43. Bear Market Discussion Part 2: The Dialectical Relationship Between Cryptocurrency Projects and Price Fluctuations.

Author's Note

First of all, after thinking for a long time, I have decided to create a WeChat community. Because Discord is not very convenient for many readers, and I am not frequently on Discord, so I haven't seen a lot of information.

But I will manage the WeChat community more strictly. I will kick out anyone who clearly induces investment, promotes dog token contracts, contract trading, etc. The purpose of the community is only for communication, such as discussing the business logic of projects, discussing tracks, and even cryptocurrency jokes.

In addition, I hope readers and friends who join the community can help like and share my articles. I am grateful for that. The maximum limit for joining the group by scanning the QR code is 200 people. If it reaches 200 people, you can private message me to invite you to the group. I will also update the group QR code in the menu bar of the official account. If it reaches 500 people, I will open a second group.

Also, Weissman's Notes does not have a paid group and does not provide investment advice. Everything is free in the community. I just want fans to like and share, so I can gain some traffic, that's all.

Okay, let's get to the point. Because the theme of today's article is a casual discussion, as always, articles on casual discussions tend to be more scattered and stream of consciousness.

Actually, many readers have asked me questions, such as which projects are good, what projects I recommend, what projects I am bullish on, and so on. But I have never given a positive response, and most of the time I have evaded the question.

It's not that I don't have projects that I am bullish on, but I am well aware of the relationship in between: the quality of a project does not directly correlate with its price.

The quality of a project and the price of its token are two different dimensions. The quality of a project is measured by factors such as technological innovation, sound business logic, user base, total value locked (TVL), and solving industry pain points. However, the token price does not have a direct relationship with these factors.

The parameters directly related to the token price are circulating supply, token release schedule, and most directly, the market sentiment. If there is demand, the price will rise; if there is supply, the price will fall. This is the simplest and most direct logic.

As for positive and negative news, they are indirect factors that influence market sentiment and are not direct factors. Therefore, I prefer to observe the inflow and outflow of funds from on-chain holders to judge their trading intentions, rather than considering project quality.

To summarize this point, the quality of a project is only related to the project itself and does not have a direct relationship with the token price. The factors directly related to the token price are market sentiment and trading intentions. All other information influences the decision-making of buying or selling based on market sentiment.

Point Two: Project Quality and Trading Targets Are Not Directly Related

In conversations with some traders, there are also many cases where they ask me if I have any new high-quality projects to recommend for trading. However, this is also a misconception.

The choice of trading targets is not related to whether they are good projects. For traders, profitability is the primary goal, and as mentioned in Point One, the quality of a project does not directly affect the token price.

From a trader's perspective, the choice of trading targets should focus on trading depth rather than the specific project. In other words, traders are looking to profit in USD or BTC terms, so it is more in line with trading principles to choose targets with high trading volume. With sufficient trading depth and a large number of participants, K-line indicators are more likely to reflect the objective market conditions.

As for those new high-quality projects, they may not even have daily trading volume and technical validity is questionable.

Point Three: High-quality projects may not care about price

I have seen many projects, among which there are high-quality projects, and the token prices of many high-quality projects are often very low, and they may not even be listed on exchanges. So, some readers may think this is an opportunity, but what if the price keeps dropping 90% after you buy?

Strictly speaking, many small projects are indeed innovative. However, these projects are more of a burst of creativity among programmers. They may have advantages in technology that other projects do not have, but at the same time, they may not care about the token price.

This is particularly evident in geeky projects. Their prices may fall with the overall market but may not rise with the market. This is because these projects believe in the saying "good wine needs no bush." As long as the product is good and the technology is strong, there will naturally be buyers.

But in most cases, market participants are more concerned about the price of the token, even when considering high-quality projects, especially high-quality demos that have just come out of hackathons. They buy with the expectation of high returns after the token is issued, not because of the good technology.

Many high-quality projects seek investment from crypto investment institutions, even if they don't need money. The main purpose is to let more professional crypto investment institutions take charge of secondary market promotion, including listing on top-tier centralized exchanges (CEX) or local promotion in some countries.

In short, many high-quality projects in their team's expectations do not focus on maintaining market capitalization or pushing up prices. The issuance of tokens is mainly for the promotion or incentive of the project itself. Two typical examples are Uniswap and DYDX.

Although UNI issued by Uniswap is considered a governance token, it does not have specific governance functions. It was mainly distributed as an incentive token to counter the vampire attack by Sushiswap. As for DYDX, it is even simpler. It was purely distributed as an incentive token to encourage the use of the DYDX platform.

From the price perspective, it is clear that both tokens have been on a downward trend since their issuance, and the project teams have no intention of spending money to maintain the market capitalization because it is not their goal.

But can you deny that these two projects are high-quality projects? Actually, no. Both are leading projects in the on-chain DEX space and have high quality. However, the token price is a matter of market sentiment and is not directly related to project quality.

Point Four: Project Quality and Token Operations Are Two Different Things

As mentioned earlier, I will provide more detailed explanations here. The direct relationship of project quality is more related to research and development factors, while token operations are more related to marketing factors.

There are many meme projects in the market that have almost zero research and development but rely on so-called "consensus" to encourage people to invest and drive up prices.

From this, it can be seen that price fluctuations are not directly related to project quality. As long as there are buyers, the price will rise. This is a very simple principle.

This has been widely exploited by some people who understand crypto psychology, giving rise to a new category of meme tokens. Many recent projects in the form of DAOs are also like this. By forming a Discord group, they become a DAO, and the consensus of the DAO is to encourage more people to buy the token. (I have omitted the flashy marketing articles in between and focused on the ultimate goal)

Therefore, I classify meme projects and Discord DAOs as projects that rely on token operations. I do not have a reliable model to evaluate whether these projects are high-quality because they most likely do not even have a product, and having an official website is already considered good, and most of them only have a group.

So I define these projects as projects that I don't understand, so don't ask me for my opinion on them because I don't have one. And I can reiterate that project quality is not directly related to token price.

Point Five: High-quality projects are defined by long-termism

Many friends have expectations for high-quality projects, but these projects do not necessarily rise immediately after you buy them. The bullishness on high-quality projects is based on the long-term prospects of the project itself, considering factors such as excellent technology, sound business logic, and long-termism. This long-termism can be one year or even three to four years.

ChainLink can be used as an example. When its mainnet was launched in 2019, it was relatively unknown and overall considered a very high-quality project. However, it was not until the DeFi summer in 2021 that the importance of oracle services became prominent, leading to widespread adoption and a market capitalization of billions of dollars.

Now in 2022, ChainLink is still an important cornerstone of the DeFi world with widespread usage. However, the price has continued to decline. Does this mean that ChainLink is no longer a high-quality project?

Actually, ChainLink is still the same ChainLink, equally high-quality and important. But these factors do not directly influence the token price, so it continues to decline.

So, going back to Point Five, defining a high-quality project is actually quite simple, as long as you have sufficient knowledge. But trying to define a price range through high-quality projects, I think it is not feasible and even less meaningful than traders using K-line charts for reference.

In conclusion, the core purpose of selecting high-quality projects is to increase the probability of investment success.

Strictly speaking, whether it is a high-quality project, an ordinary project, or even a meme project, there is a possibility of a sudden rise. But I believe that the purpose of selecting high-quality projects should be to increase the probability of investment success, rather than focusing on the return on investment in trading.

The likelihood of success for high-quality projects is definitely higher than that of meme projects. However, this does not mean that a high-quality project will be successful, and even if a high-quality project is successful and listed on top-tier exchanges such as Binance and Coinbase, does it mean that the price will not fall?

Therefore, the relationship between project quality and token price is not direct in the short or even medium term. Just like someone who was very bullish on Luna six months ago, from that perspective, Luna was indeed a high-quality project in terms of technology, ecosystem, and business logic. However, it experienced a major black swan event that led to a death spiral and almost zero value.

This is also the title of my article, the dialectical relationship between projects and price fluctuations in crypto philosophy.

Author: Liu Ye Jinghong

Official Account: Weissman's Notes

Personal WeChat: liuyejinghong_

RSS3 Personal Homepage: liuye.rss3.bio

ETH Donation Address: liuyejinghong.eth

Discord: https://discord.gg/6tu2hpwvUh\\

Reply "web3" in the official account to receive free web3 learning resources

Reply "industry report" in the official account to receive the 2022 industry report for free