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In the world of crypto, previous bull markets were predominantly “beta” rallies, where nearly all assets saw price increases. The key strategy was to simply hold onto crypto assets; the specific tokens mattered less than the general category they belonged to. Typically, the progression of these rallies followed a predictable sequence: Bitcoin hit new highs first, followed by other layer-1 tokens, and then the broader market.
This cycle, however, saw a shift. Recognizing the established pattern, investors jumped directly into the riskier assets. Memecoins surged in February, even though Bitcoin was still trading 50% below its all-time highs. This anticipatory move might explain why Bitcoin and Ethereum are now struggling, while other assets are collapsing. Patterns in financial markets, once identified, tend not to repeat in the same way.
Much like the observer effect in quantum physics, observing financial markets changes their dynamics. This constant evolution is why quantitative hedge funds frequently adjust their strategies: identifying and trading a pattern eliminates it. Similarly, technical analysis often fails because persistent patterns contradict the logic of financial markets.
This may also explain why the current crypto bull market has disappointed expectations. The predictable pattern of altcoins rising after Bitcoin was so apparent that a wave of sellers disrupted it. This shift is prompting a reevaluation across the industry, as traders, investors, and developers realize that old strategies—simply betting on the riskiest tokens—are no longer effective.
So, what will the new strategy be?
It’s too soon to know for certain, but there are early indications that the crypto industry might have to confront its biggest fear: we may need to start focusing on fundamentals.
Our Tokens Will Reflect Our Actions
The baffling valuations crypto investors have given to memecoins, governance tokens, and ghost chains have led many to believe that in the crypto world, valuation is merely a joke. However, the current cycle suggests that the notion that “valuation is a meme” is, in fact, just another meme.
I say this because, despite most tokens losing value, there’s an increase in valuation-based investment pitches. Previously, being slightly ahead of the curve on the latest buzzwords—re-staking, modular money, Airbnb for GPUs, etc.—was sufficient.
However, venture capitalists have flooded the market with too many of these theme-based tokens for the limited pool of crypto investors to absorb. Consequently, for the first time in crypto, there’s a need to differentiate between the myriad of tokens available. The only way to make this distinction is by establishing some metrics to evaluate them.
This approach is often referred to as “fundamental investing.”
However, this doesn’t mean that crypto is about to become less exciting—quite the contrary. Crypto is now entering a phase where the market begins to agree on which valuation metrics to use. For those who enjoy investing, this is where the real excitement begins.
Take ETH, for example. Its investment appeal has traditionally relied on catchy slogans like “world computer” and “ultra-sound money,” which, while compelling, are not quantifiable and thus not practical for investment criteria. This perspective is now being challenged by those who believe that layer-1 blockchains should be valued strictly based on the fees and MEV they generate.
Multicoin Capital, for instance, assesses these fees and concludes that ETH is $340 billion overvalued compared to SOL. On the other hand, VanEck examines the same fees and believes ETH is $2.4 trillion undervalued over five years.
VanEck has a bullish investment thesis on GEODNET, a decentralized GPS service, predicting its GEOD token could increase by 50x by 2030. Such high projections are rare in traditional finance, aside from exceptions like Ark’s prediction for TSLA.
Similarly, M31 Capital forecasts a 250x potential upside for the blockchain data provider Subsquid’s SQD token. While this might seem exaggerated, M31 provides a detailed analysis of market size, share, margins, and multiples, comparing Subsquid’s best liquid token to GRT, which trades at an 18x FDV premium to SQD.
I’m confident that no two comparable equities have ever traded with such a vast valuation discrepancy, highlighting just how exciting crypto investing can be compared to traditional investing.
However, the SQD token is extremely illiquid, so even if I were convinced by M31’s thesis, buying it would be challenging. But that’s part of the allure: In crypto, we’re starting to see investment bank-quality research on venture capital-like investments—a fascinating combination of elements that usually don’t go together. Many more such analyses can be found on the BidClub website, an invitation-only “investment club for thinkers,” where members share their top crypto ideas in a format similar to the Value Investors Club, where members have long shared stock investment ideas.
BidClub features a unique blend of traditional-looking P/E multiples and comparison tables, alongside memecoins and micro-cap tokens—an intriguing combination that could only happen in the crypto world.
The real excitement lies in knowing that these types of analyses will increasingly influence the crypto industry. If we start evaluating crypto tokens using P/Es and comp tables, we’ll begin to see tokens designed to excel in those metrics.
This aligns with what the great physicist Werner Heisenberg suggested: “We have to remember that what we observe is not nature itself, but nature exposed to our method of questioning.” Consequently, the way we observe and evaluate crypto tokens will fundamentally alter their nature.
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