Night Talk Web3 - Deep Water Zone of Market Trends, Opportunities and Divergences After Market New Highs

Organizer: Jsquare / DFG

Guest lineup:

James - Founder and CEO of DFG

Dujun - Founder of Vernal

Lily - Co-founder of D11-Labs

Mindao Yang - Founder of dForce

Host: Angela Tong - CMO of DFG & Jsquare

Topic 1: What are the core driving factors behind BTC reaching new highs? Is it sustainable?

1. This year, the cryptocurrency market cap surpassed $4 trillion, BTC broke through $120,000, and over 90% of Ethereum addresses are in profit. In your view, what is the "catalyst" for this round of increase?

James: From an overall perspective, the main reason is still the influx of liquidity. During a rate hike cycle, both cryptocurrencies and the stock market usually enter a bear market or experience a correction. Currently, we are in a rate cut cycle, with ample market liquidity, making high-quality assets more likely to receive buying support. Additionally, this round of market activity has been accompanied by significant events such as the approval of Bitcoin ETFs and large purchases of Bitcoin by U.S. companies like MicroStrategy, further driving funds, especially from institutions and retail investors, directly or indirectly into the crypto industry. The combination of these two factors is a key reason why Bitcoin has risen to $120,000 without a correction.

Mindao: In this round of market activity, the funding aspect is a crucial factor, especially since the capital structure has undergone a fundamental change. Take Bitcoin ETFs as an example; over the past two years, the asset management scale has grown to about $150 billion, combined with MicroStrategy's approximately $70 billion, totaling over $200 billion. In previous cycles, the market primarily relied on leveraged funds within the crypto space, driven by a cycle of "leveraging - deleveraging." In contrast, ETFs and MicroStrategy essentially represent equity capital rather than leveraged capital. For instance, MicroStrategy's ATM financing is purely equity with no margin call concept; the convertible bond terms issued also lack a price liquidation mechanism. Therefore, even if the price of cryptocurrencies falls, this type of capital will not be forced to sell, making it less likely to trigger a cascading crash. From Bitcoin's rise from $50,000 to $70,000, this $200 billion in funding has an average entry cost between $70,000 and $80,000.

At the same time, Ethereum has risen 25%-30% in the past two weeks, but the funding rate in the market is only around 10%, far below the 20%-50% seen in previous high-leverage periods, reflecting that this round of market activity is dominated by low-leverage, long-term equity capital. This is one of the important reasons why Bitcoin and Ethereum can break new highs, and this trend may continue. Previously, arbitrage in the crypto space was mainly concentrated in offshore exchanges, but now more arbitrage occurs between ETFs and CME futures, involving a funding scale of $20-30 billion. Therefore, ETFs are not only passive investment targets but are also becoming important tools for compliant market arbitrage and hedging, and may even possess options attributes in the future. As this type of capital continues to flow in, the size of the "traditional crypto stock" asset class is expected to expand, which is also an important force supporting Bitcoin's breakthrough of $120,000 and even higher.

2. Have ETFs or U.S. stock funds really become a "new necessity"? Is there data to support this?

Lily: I feel that this round is the most blurred boundary between the crypto space and the stock market that I have experienced. I have a very senior friend in the crypto space who has recently interacted with many institutions on Wall Street. He said that almost all Wall Street institutions related to crypto are trying to engage in crypto stocks, trading, or similar businesses.

From a macro perspective, the U.S. GDP accounts for less than 30% of the global economy, but the dollar accounts for about 60% of global foreign exchange reserves and more than half of cross-border payments. This inequality mainly stems from "trust"—everyone believes that the U.S. is the strongest sovereign nation, and its currency has the strongest credit backing. However, this trust has begun to waver in recent years. Trump has repeatedly stated that he "doesn't want to be the world's police" and is more focused on domestic welfare, leading to doubts about the long-term value of dollar assets and U.S. Treasury bonds globally. Therefore, one of the biggest consensus behind this round of market activity is that: the credibility of the dollar is weakening. The world is beginning to seek inflation-resistant assets that are worth holding long-term, which is also one of the reasons for the surge in gold and Bitcoin.

The approval of ETFs has played a key role. Many Wall Street institutions previously could not directly hold cryptocurrencies due to compliance issues, but through ETFs, they can indirectly allocate and use them as asset proof, officially bringing crypto assets into the traditional financial view and blurring the boundaries between traditional and crypto. The launch of ETFs poses a significant challenge to centralized exchanges. After MSTR, we see more and more treasury funds allocating tokens like Ethereum; for example, Cathie Wood bought BMNR, which also encourages the traditional financial sector to understand crypto more deeply.

However, I believe that the current enthusiasm on Wall Street for crypto is somewhat overstated, and this heat may undergo periodic adjustments, but we are still in an upward phase. A large amount of traditional capital is actively participating. I am familiar with investment banks in the U.S. that deal with crypto; they are pushing some well-known practitioners in Asia and the U.S. to issue new stocks, and raising $500 million to $1 billion is relatively easy. So currently, this wave is still at a very high level in terms of capital size, enthusiasm, Wall Street recognition, and consensus.

3. Does Hong Kong's immigration policy support crypto ETFs as asset proof? Is there any capital from Hong Kong flowing into the crypto space beyond U.S. stocks?

Lily: Currently, Hong Kong stocks are in a clear bull market phase. I was one of the early optimists privately between 2023 and 2024. Whether it's the recent IPO scale or various movements related to the crypto industry, they all indicate that market sentiment is high. Take Boya as an example; although it has a red-chip structure and its financing channels have not been fully opened, the market is still highly sought after, with its PB exceeding two times, even approaching three times, surpassing benchmarks like MSTR. Recently, the market has reacted very positively to any large investments related to crypto, with stock prices often rising rapidly. Established Hong Kong stocks like OSL, Blueport, and New Fire have shown significant upward momentum recently; traditional payment companies like Lianlian have also performed well after transitioning to Web3. Overall, Hong Kong stocks are scarce, while market enthusiasm for crypto is high. Many A-share analysts are also discussing whether similar stablecoin concepts can be launched in the A-share market, which has become a hot topic.

4. The U.S. House of Representatives has passed three cryptocurrency bills. How will the current policy direction affect BTC's subsequent performance?

Mindao: I think the passage of these three bills may not have such a direct impact on Bitcoin (BTC). The Genius bill mainly involves stablecoins, while the Clarity bill may have a greater impact, focusing on clarifying which regulatory agency is responsible for overseeing the market. The most important significance of these three bills is that they provide a very clear framework for many compliant exchanges and asset issuers. For example, we see that Coinbase has already allowed perpetual contract trading in the U.S., and I believe this will directly boost the trading demand for Bitcoin. However, overall, I think the biggest beneficiaries of this round may still be Ethereum, DeFi, and stablecoins as new financial infrastructure projects.

Lily: In the long run, these changes are definitely positive. Bitcoin, as the "system" of the entire crypto space, will only be accepted by more people as the industry becomes more open. But in the short term, I agree with Mindao's view that there won't be particularly direct impacts. The more significant meaning lies in bringing more regulations to the entire industry, which is something many people have been looking forward to for a long time. If we want this industry to develop long-term and give birth to truly great companies, we must rely on more legislative support at this stage to help more ordinary people accept this industry.

Topic 2: Are the warming signals for ETH real? What does it mean for the future market?

1. With ETH being included in several listed companies, is this a long-term positive for ETH?

James: It is not surprising that Bitcoin has risen to $120,000 and then consolidated, with mainstream funds shifting to speculate on Ethereum. The previous structure has indicated that Ethereum has gained a certain degree of mainstream capital recognition, and its DeFi on-chain TVL data is relatively real. During the transition from bull to bear in 2021, Ethereum and Bitcoin experienced similar declines, making it an anti-dip asset. In this bull market, mainstream funds typically prioritize allocating to Bitcoin, establishing a bullish market pattern first. Now that Ethereum is experiencing a catch-up rally, it is a logical natural evolution. From our perspective, Ethereum still has long-term attractiveness. On one hand, it is recognized by the mainstream; on the other hand, its on-chain DeFi applications are active, with TVL accounting for over 50%-60%. Currently, TVL and FDV have not reached new highs, while Solana has seen more issuance. Overall, we remain optimistic about Ethereum's mid-to-long-term performance in this cycle.

2. Can the return of ETH prices draw attention back to the Ethereum ecosystem?

James: First of all, I don't think there is a "take back" issue. Even at the peak of Solana, its market cap never came close to Ethereum. In terms of TVL, over 50% has always been on Ethereum; it's just that, for example, industry hotspots like the Trump coin have led to a wave of meme coin activity, making the Solana ecosystem a bit hotter, but I believe Ethereum's status has always been that of the chain king; it’s just a matter of how far it is from others.

Mindao: I find it interesting that when we discuss Ethereum and Solana, we are actually discussing whether the blockchain future is a multipolar world or a unipolar world. Ironically, the Ethereum community often says, "Bitcoin is the idea, Ethereum is the execution," meaning Bitcoin is the ideal, while Ethereum is the implementation. Although the "multi-chain" concept was first proposed by Polkadot and Cosmos, Ethereum has executed it well. One could say Ethereum "copied the homework" but did it more successfully.

Returning to this cycle, I believe the future will definitely be a multi-chain world. Early on, BSC, Huobi, and OK all created their own EVM chains, and this round Coinbase and Kraken have also launched L2 based on Ethereum. Recently, Robinhood issued assets on Arbitrum and plans to launch its own L2 based on the Arbitrum Stack in the future. In the future, if JP Morgan or BlackRock wants to create a chain or issue assets, they will also want to do so in a controllable environment, further validating the multi-chain trend.

One advantage of Ethereum is that it is more willing to be compatible with traditional finance. From a political perspective, there are 195 sovereign countries in the real world, indicating that the pattern is destined to be multipolar. The blockchain world will not only have three or four chains dominating. In this multipolar pattern, Ethereum's multi-chain architecture may make it the core of blockchain infrastructure.

At the same time, the strategies of Ethereum-related companies differ from those of Bitcoin. Bitcoin treasury companies like MicroStrategy are more like passive reserves; whereas companies on Ethereum, like Sharplink, not only bring stock market funds on-chain but also push on-chain assets to the stock market, such as actively participating in on-chain DeFi like Staking and LSD. In the future, if Sharplink or Bitmine invests TVL into DeFi, it may drive a round of infrastructure upgrades. What I look forward to seeing is a scenario where listed companies issue DeFi convertible bonds and place them on-chain, interacting directly with DeFi protocols. Even protocols like AAVE, I hope that one day they can issue convertible bonds on the stock market to use the raised funds to support on-chain liquidity. For example, recently Ethena announced a reverse merger through SPAC, planning to go public as a stablecoin protocol, which also reflects the trend.

Dujun: First of all, why do I have confidence in Curve? Because it is essentially the "foreign exchange market" of the on-chain world. If this can be achieved, it will be a $10 billion-level company, while its current market cap is only about $1 billion. There are basically no real challengers, including Uniswap v3, which has not yet reached a stage where it can challenge it. Moreover, due to the previous lending liquidation incident involving founder Michael, this project has now achieved complete decentralization. So that’s why I am optimistic about Curve. Secondly, whether last year or now, I have always been quite optimistic about Ethereum. One point worth emphasizing is that in today's entire blockchain world, apart from Bitcoin, the only one that has truly achieved complete decentralization and has a relatively neutral identity is Ethereum. Other chains either lack sufficient decentralization or have not reached a high level of technical maturity.

When we discuss what problems blockchain can solve, I think we should first focus on the "financial" field, such as putting real-world assets (RWA) on-chain. Which chain will these assets choose to deploy on? Obviously, it won't be various small chains. Because large funds, institutions, or even sovereign countries at the level of $1 billion or $10 billion will only choose a chain with a high degree of decentralization and neutrality, which is Ethereum. Therefore, I believe that, based on the current situation, Ethereum does not yet have a real challenger. In terms of maturity, ecosystem, and developer count, it is the strongest. So I firmly believe in Ethereum. If blockchain can really rise on a large scale in the future, Ethereum will definitely be a very high-quality core asset.

Topic 3: Why is the performance of altcoins so divergent? Is there still an opportunity for linkage?

1. Has this round of altcoin linkage market ended, or has it not really started yet?

Lily: I believe that the altcoin market this round has not really started yet, far from ending. Of course, divergence is inevitable. Projects like EOS have passed their peak and are more about making new attempts. Just like in the stock market, the strongest 50 companies from a hundred years ago are completely different from today; whether they can last depends on whether the team continues to operate. Currently, the major direction of altcoins mainly divides into two categories:

The first category is emotion-driven, such as the meme coin representative Pump. Although it has recently corrected, its circulating market cap still reaches several billion dollars, with daily revenues in the millions. The core of these projects lies in "human nature" and "narrative," and many CEX contracts amplify this speculative psychology.

The second category is application-driven, and I personally firmly support DeFi. Because Crypto first changed the financial system, especially the payment system. For example, the recently hot Xstock issues and trades stocks on-chain, achieving 24/7 trading, which is difficult for traditional markets to accomplish in the short term. For instance, Nasdaq plans to achieve spot trading 24/7 by 2026, while the options market doesn't even have a timetable. The advantage of DeFi is that it can already provide this infrastructure; it just needs more liquidity and user education. In the future, the pricing mechanism of traditional assets may also migrate on-chain. Therefore, I believe that DeFi projects like Curve, which can serve real financial scenarios, will become important infrastructure for the entire industry. Of course, the combination of AI and Crypto is also worth paying attention to. AI for Crypto and Crypto for AI both have opportunities, but currently, apart from data rights confirmation and some interaction scenarios, they may not have found truly explosive points. However, it will definitely be one of the major tracks worth betting on in the future.

2. How do you view the future development of the AI and DeFi sectors?

James: Bitcoin itself is a product of the financial crisis; it was precisely because the traditional financial system had problems that Bitcoin was born. If we were to find the most "pragmatic" direction in the blockchain industry, DeFi is undoubtedly the most solid and meaningful. The current mainstream DeFi protocols, especially Blue Chip-level ones, are generally profitable from a financial data perspective, and their product systems are quite mature. The differences between traditional finance and on-chain DeFi are significant. Offline financial services are more aimed at high-net-worth clients, and ordinary people find it difficult to access quality services; whereas DeFi is fairer and more open. Traditional financial institutions can even ban accounts based on vague user agreements, while on-chain rules are transparent and trustworthy. Additionally, DeFi is constantly evolving in product experience, stability, and innovation. Although there were security issues during the past DeFi Summer, the mainstream protocols on Ethereum have matured, can generate stable profits, and continue to provide quality services. Therefore, we will also focus on allocating leading projects in the DeFi sector in the secondary market, such as DEX, lending, etc. From a long-term perspective, DeFi is also the sector we are most optimistic about among all tracks.

As for the AI direction, I personally do not have a technical background and have limited understanding of it. Currently, most Crypto+AI projects are still talking about narratives, and there are not many that have truly landed products. Whether this track can grow in the future depends on whether it can achieve large-scale applications and have real users using the products. If it is just about concepts, the narrative heat is difficult to sustain, and investment risks will be higher. However, once a blockbuster product appears, it may usher in explosive growth. Many CryptoAI projects still have relatively low valuations; for example, the ones we mainly hold, like Render and Near, are not considered expensive. The key going forward is whether there are practical implementations.

Dujun: At that time, we mainly focused on the infrastructure sector. Because during that phase, apart from stablecoins, the industry had hardly produced many practical results. The projects available for investment were limited, and there weren't many stories to tell. There was a common logic at that time: without perfect infrastructure, applications would naturally struggle to develop. This is actually a "chicken and egg" problem; many people believe it is "because there is no TikTok that 5G cannot be produced," but I believe it is "only with 5G can TikTok be created." Therefore, about one-third of our projects at that time were in the infrastructure direction, such as account abstraction, data analysis, L2, and parallel EVM. These projects are more technical at the bottom layer and were a relatively reasonable choice at that time.

So why is Vernal still continuing to incubate infrastructure today? Because the logic of today's infrastructure has changed. In the past, it was public chains and data; now it is more about security. The biggest challenge currently is: how to make it easier, safer, and more trustworthy for users to enter the on-chain world. Although some past projects (like account abstraction, gas-free) have solved part of the "usability" problem, security issues remain severe, such as frequent thefts, scams, and the proliferation of junk tokens. Currently, thousands of coins can be issued on-chain daily, but behind them, there may only be dozens or even a handful of people operating repeatedly. How can wallets identify these malicious behaviors? How to prevent scams? Including in the future, when stablecoins are widely used, how will wallets face compliance and anti-money laundering issues? For example, KYT, how to identify funds from sanctioned addresses or illegal accounts? These all belong to the category of "new generation infrastructure." Therefore, we will still incubate some technical projects, but the direction will lean more towards security and compliance. Overall, in each of our project phases, about one-third to one-quarter will still focus on this direction.

Mindao: In this cycle, our definition of "altcoin season" has also changed. Looking back at the cycles of 2013, 2017, and 2021, the definition of altcoin season was "most coins except BTC and ETH reaching new highs." However, I believe that in this cycle, the "altcoin season" we previously understood may not truly arrive. Why? Mainly because the funding structure has undergone significant changes, as just discussed. For example, why has Ethereum clearly underperformed Bitcoin in this round? It is because Bitcoin already has over $200 billion in institutional funds behind it, including ETFs, MicroStrategy, etc. This type of funding is completely different from the high-leverage funds in the traditional crypto space. Looking back at previous cycles, the market's pricing benchmarks have also changed: from 2013-2015, it was dominated by BTC; after 2017, Ethereum gradually became the pricing unit; and further on, stablecoins began to gain popularity, with the vast majority of tokens now priced in USDT. Once priced in stablecoins, the market's "resonance" effect is not as pronounced as in previous cycles. Because stablecoins are no longer directly tied to the prices of BTC and ETH, weakening the logic of "leading assets driving others."

When Ethereum and Bitcoin reach new highs, the biggest beneficiaries are still those foundational protocols that absorb the overflow of TVL. Recently, the overall TVL of DeFi has approached historical highs, but this is not due to innovations in the protocols themselves. Most DeFi protocols were structurally formed back in 2019, such as AMM, lending, and asset management, lacking substantial breakthroughs. The growth of TVL and transaction fees is more a natural result driven by rising coin prices rather than a reflection of the projects' own efforts. This also highlights the key differences between DeFi and other altcoins (like Meme, AI, GameFi)—the former can naturally absorb liquidity after the main chain rises, while the latter finds it more challenging. However, from an investment perspective, I do not agree with the statement that "DeFi is a threefold leverage of ETH." This is not because DeFi cannot capture value, but due to the current funding structure. The market's main players prefer to directly allocate BTC or ETH as asset reserves or underlying assets for ETFs, rather than further sinking into DeFi projects.

Topic 4: How are institutions and the stock market changing the Web3 market?

1. From the perspective of capital flow, is Wall Street "entering the market" or "cutting and running"?

Lily: Not all Wall Street funds are long-term funds; this is something everyone needs to recognize. I have participated in the operations of many crypto companies in the U.S. stock market and am very familiar with several projects. Many hedge funds in the market actively participate in PIPE (Private Investment in Public Equity); they acquire shares at a discount and then, through hedging strategies, sell off large amounts the day after the PIPE is completed, resulting in massive transactions. These funds do not necessarily have a long-term view of the industry's value, but their entry is indeed beneficial for the industry. Because the LPs of these funds are various retail investors, family offices, or institutional investors, in a sense, this is also a form of "breaking the circle."

Overall, Wall Street's participation in crypto is becoming increasingly formalized. For example, everyone has long been paying attention to the capital inflow of ETFs and will try to establish models to predict BTC's price trends: how much net inflow ETFs have each week corresponds to how much Bitcoin might rise; this model has already formed a certain reference value. Similarly, we can look at the capital flow of crypto stock companies in a similar way. For instance, when certain companies announce support for Ethereum, the actual funds invested behind them may come from money originally allocated for real estate and other assets. This will closely link Ethereum with traditional capital. In addition, apart from Bitcoin, all other chains are essentially "application chains." Platform chains like Ethereum, Solana, and BSC rely more on breaking into applications and user scenarios. As more and more institutions invest through the primary market or directly use products to enter the industry, it will drive more positive impacts.

In general, the integration of traditional finance and the crypto world is beneficial for the entire industry to be known by more people. But we can also see problems: many funds on Wall Street are also leveraged, and when the market enters a downward cycle, many crypto stock companies will show values below their net assets, meaning their market cap is lower than their book assets. In the past, Grayscale has experienced such a situation, and it will happen again, especially for long-tail companies. The truly long-term and steadfast companies betting on crypto, like MicroStrategy, are very few.

2. For entrepreneurial projects, have the preferences of VCs, CEXs, and traditional funds changed?

James: We are currently in a bull market phase with rising coin prices, so many "crypto stock" companies naturally prefer to benchmark against crypto assets and even have a very positive attitude. But when it comes to a bear market, with continuous price declines, the asset values of these companies may be significantly discounted, and even experience "inversion." I completely agree with this point. Therefore, we have always been very cautious in our investments. Although we have received many good investment invitations, with various crypto stock companies hoping we will participate, such as buying Ethereum, Solana, or other crypto assets, we have not invested in any company so far. Of course, this does not mean we won't invest in the future; it just means we will be more cautious. Especially for those companies that are not mainstream, have not reached the top, but have high valuation premiums, we believe they do not offer much value for long-term investors. In contrast, we prefer to invest in companies that truly have product capabilities, clear business models, and even profitability, which may potentially go public in the U.S. stock market, such as Circle, Ledger, and CoinList, which are leaders in their fields with real users and revenue. This type of company aligns more with our focus on "long-term value" investment logic.

Mindao: The recent "crypto stock" craze on Wall Street is indeed hot, but from my perspective, there are not many crypto stock companies that truly have long-term value. Leading companies related to Bitcoin, such as MicroStrategy, do have value because they are using real money to issue bonds and stocks, using structured products to net buy Bitcoin in the market. In contrast, Ethereum and other public chain crypto stock companies have structural differences. Many of these companies introduce large holders who already own tokens through PIPE offerings and then use the raised funds to buy back tokens, which is essentially "transferring from left pocket to right pocket," rather than real new capital inflow. This type of operation carries risks that cannot be ignored, especially when coin prices decline, making these risks more likely to be exposed. The current market is not sensitive enough to the "market cap premium" of crypto stocks (market cap divided by the number of tokens corresponding to each share). Some Ethereum-related crypto stock companies have premiums of 2-4 times; if they continue to issue through ATM, their behavior is very similar to the Rebase model of early algorithmic stablecoins—constantly diluting existing shareholders at high premiums, forming an arbitrage cycle. Only a few companies like MicroStrategy can maintain a premium above NAV using financial tools and sustain their market cap through buybacks in a bear market. But this is almost impossible for most crypto stock companies. To achieve a long-term positive cycle, these companies must quickly become industry leaders, becoming core liquidity counterparts that institutions cannot bypass for arbitrage and hedging. Otherwise, they mostly remain in the "trading stocks with tokens" arbitrage logic, similar to the early DeFi Summer gameplay. Therefore, we always maintain a high level of caution when facing such projects, focusing on whether they have real product capabilities, financial tool combinations, and long-term value.

Dujun: I think we can look at this issue from another angle. For listed companies like New Fire, we won't elaborate on the specific situation here; everyone can pay attention to the official announcements. But whether it is a token issuance project or a listed company, it ultimately comes back to a fundamental question: what value does your company create? How do you make money? What is your cash flow situation? From this perspective, I am actually quite grateful for this wave of market activity. Because it has made it clearer for us—good projects are good projects, and garbage is garbage. Therefore, whether it is a primary market company or an already listed enterprise, they must ultimately return to the fundamentals, to the real value creation and cash flow capabilities.