Why is this round of the cycle so difficult?

Author: DeFi Investor Translated by: Shan Ouba, Golden Finance

It is no exaggeration to say that the year 2025 will be a brutal one for most cryptocurrency practitioners.

I personally did not anticipate such a brutal crash in the market at the end of the year. But as traders and investors, our duty is to adapt to the ever-changing market.

Not acting or refusing to accept reality is by no means a viable strategy. I would like to share some thoughts: why this cycle is so difficult to grasp, and my outlook on the future market.

1. The project and token quantity are experiencing explosive growth

In 2017, the number of projects in the cryptocurrency market was only a few hundred. By 2021, this number grew tenfold to thousands.

As of 2025, with the help of zero-threshold token issuance platforms like Pump Fun, the number of tokens in the market has surged to millions.

When a large number of project teams cluster together to compete for market attention, liquidity is inevitably overly dispersed among a vast array of tokens, leading to severe dilution of funds. At the same time, the predatory nature of token economic models is becoming increasingly evident.

Although the actual utility of tokens has generally improved in this round of cycles, which is a commendable progress, almost all newly issued tokens in recent years have been following the trend of “low circulation + high fully diluted valuation.”

The so-called low circulation + high fully diluted valuation refers to a situation where the circulating supply of a token at the time of issuance is extremely low (usually not exceeding 10%), but the fully diluted valuation is set very high.

Low circulation will artificially create scarcity, reducing selling pressure in the early stages of the TGE, thereby driving up the token price. However, once the token unlocking wave arrives, a large influx of new supply will flood the market, and the token price will inevitably collapse, causing significant losses for early investors.

For many years, almost every newly issued token has struggled to escape this fate.

2. The points mechanism artificially inflates data bubbles, creating a false impression of product-market fit.

The average investment return rate for new tokens launched on Binance this year is only 0.25 times.

Data source: cryptorank.io

At the Bybit exchange, this value is even lower, at only 0.11 times. This means that over the past year, new tokens launched on these leading centralized exchanges have seen an average decline of 75%-89%!

Clearly, one of the reasons for this phenomenon is that the failure of startups is the norm.

But I firmly believe that the most core reason for the poor performance of these tokens in the early stages of their launch is the prevalence of the points mechanism. Many projects that have not yet issued tokens and lack quality products artificially create false demand through the points mechanism in order to issue tokens at a high fully diluted valuation.

Want to attract a large number of mining users in a short period and boost TVL? Just launch a points mechanism. Want to temporarily occupy the high ground of public opinion in the crypto community? Just initiate a Kaito topic promotion campaign.

Of course, I do not completely deny the use of incentives or promotional activities. When used properly, they can be excellent growth tools — for example, the Hyperliquid project has successfully built a large user community through its incentive mechanism.

But the problem is that many projects that have not yet achieved product-market fit (PMF) deliberately exaggerate their total locked value and trading volume, riding on the coattails of the points mechanism, just to sell at a high price when the token is launched.

Before the token issuance, such projects that lacked real value only “successfully got out of the circle” with the point mechanism, but they actually did not solve any real needs at all.

Once the token goes live, mining users will quickly withdraw, and most people will stop using the products of these projects, leading to a sharp drop in coin prices, which will gradually approach zero. This pattern repeatedly harvests retail investors, ultimately causing them to completely lose interest in newly issued tokens – and this is quite understandable.

What adds insult to injury is that the FTX and Terra Luna collapse events in 2022 have already made many people lose trust in the cryptocurrency industry.

3. Market Attention Shifts from Cryptocurrency to Artificial Intelligence

Each bull market has its own exclusive bubble sector.

In 2025, this bubble is artificial intelligence – just like cryptocurrencies in 2021. Capital from all walks of life is rushing into artificial intelligence companies at outrageous valuations, just to catch this wave of bullishness.

In 2017 and 2021, everyone firmly believed that cryptocurrency would disrupt the world. In 2025, everyone thinks that artificial intelligence will rewrite the future of humanity.

In my opinion, both of these industries undoubtedly have the potential to change the world.

However, at present, the most direct impact on us is that a large number of major investment institutions have lost interest in the cryptocurrency market and have turned to the artificial intelligence sector. Do you know how exaggerated the current hype around the artificial intelligence bubble is? In the first quarter of 2025, 57.9% of venture capital flowed into artificial intelligence companies. Meanwhile, the venture capital flowing into blockchain companies has significantly shrunk in recent years.

As capital shifted from the crypto market to the AI space, altcoins also lost the speculative premium they earned during the 2021 bull run.

I'm not sure how the crypto industry can get back into the spotlight and recapture the attention of institutional and retail investors. But what is clear is that the “stealing of the spotlight” of artificial intelligence has had a negative impact on the price of cryptocurrencies. In my opinion, it is the combination of the above three factors that makes this market cycle particularly difficult. Next, I'd like to talk about my thoughts on where the market is going in the next few years, or at least where I hope the industry can go.

Future Path

Unfortunately, almost all altcoins have fallen by at least 50%-70% in 2025. Even so, if someone asks me now, “Is cryptocurrency dead?” my answer is still absolutely not.

Stablecoins and the prediction market are two typical cases that have successfully integrated into the mainstream vision. And today, regulators are also more friendly to the crypto industry than ever before.

In highly successful crypto sectors like stablecoins, projects that have achieved product-market fit and can generate substantial revenue are likely to see a significant increase in valuation over the next few years.

However, at the same time, I believe that the market crash we have experienced in the past few months is, to some extent, inevitable.

There are indeed some high-quality projects with strong teams in the crypto market, but more often there are “air projects” that have valuations reaching billions of dollars, yet have no revenue and have not achieved product-market fit.

What the cryptocurrency industry truly needs right now are more products that can solve real problems for ordinary people (not just crypto natives). Most importantly, these products should be able to generate stable revenue and design a sustainable token economic model that genuinely benefits token holders.

Only by doing so can crypto tokens become attractive investment targets again.

In the past few years, the business model of most dApps has essentially been “selling their own tokens.”

But now, the speculative premium has faded, and capital flowing into the cryptocurrency industry is becoming increasingly scarce. I believe that the market will gradually return to fundamentals.

You may feel that this vision sounds overly idealistic and unattainable. However, it is precisely a crash like this that could lead to the funding chains of many product-less projects that rely on selling tokens breaking down and ultimately vanishing, completing a reshuffling of the industry.

At the same time, projects that have already turned a profit have a much greater chance of survival—after all, their revenue is sufficient to cover a significant portion (or even all) of the development costs.

The reasoning is actually quite simple: a successful project must first be a business that can make money. Otherwise, I would never consider its tokens as a long-term investment target.

Of course, exceptions will always exist. For example, privacy coins, despite having no complete and sustainable economic model, have performed remarkably well recently.

Betting on the current popular narratives (such as the ongoing privacy concept), even ignoring the fundamentals, may lead to substantial profits. However, keep in mind that the lifespan of most narratives rarely exceeds a few months. Therefore, if you choose to participate in such trades, be sure to be wary of becoming a bag holder after the hype fades.

Unfortunately, 99% of crypto projects will be unable to adapt to the new market environment and will ultimately face extinction.

For this reason, investment decisions today require more careful selection than ever before. However, I also firmly believe that for those who have not exited the market, there will still be a wealth of opportunities in the future.

The revival of cryptocurrency is not a question of whether it will happen, but when it will happen.