The short-term pain and long-term opportunities of the crypto market

In July 2024, I wrote an investment analysis titled “Short-term Pain, Long-term Gain.”

At the time, the cryptocurrency market was going through a tough time. Bitcoin retreated from a high of $73,000 in March 2024 to about $55,000, a drop of 24%. Ethereum fell 27% over the same period.

I observe that the crypto market is in a peculiar state: short-term news is generally negative, while long-term trends are generally positive. Positive factors include long-term tailwinds such as ETF inflows, Bitcoin halving, and an improved regulatory environment; On the negative side, there is Mt. Short-term challenges such as the Gox Bitcoin distribution and the German government’s sell-off of Bitcoin.

My conclusion at the time was that this difference between short-term bearishness and long-term bullishness created an excellent opportunity for forward-thinking investors. This judgment proved to be quite accurate – shortly after that analysis was published, Bitcoin hit bottom and then soared all the way to $100,000.

Today, a similar pattern is once again emerging in the market, where short-term negatives are once again intertwined with long-term positives. For investors with a sufficiently long investment horizon, I think the current market offers very similar investment opportunities.

Short-term Challenge: The End of the Meme Coin Boom

The current negative news cannot be ignored.

As I write this analysis, the cryptocurrency market is experiencing a significant sell-off. Bitcoin fell 8% to below $90,000, Ethereum fell 10%, and Solana fell 12%.

The direct trigger was a hacker attack on a trading platform over the weekend. The hackers stole $1.5 billion worth of Ethereum from the platform through phishing techniques. Although the platform unexpectedly used its own funds to ensure the safety of customer assets, this attack still shook the entire crypto market, triggering a chain liquidation.

However, this hack is not an isolated incident. In recent weeks, several events related to Meme coins have attracted attention:

• Libra: Argentine President and cryptocurrency supporter Javier Milei once endorsed a meme coin called Libra, which was later proven to be a multi-billion dollar scam.

• Melania: A Meme coin associated with the former First Lady of the United States also faced a setback, resulting in significant losses for investors.

• Trump: Another meme coin related to Trump has also encountered similar issues, although to a lesser extent.

According to reports, the recent hacking incident may be related to a certain country’s government, as hackers attempted to launder stolen assets through a Meme coin platform. Regulatory investigations into these events are likely to be launched soon.

Overall, these factors may signal the end of the recent Meme coin frenzy.

While this might be a relief for “serious” encryption investors, it is undeniable that Meme coins have been the most active sector outside of Bitcoin over the past year, injecting a significant amount of liquidity and vitality into the entire industry, especially the Solana ecosystem. The inevitable decline of this activity will have a chain reaction, which is exactly what we are witnessing now.

Long-term opportunities: regulatory optimization, institutional entry, stablecoin expansion

The characteristic of short-term volatility is that its impact will eventually fade. With very few exceptions, the importance of Meme coins will gradually diminish. Negative effects will not expand indefinitely.

The comforting thing is that my long-term optimism for cryptocurrency has never been based on Meme coins.

On the contrary, several long-term trends will continue to have an impact, including:

Improvement of Regulatory Environment: Regulatory agencies are undergoing a significant shift in their attitude towards cryptocurrencies. Just in the past few weeks, we have seen regulators withdraw high-profile lawsuits against major crypto trading platforms, while lawmakers have reached consensus on friendly legislation related to stablecoins and market structure. These developments will accelerate the mainstreaming of cryptocurrencies and reshape the financial landscape in the coming years.

Institutional Adoption Accelerates: Institutions, governments, and enterprises are making large-scale purchases of Bitcoin. So far this year, investors have put $4.3 billion into Bitcoin ETFs. This figure is expected to reach $50 billion by the end of the year and could attract hundreds of billions of dollars in the coming years.

Stablecoin Market Expansion: Stablecoins have reached an all-time high of $220 billion in assets under management, up nearly 50% from last year. And that’s just the beginning – the market is expected to grow to $1 trillion by 2027 as legislation moves through Congress.

DeFi Renaissance & Asset Tokenization: Decentralized finance applications are gaining traction, with growth in activities in areas such as lending, trading, prediction markets, and derivatives. At the same time, the size of the tokenization of real-world asset (RWA) refreshes the historical record every day.

Future Market Trends

This analytical framework makes the investment strategy clear. On the one hand, we are facing the impact of the subsidence of the Meme coin boom and hacking; On the other hand, we have long-term tailwinds such as an improved regulatory environment, large-scale institutional entry, explosive growth of the stablecoin market, a revival of DeFi, and asset tokenization.

The choice is obvious to me.

However, it should be noted that the current market correction may be more severe than the one in July 2024. The pullback was relatively short-lived, mainly triggered by a one-off asset sell-off, and the impact quickly faded.

The ripple effects of the meme coin boom are likely to be even more significant, and it can take days, weeks, or even months for the market to fully absorb the effects.

But the overall judgment remains unchanged: short-term news is negative, while the long-term outlook is bright. In this situation, I still favor a long-term investment strategy.