Market Update (Feb 2025)

01 Feb 2025

Market update for our Elemental community! I used to write these updates occasionally, but I took a pause to focus on building Elemental’s infrastructure. Still, having a good sense of the market is crucial for both our operations and for helping the community position themselves better—so here we go!

Introduction

A member recently asked whether we’ve already hit the top of this market cycle. They cited ‘top signals’ such as an influx of new entrants to crypto, the US President launching his own coin, and Vine attempting to raise funds via Web3. NFA, of course, but the short answer is: no. I’ll highlight two charts illustrating why we might not be at the peak yet and then discuss the core ingredient of any bubble—something I think we’re still lacking.

Bitcoin’s Four-Year Cycle

It doesn’t have to follow a strict four-year rule, but historically, $BTC has often peaked roughly every four years, with a corresponding one-year bear market before reversing from the local bottom. Even after Terra’s collapse in May 2021, the market managed to push higher until we hit that four-year mark—coinciding with the FTX collapse.

The fact this pattern held, despite Terra’s massive impact, shows the significance of the four-year cycle. Markets (traditional or crypto) often work on self-fulfilling prophecies. If enough people respect a cycle, it becomes self-reinforcing. Humans are odd like that—technical analysis is largely founded on recurring behavioral patterns.

'Crypto' Search Trend

As for the second chart: this is the search trend for the term “crypto”. In 2017, crypto was niche, so you wouldn’t expect widespread searches. Now that it’s mainstream, we can anticipate search interest to peak again if we follow the same cyclical pattern.

The Core Ingredient of a Bubble

The crucial piece missing so far is euphoria—the point at which people abandon all logic. While memecoins might seem irrational to some, OGs know this is nowhere near true euphoria. Memecoins are more like casino bets; you expect to lose but your addiction gets the better of you.

Real euphoria involves deep conviction that whichever project you’re buying into is going to become the next Google, Amazon, or Tesla. This type of exuberance drove the dotcom bubble in 2000, the ICO craze in 2017, and the NFT mania in 2021. Critically, euphoria usually needs to be grounded in something that seems legitimate—like genuine tech companies in 2000, new blockchains (Ethereum, for instance) in 2017, or promising NFT brands in 2021.

Right now, we don’t see any comparable wave of legitimate companies spawning hype upon hype. Many OGs I know remain cautious, either rotating profits out or simply maintaining a decent chunk of stables. Euphoria drives all-in bets—and that, in turn, makes market crashes especially brutal as people capitulate or get liquidated. We’re simply not there yet.

Prediction: RWAs will be the next driver

I suspect that Real World Assets (RWAs) could spark the bubble this cycle. RWAs have credibility because many of these projects solve real problems—some already successfully tokenize treasury bills and real estate properties. If tokenizing company equity becomes common, we’ll likely see an explosion of new businesses using the model: starting with serious ventures, moving to less credible ones, and ending with outright rugs.

As soon as that veneer of legitimacy meets big money, FOMO sets in. Speculation spreads to everything launching, regardless of whether a project has a proper business plan or an experienced team. And the catalyst can be from any industry - be it AI agents, robotics, or flying cars.

Analysis degrades from “Is this truly sustainable in the long run?” to “Who cares—let’s flip it at the presale!”

Sound familiar?

Conclusion

There’s no guarantee that we must adhere to the four-year cycle or end up with a massive bubble. The market doesn’t come with rules carved in stone. Still, if I had to place a bet, I’d predict euphoria igniting this year, leading to a blow-off top. Then, a macro event might neatly trigger a crash and reset.

Afterwards, we rinse and repeat—such is the nature of financial markets.

Good luck. Meanwhile, we’ll keep quietly earning yields over at Elemental; I’m a bit tired of chasing market cycles. At this stage in life, boring old me values stability more than anything else.

Twitter Post: https://x.com/moothefarmer/status/1885642529355534703