Author: Ryan Watkins

Compiled by: Deep Tide TechFlow

Introduction: In 2026, the crypto economy is undergoing its most critical transformation in eight years. This article delves into how the market has "soft-landed" from the excessive expectations of 2021 and is gradually establishing a valuation framework based on cash flow and real use cases.

The author explains the past four years of growing pains through the "Red Queen Effect" and points out that as U.S. regulations ease and enterprise-level applications explode, crypto assets are shifting from cyclical speculation to long-term trend growth.

In the face of a global trust crisis and currency devaluation, this is not just a recovery for an industry but the rise of a parallel financial system. For investors deeply engaged in Web3, this is not only a cognitive reshaping but also an undervalued, cross-cycle entry opportunity.

The full text is as follows:

Key Points

• This asset class overextended expectations in 2021; since then, valuations have been rationally correcting, and the valuations of quality assets have become reasonable.
• With the easing of the U.S. regulatory environment, the issues of token alignment and value capture have finally turned a corner, making tokens more investable.
• The growth of the crypto economy is shifting from cyclical to long-term secular trends, with valuable use cases emerging beyond Bitcoin.
• Winning blockchains are solidifying their status as standards for startups and large enterprises, becoming hubs for some of the fastest-growing businesses globally.
• Due to altcoins experiencing a four-year bear market, market sentiment has plummeted, and the long-term opportunities of top projects have been mispriced, with few analysts considering exponential growth in their models.
• While top projects may thrive in the next era of the crypto economy, increasing pressure to deliver on expectations and intensified competition from enterprises will eliminate weaker participants.
• Nothing is more powerful than a "timing is ripe" idea; the crypto economy has never felt more unstoppable than it does now.

In my eight years in this industry, the crypto economy is undergoing the largest transformation I have ever seen. Institutions are accumulating chips, while pioneering cypherpunks are diversifying their wealth. Enterprises are preparing for S-curve growth, while disillusioned native industry developers are exiting. Governments are steering global finance onto a blockchain track, while short-term traders remain fixated on chart patterns. Emerging markets are celebrating financial democratization, while disenchanted Americans lament that it is merely a casino game.

Recently, there have been many articles discussing "which historical period today's crypto economy resembles the most." Optimists liken it to the period after the internet bubble burst, believing that the speculative era of the industry is over and that long-term winners like Google and Amazon will emerge and climb the S-curve. Pessimists compare it to emerging markets, such as certain markets in the 2010s, suggesting that weak investor protections and long-term capital shortages may lead to poor asset price performance, even as the industry thrives.

Both perspectives have merit. After all, history is the best guide for investors, aside from experience. However, the insights that analogies can provide are ultimately limited. We also need to understand the crypto economy within its own macroeconomic and technological context. The market is not a singular entity—it consists of many roles and stories that are interconnected yet distinct.

Here is my best assessment of the stage we have been in and the direction we are heading.

The Red Queen’s Cycle

"Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast!"

— Lewis Carroll

In many ways, expectations are the only important thing in financial markets. Exceed expectations, and prices will rise; fail to meet expectations, and prices will fall. Over time, expectations swing like a pendulum, and future returns are often negatively correlated with them.

In 2021, the extent to which the crypto economy overextended expectations was beyond most people's comprehension. In some respects, this overheating was evident, such as DeFi blue chips trading at 500 times price-to-sales (P/S multiples) or the valuations of eight smart contract platforms exceeding $100 billion at the time. Not to mention the absurdities surrounding the metaverse and NFTs. But the chart that best reflects this calmly is the Bitcoin/Gold Ratio.

Despite significant progress, the price of Bitcoin against gold has not reached new highs since 2021 and is, in fact, in a downtrend. Who would have thought that in the global "crypto capital" as described by Trump, after the most successful ETF listing in history, and amidst the systematic devaluation of the dollar, Bitcoin's success as digital gold would be less than it was four years ago?

As for other assets, the situation is much worse. Most projects entered this cycle with a series of structural issues that exacerbated the challenges of coping with extreme expectations:

1. Most projects have cyclical revenues that depend on continuously rising asset prices;
2. Regulatory uncertainty hinders institutional and enterprise participation;
3. Dual ownership structures lead to misalignment of interests between equity insiders and public market token investors;
4. Lack of disclosure norms results in information asymmetry between project teams and the community;
5. Absence of a shared valuation framework leads to excessive volatility and a lack of fundamental price floors.

The combination of these issues has led most tokens to continue "bleeding," with only a few even reaching the highs of 2021. This has had a significant psychological impact, as few things in life are more frustrating than "working hard without reward."

For those speculators and opportunists who believe cryptocurrencies are the easiest way to get rich, this disappointment has been particularly acute. Over time, this struggle has sparked widespread professional burnout across the industry.

Of course, this is a healthy development process. Mediocre efforts should not continue to yield extraordinary results as they did in the past. The era before 2022, when "vaporware" could create immense wealth, is clearly unsustainable.

Nevertheless, a glimmer of hope in all of this is that the aforementioned issues are widely understood, and prices have reflected these expectations. Today, aside from Bitcoin, few crypto natives are willing to discuss any long-term fundamental arguments. After four years of pain, this asset class now possesses the necessary conditions to surprise the market once again.

The Enlightened Crypto Economy

As mentioned earlier, the crypto economy entered this cycle with many structural issues. Fortunately, everyone is now aware of this, and many of these problems are gradually becoming history.

First, aside from digital gold, many use cases have demonstrated compound growth, and even more are in the process of transformation. Over the past few years, the crypto economy has produced:

• Peer-to-peer internet platforms: Enabling users to transact and execute contracts without government or corporate intermediaries.
• Digital dollars: Allowing storage and transfer anywhere on Earth with internet access, providing billions with cheap and reliable currency.
• Permissionless exchanges: Enabling anyone, anywhere, to trade top global assets across any asset class in a transparent venue, 24/7.
• Novel derivative instruments: Such as event contracts and perpetual swaps, providing valuable predictive insights and more effective price discovery to society.
• Global collateral markets: Allowing users to access credit permissionlessly through transparent, automated infrastructure, significantly reducing counterparty risk.
• Democratized asset creation platforms: Enabling individuals and institutions to issue publicly tradable assets at very low costs.
• Open financing platforms: Allowing anyone in the world to raise funds for their business and overcome local economic constraints.
• Physical infrastructure networks (DePIN): Creating more scalable and resilient infrastructure by crowd-sourcing capital and allocating operations to independent operators.

This is not an exhaustive list of all the valuable use cases built by the industry to date. But the point is that many of these use cases are demonstrating real value, and regardless of the price movements of crypto assets, they continue to grow.

Meanwhile, as regulatory pressures ease and founders gradually recognize the costs of misalignment, dual equity-token models are being corrected. Many existing projects are merging assets and revenues into a single token, while others are clearly delineating on-chain revenues for token holders and off-chain revenues for equity holders. Additionally, as third-party data providers mature, disclosure practices are improving, reducing information asymmetry and enabling better analysis.

At the same time, the market has reached an increasing consensus on a simple and time-tested principle: aside from rare value-storing assets like Bitcoin (BTC) and Ethereum (ETH), 99.9% of assets need to generate cash flows. As more fundamental investors enter this asset class, these frameworks will only be further reinforced, and rationality will increase accordingly.

In fact, given enough time, the concept of "on-chain cash flow's sovereign ownership" could be understood as a paradigm unlock of equal scale to "sovereign digital value storage." After all, when in history have you been able to hold a digital bearer asset that autonomously pays you from anywhere on Earth every time the program is used?

In this context, winning blockchains are gradually emerging as the monetary and financial cornerstones of the internet. Over time, the network effects of Ethereum, Solana, and Hyperliquid are strengthening, thanks to their growing ecosystems of assets, applications, businesses, and users. Their permissionless design and global distribution make applications on their platforms some of the fastest-growing businesses in the world, boasting unparalleled capital efficiency and revenue turnover. In the long run, these platforms are likely to support the overall Total Addressable Market (TAM) for financial superapps, which is the domain that nearly all leading fintech companies are currently vying for.

Against this backdrop, it is not surprising that giants from Wall Street and Silicon Valley are ramping up their blockchain initiatives. Now, a wave of new product announcements emerges weekly, covering everything from tokenization to stablecoins and everything in between.

Notably, unlike the previous era of the crypto economy, these efforts are not experiments but production-grade products, most of which are built on public blockchains rather than isolated private systems.

As the lagging effects of regulatory changes continue to permeate the system in the coming quarters, these activities will only accelerate. With increased clarity, enterprises and institutions can finally shift their focus from "Is this legal?" to how blockchain can expand revenue opportunities, reduce costs, and unlock new business models.

Perhaps one of the most telling signs of the current state is that few industry analysts are building models for exponential growth. Anecdotal evidence suggests that many of my peers in both buy-side and sell-side roles are hesitant to consider annual growth rates above 20%, fearing they might appear overly optimistic.

After four years of pain and a reset in valuations, it is now necessary to ask ourselves: What if all of this does achieve exponential growth? What if "daring to dream" brings returns once again?

Twilight Moment

"To light a candle is to cast a shadow."

— Ursula LeGuin

On a cool autumn day in 2018, before starting another exhausting day in investment banking, I walked into an old professor's office to discuss everything blockchain. After I sat down, he recounted a conversation he had with a skeptical hedge fund manager who claimed that cryptocurrencies were entering a nuclear winter, a "solution in search of a problem."

After giving me a crash course on unsustainable sovereign debt burdens and the crumbling institutional trust, he ultimately told me how he countered that skeptic: "Ten years from now, the world will thank us for building this parallel system."

Although it is not yet ten years since then, his prediction seems remarkably prescient, as cryptocurrencies increasingly appear to be a "timing is ripe" idea.

In a similar spirit, the core message of this article is to demonstrate that the world is still underestimating what is being built here. For all of us investors, the most relevant point is that the long-term opportunities of leading projects have been undervalued.

The last part is crucial because while cryptocurrencies may be unstoppable, your favorite token may actually be heading towards zero. The other side of cryptocurrencies becoming unstoppable is that they are attracting fiercer competition, and the pressure to deliver results has never been greater. As I mentioned earlier, with the entry of institutions and enterprises, they are likely to weed out many weaker players. This does not mean they will win everything and monopolize the technology, but it does mean that only a few native players will emerge as the big winners around which the world repositions itself.

The point here is not to be cynical. In all emerging technology sectors, 90% of startups fail. There may be more public failures in the coming years, but this should not distract you from the bigger picture.

Perhaps no technology aligns more with the current zeitgeist than cryptocurrencies. The declining trust in institutions in developed societies, unsustainable government spending in G7 countries, the blatant currency devaluation by the world's largest fiat issuer, the de-globalization and fragmentation of the international order, and the growing desire for a new system that is fairer than the old one. As software continues to eat the world, AI becomes the latest accelerator, and the younger generation inherits wealth from the aging baby boomer generation, there has never been a better time for the crypto economy to emerge from its own bubble.

While many analysts define this moment through classic frameworks like the Gartner hype cycle and Carlota Perez's "post-frenzy" phase, suggesting that the best returns are a thing of the past, followed by a more tedious tooling phase, the reality is far more interesting.

The crypto economy is not a single mature market but rather a collection of products and businesses at different stages of adoption curves. More importantly, when a technology enters a growth phase, speculation does not disappear; it merely ebbs and flows with shifts in sentiment and the pace of innovation. Anyone telling you that the era of speculation is over may simply be weary or fundamentally misunderstanding history.

It is reasonable to remain skeptical, but do not be cynical. We are reimagining how money, finance, and our most important economic institutions are governed. This should be challenging, but it is also filled with fun and excitement.

Your next task is to figure out how to best leverage this emerging reality, rather than writing endless tweet threads arguing why it is all destined to fail.

For those willing to bet on the dawn of a new era, rather than mourn the sunset of the old, the opportunities that come through the fog of disillusionment and uncertainty will be rare and precious.

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