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Why Does Crypto This Season Feel So Different From Previous Seasons? 🤔

I. The Cycle of Financial Markets Always Repeats 🔄

A well-known argument in financial markets, and even more so in crypto, is the idea of the market cycle.  Essentially, this theory suggests that markets operate in repetitive cycles driven by the psychology of market participants, reflected in price movements. The cycle begins with low prices , followed by growth into higher price regions , a peak or "top" , then a collapse , and eventually, the cycle begins again. This repetition not only refers to price movements but also the psychology of market participants.

I don't disagree with this theory. In modern economics, cycles of 10 to 15 years have repeated for over 100 years, and there’s no sign of it breaking. With crypto, the 4-year cycle is often referenced. But have you ever wondered: “Why must the cycle repeat?” 🤔 or “Why does each cycle have to be the same?” 🤨

I personally avoid the "past predicts the future" mindset. While I do reference past data, I recognize that financial markets are a dynamic playground with countless variables. Each of these variables can alter the course of the game at any given point. Yes, the cycles repeat, but they do so in their own unique way each time. 

All financial markets are shaped by the law of supply and demand , which is driven by human perception of a product or asset. And humans, whether 100 or 1,000 years from now, will still be driven by the same basic instincts . Greed and fear remain constant, and these emotions lead to predictable behaviors. As such, the repetition of cycles is inevitable.

However, there’s a catch: if we look too broadly, we risk misunderstanding . While human instincts remain unchanged, the mechanisms that activate these instincts evolve over time. For example, when the steam engine was first invented , many people were frightened by the sight of a smoking train, a glowing lightbulb 💡, or a flying airplane . Today, such phenomena would be met with little more than curiosity. The same principle applies to financial markets. As the knowledge of most market participants evolves, so too will the market’s behavior. Therefore, each cycle will contain both familiar and radically different elements. This isn’t bizarre or illogical; it’s simply how things evolve. 🧑‍💻

In the upcoming posts, I’ll delve deeper into these differences and share my personal market outlook. If you're interested, follow my Warpcast to ensure you don't miss it. To avoid making this post too long, let's focus on the first reason:

a. Market Liquidity and Market Fragmentation 🔥💧

The theory of "market fuel" is something I often talk about, and I doubt anyone would disagree with it. I view the market as a locomotive: to keep moving, it needs fuel injected into it. This fuel is the total amount of capital that participants pump into the market, which represents liquidity. The more fuel (capital) injected, the faster and further the market can move.

During the 2020 - 2021 bull run, the unprecedented global pandemic forced people into lockdown, which created the perfect environment for three key factors:

1️⃣ Fear and Negativity - An Opportunity for Market Shakeout:
You can see the chart for BTC in March 2020. A 60% drop in just over four weeks.

2️⃣ Unprecedented Amounts of Money Injected into the System:
Governments worldwide initiated massive stimulus programs, pumping money into the hands of the people. This influx led to sudden shifts in asset prices, inflation, and economic behavior.

3️⃣ Financial Games Thrived During Lockdowns:
As traditional businesses and services were severely impacted, people had more free time and cash in hand. The crypto market saw a huge influx of "new retail investors" - people who had never seen a price chart before but were now diving into the financial markets. This provided additional "fuel" for the market, but with a different character due to the influx of these unseasoned participants.

If we compare the uptrend from the previous cycle to the one we are witnessing now, the differences are evident even to a child 👶.

On paper, the total value of stablecoins may have reached a new high this season, with stablecoins now surpassing $200 billion, compared to the $150 billion ATH from the previous cycle. But don't let the numbers deceive you 🤥. When we look at the downtrend starting with only $10 billion in stablecoins, the fuel increase in 2020/2021 was about 15x 🔥. This season, starting with $90 billion, the increase so far has only been about 2x 📉. The liquidity is different, and this is a major reason why the market behaves differently this time.

b. Market Fragmentation Has Changed 🔍

The differences between the previous cycle and this one are also evident in terms of:

- Number of coins.

- Number of coins on major centralized exchanges (CEX).
 
- Number of trends.
 
- Number of new coins.

- Number of blockchains.
 
- Number of blockchain layers.

- Number of yield farming opportunities.

This season, market fragmentation is far more significant than in previous cycles. With a massive pool of liquidity, it’s now divided among a multitude of "cups". It's no surprise that many of these cups are overflowing. But in this season, the pool is even larger, and the number of cups needing to be filled has multiplied exponentially.

So, what’s the consequence? Even though the liquidity might be the same or slightly higher, the amount of "fuel" required to fuel each asset has increased drastically. This explains why the altseason you’ve been dreaming of hasn’t played out the way you expected. Yes, the market is still growing—look at the charts, there are altcoins up 5x, 10x, or even meme coins reaching $1 billion market caps. There are new trends, and some coins have surged hundreds of times from their lows 🚀. But why do I still feel like I’m not making money? Why isn’t my coin pumping? Why do these rallies feel so short-lived? These are the questions you might be asking yourself, and the answer is already clear.

Conclusion 🔚:

The crypto market operates in cycles, and while some things remain constant, the landscape evolves. Liquidity, market fragmentation, and the growing influence of new participants all contribute to the differences we see in this cycle compared to previous ones. While past patterns may still hold some predictive value, it's essential to recognize that the unique conditions of each cycle shape how the market moves. The differences might seem frustrating 😤, but they also open up new opportunities for those who can adapt to the changing environment.

II. Why Does This Altseason Feel So Different From the Previous One? [Reason #1] 💥

By now, many have admitted that this season's behavior of altcoins and Bitcoin is distinct from past cycles. This has led to a sense of disorientation, with many suffering painful losses 😔. As someone who monitors market trends from a data-driven, emotion-free perspective, I noticed these differences early last year. When BTC hit new all-time highs (ATH), many altcoins were still at all-time lows (ATL). This divergence became even clearer after the halving event, where the entire market seemed to run in reverse. Across various data points, this cycle has shown several stark contrasts to the last one. I’m not surprised, but I also haven’t profited from recognizing this. In fact, by the time I did, I had already fallen into the trap and suffered losses 💸.