Delphi Digtal Analyst: Why Is the Crypto Rally So Hard?

By Michael Rinko, Analyst, Delphi Digtal

Compilation: Felix, PANews

Why is cryptocurrency’s rally so tough? One of the reasons for ignoring the catalytic role of narrative is low liquidity.

BTC’s 1% book depth is at its lowest point of the year.

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Both CEXs and DEXs are performing poorly in terms of trading volume.

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Stablecoins are in the midst of the worst drawdown ever.

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The fundamental reason for the constant outflow of capital instead of the crypto market is interest rates, and why lend money to Aave when it is more profitable to lend money to the U.S. government?

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High interest rates have led to historically low levels of on-chain activity.

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The financing environment is equally harsh. VC firms have shifted their attention from various altcoins to the ChatGPT frontend.

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The liquidity concern is reflected in today’s highly competitive PvP market. Everything is a zero-sum game. When a new token is launched, it is no longer seen as a “bullish innovation” as during the DeFi summer, but as “another mouth that needs to be fed”, taking away a portion of liquidity.

Thinking about the interplay between tokens, liquidity, and price from a supply and demand perspective is an oversimplified but not entirely wrong approach. This relationship can be described by the following formula:

Liquidity/Token = Forward Return

During the DeFi summer, tokens are unique. See: Foodcoins* (PANews Note: DeFi** of summer There are many projects named after food, Sushiswap, YAM Finance**, Pickle Finance**, etc.)**. *

But liquidity has also dropped significantly, with ETH’s TVL jumping from a negligible size to $7 billion in 3 months. For some time now, the demand side of the equation (liquidity) has won, pushing up the price of almost all tokens, even Foodcoins.

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This is no longer the case, where new tokens are forced to compete for the last remaining liquidity, with projects competing against each other. They need to steal market attention and liquidity in about 100,000 crypto degens.

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One can imagine such a scenario. During periods of increased liquidity (bull market), the trading of the popular narrative is broadly consistent. But in bear market cycles, narratives compete for limited capital. The vicious capital rotation forms a zero-sum profit-making hot ball, forming a very different price movement.

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Even in the rare case where narratives can coexist, competitive games are still mainstream. You might think that Bald (Meme) and Friend Tech (SocialFi) would be mutually beneficial, as both would bring new users and capital to the Base ecosystem, but no, the relationship between the two eventually evolved into a parasitic relationship (one party benefited, the other party suffered).

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In order to achieve a virtuous cycle of “data rise - > degens influx - > data rise”, it is necessary to improve the liquidity environment. While a small recovery in the future is a real possibility, a billion-level virtuous cycle depends on retaliatory returns from low-interest borrowing.

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Valhalla is destined and is coming, but it may only come after the market turmoil. Until then, crypto people need to withstand market volatility.

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