaching a peak of nearly $300 million in April. The current popular choices are DOGE, SHIB, and BONK.
At the exchange level, Binance has listed several meme coins, including PEPE, WIF, and BOME, providing more liquidity for memes and sparking investor enthusiasm.
At the community level, symbols have tremendous cohesion. Meme, as a universal language, enables the community to quickly reach consensus and form a simple and effective dissemination path. In addition, many celebrities have started to get involved in Memecoins, which enhances the spread of memes, similar to the previous cycle where celebrities bought and held NFT collectibles.
At the issuance platform level, Pump.fun has issued over 1 million types of memes, and the trading volume of Pump.fun has reached $3.6 billion, with a continuous growth of new users. With the support of issuance platforms, memes have become a simple fundraising mechanism and listing strategy.
III. Regulatory Environment
Bloomberg ETF analysts Eric Balchunas and James Seyffart suggest that the launch date of the Ethereum spot ETF may be brought forward to July 4th. The reason is that SEC staff sent comments on the S-1 to the issuer last week, and the comments were brief and did not raise major issues, requiring modifications and submissions by this Friday (June 21st).
FMG’s previous cryptocurrency market observation mentioned that the 19b-4 form was approved in May, and trading can only begin after the S-1 form becomes effective. The sudden approval of the ETF reflects the Biden administration’s more lenient stance on cryptocurrency policies, driven by electoral needs. The analysis and views of ARK Invest CEO and CIO Cathie Wood also support this judgment. She stated at the Consensus conference that the approval of the Ethereum spot ETF was due to cryptocurrency being an election issue.
Trump’s pro-crypto stance towards the US crypto industry forced Biden supporters to strategically adjust their cryptocurrency policies. Biden’s re-election campaign has begun to engage with key figures in the cryptocurrency industry, seeking guidance on the “forward development of the crypto community and crypto policy.”
IV. Theme Research: Fully Homomorphic Encryption (FHE)
Fully Homomorphic Encryption (FHE) is an advanced solution for secure computing that allows for unlimited operations on ciphertext, including arbitrary additions and multiplications, ensuring data privacy and security during the computation process. Lightweight work on public-key fully homomorphic encryption (FHE) has made significant progress domestically and internationally. However, the high computation, storage, and communication costs of FHE still cannot meet the objective performance requirements of resource-constrained local devices in edge computing systems.
Opportunities brought by FHE:
1. Solving the privacy issues in AI and edge computing
In the training process of large language models, various steps involving data processing and transmission, such as data allocation, model training, and parameter and gradient aggregation, can affect data security and privacy. If the issue of data privacy cannot be resolved, true scalability on the demand side cannot be achieved. In addition, ensuring data privacy is a prerequisite for utilizing edge computing power, and FHE is a privacy computing technology designed for such scenarios.
2. DePIN Hardware Acceleration
FHE requires approximately 1,000-10,000 times the computational power of Zero Knowledge (ZK). Some hardware companies are dedicated to producing FHE chips.
Projects with the concept of FHE have recently received large investments from venture capitalists, making it a popular technology topic in the cryptocurrency community. However, the application of FHE technology is still in its early stages, and we will continue to monitor its development.
Data sources: Coinmarketcap, Coinshare, Sosovalue, Bloomberg, Triple-A, Bybit
