Written by: Ryan Watkins

Translated by: Qin Xiaofeng, Odaily Planet Daily

Editor's Note: Ryan Watkins, co-founder of Syncracy Capital, recently published an article titled "Twilight Zone: Looking Ahead to the Crypto Economy Beyond 2026." He mentioned that cryptocurrency assets were over-leveraged in 2021, leading to a continuous rational return in valuations since then, with high-quality assets now tending towards reasonable valuations; the growth of the entire crypto economy is shifting from cyclical drivers to long-term trend-driven growth. The industry has given rise to several practical application scenarios beyond Bitcoin. "No force can compare to a mature idea, and the emergence of the crypto economy has never been more unstoppable than now."

The following is the original content:

The crypto economy is undergoing the largest transformation I have witnessed since I entered the industry eight years ago.

Institutions are continuously accumulating digital assets, while early crypto pioneers are decentralizing wealth and cashing out. Enterprises are gearing up for S-curve growth, while disillusioned original players are worn out. Governments worldwide are pushing the global financial system to migrate to blockchain rails, while day traders remain worried over a few candlesticks on charts. Emerging markets celebrate financial democratization, while cynics born in the U.S. lament that it is just a big casino.

Recently, many discussions have arisen regarding which historical period the current crypto economy most resembles.

Optimists compare it to the recovery period following the burst of the internet bubble, believing that the speculative era of the industry has come to an end, with long-term winners like Google and Amazon emerging and climbing the S-curve. Pessimists liken it to emerging markets, like 2010s China, believing that weak investor protections and a lack of patience—only going long without selling—could lead to poor asset performance even if the industry thrives.

Both viewpoints have merit. After all, history is the best guide for investors, aside from personal experience. However, the role of comparison is ultimately limited. We must also position the crypto economy within its unique macroeconomic and technological context. Markets are not monolithic—they are composed of various personalities and stories that interconnect yet remain distinct.

Here is my best judgment on the past and future.

"The Red Queen's Race"

In Lewis Carroll's "Alice's Adventures in Wonderland," the Red Queen tells Alice, "You see, here, 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!" Evolutionary biologist L. van Valen coined the term "Red Queen Hypothesis" in 1973, aptly depicting the fierce survival competition rules in nature: not advancing means falling behind, and stagnation equals extinction.

In many ways, the only thing that matters in financial markets is expectations. Exceed expectations, and prices rise; fall short of expectations, and prices drop. Over time, expectations swing like a pendulum, with forward returns often negatively correlated.

In 2021, the expectations that the crypto economy over-leveraged far exceeded most people's comprehension. This was evident in some aspects, such as DeFi blue chips with price-to-sales ratios as high as 500 times, or several smart contract platforms boasting valuations exceeding $100 billion. Not to mention the dizzying farce of the metaverse and NFTs. But the most clarifying aspect remains the ratio chart of Bitcoin to gold.

Despite our various advancements, Bitcoin's price relative to gold has not reached a new high since 2021—it has actually declined since then. Who would have thought that in the "cryptocurrency capital" under Trump, following the most successful ETF issuance in history, amid systematic devaluation of the dollar, Bitcoin's performance as digital gold would be worse than four years ago?

For other assets, the situation is much worse. Most of these projects started this cycle with numerous structural issues, compounded by challenges posed by extreme expectations:

• Most projects have strongly cyclical revenues that rely on continuously rising asset prices.
• Regulatory uncertainty hinders institutional and enterprise participation.
• A dual ownership structure leads to conflicts of interest between equity insiders and public market token investors.
• Poor practices in information disclosure create information asymmetry between project teams and the community.
• Lack of a common valuation framework results in excessive volatility and no fundamental price floor.

The intertwining of these problems has led to most tokens continuously bleeding out, with only a few catching a whiff of 2021's highs. The psychological impact is immense, as there are few experiences more disheartening than constant effort with no reward.

This disappointment weighs particularly heavily on speculators and opportunists who thought crypto assets would be a shortcut to wealth. Over time, this struggle has brought widespread burnout throughout the industry.

This is, of course, a healthy development. Weak efforts should not consistently result in extraordinary returns as they did in the past. The era prior to 2022, where one could accumulate immense wealth based solely on conceptual embellishment, is clearly unsustainable.

Nevertheless, a glimmer of hope lies in the fact that these issues are now widely recognized, with prices reflecting this. Nowadays, aside from Bitcoin, hardly any original crypto players are willing to take the long-term fundamental narratives of any other assets seriously. After four years of hardship, this asset class now possesses the necessary conditions to surprise with upward movements again.

Awakening Crypto Economy

As mentioned in the previous section, the crypto economy faced many structural issues when this cycle started. The upside is that everyone now recognizes this, with many of these issues becoming historical relics.

First of all, beyond digital gold, many application scenarios are showing compound growth, with even more transitioning. Over the past few years, the crypto economy has given birth to:

• Peer-to-peer internet platforms that allow users to execute transactions and enforce contractual relationships without government or corporate intermediaries.
• Digital dollars that can be stored and transferred anywhere with internet access, providing affordable and reliable currency for billions.
• Permissionless exchanges that enable anyone to trade any asset class globally 24/7 in a single, transparent venue.
• Novel derivatives such as event contracts and perpetual swaps, providing society with valuable predictive insights and more efficient price discovery mechanisms.
• A global collateral market that allows users to access credit without permission through transparent and automated infrastructure, significantly reducing counterparty risk.
• Democratized asset creation platforms that enable any individual or institution to issue publicly tradable assets at very low costs.
• Open financing platforms that allow anyone in the world to raise capital for their ventures, breaking through local economic constraints.
• Physical infrastructure networks that build more scalable and resilient infrastructures by crowdfunding capital and distributing operations to independent operators.

This is not an exhaustive list of all valuable application scenarios constructed by the industry so far. The key is that many of these scenarios are exhibiting real value and 지속적으로 성장하고 있습니다.

Meanwhile, as regulatory pressures ease and founders recognize the costs of misalignment of interests, the dual model of equity and tokens is being corrected. Many existing projects are integrating assets and revenues into a single token, while others clearly delineate: on-chain revenues belong to token holders, while off-chain revenues go to equity holders. In addition, as third-party data providers mature, information disclosure practices are improving, reducing information asymmetry and enabling more reliable analyses.

Alongside this, a consensus is forming around a simple, time-tested principle: 99.9% of assets need to generate cash flow, with only value storage assets like BTC and ETH being a rare exception. As more fundamentally-driven investors enter this asset class, these frameworks will only further solidify, and rationality will gradually strengthen.

In fact, after a sufficiently long time, self-sovereign holding of on-chain cash flow may be understood as an equivalent unlocking of self-sovereign digital value storage. Have you ever held a digital non-recorded asset that, as long as the program is called anywhere in the world, autonomously grants you payment?

In this context, successful blockchains are becoming the monetary and financial infrastructure layer for the internet. Day by day, the network effects of Ethereum, Solana, and Hyperliquid are becoming more entrenched with their ever-expanding ecosystems of assets, applications, enterprises, and users. Their permissionless design and global distribution allow their applications to rank among the fastest-growing businesses globally, with unparalleled capital efficiency and revenue velocity. In the long run, these platforms are likely to support the total potential market of "financial super applications" that almost all leading fintech companies wish to participate in.

In this context, established giants from Wall Street and Silicon Valley are unsurprisingly ramping up their blockchain-related efforts. Nowadays, there is hardly a week without a wave of new product launches, from tokenization to stablecoins, and more. Notably, unlike previous periods in the crypto economy, these efforts are no longer experiments. They are production-level products, mostly built on public blockchains rather than isolated and closed private systems.

As the lagging effects of regulatory changes continue to permeate the entire system over the coming quarters, these activities will only accelerate. Under clearer rules, businesses and institutions can finally shift their focus from "Is this legal?" to how blockchain can expand revenue opportunities, lower costs, and unlock new business models.

One sign that perhaps better illustrates the current situation is that few analysts in the industry are modeling for exponential growth. I intuit that many of my peers in both sell-side and buy-side institutions do not dare to adopt annual growth rates above 20%, for fear of appearing overly optimistic.

As valuations have reset after four years of pain, a crucial question at this moment is to ask oneself: what if all of this truly leads to exponential growth? What if daring to dream again will ultimately be rewarded?

"The Yin-Yang Magic World"

"Lighting a candle casts a shadow." — Ursula LeGuin.

On a crisp autumn day in 2018, before yet another exhausting day in investment banking began, I casually walked into an old professor's office and discussed everything related to blockchain. After sitting down, he recounted a conversation he had with a skeptical hedge fund manager who claimed crypto assets were entering a nuclear winter, describing them as "a solution still looking for a problem to solve."

After giving me a quick crash course on the unsustainable burden of sovereign debt and the collapse of institutional trust, he ultimately relayed to me what he told the skeptic: "Ten years from now, the world will be grateful that we built this parallel system."

It hasn't even been ten years since then, but as crypto assets increasingly resemble a mature idea every day, his prophecy seems quite prescient.

In the same spirit, this is the crux of the article: to illuminate how the world is still underestimating everything being built here. And for all of us investors, the most practical significance is that the long-term opportunities for leading projects are now being undervalued.

This point is critical because, although the arrival of the crypto world may be unstoppable, your favorite coin could truly go to zero. The unstoppable side of the crypto world is that it is attracting fiercer competition, and the pressure to deliver promises has never been greater than it is now. As institutional and enterprise giants that I referenced earlier enter the field, they are likely to cleanse many weaker players. This does not mean they will win everything or monopolize the technology. But it does mean that only a very few original players will emerge as the big winners around which the world reanchors its order.

This is not meant to make one cynical. In every emerging technology, 90% of startups fail. More failures will likely become publicly apparent in the coming years, but this should not divert you from the larger picture.

No single technology perhaps fits the spirit of our times better than crypto assets. The decline of institutional trust in developed societies, unsustainable government spending in G7 member states, blatant currency devaluation by the world’s largest fiat currency issuer, the de-globalization and fragmentation of the international order, and the growing desire for a new system fairer than the old—all of these are contributing forces. As software continues to consume the world under the latest accelerator of AI, and as the younger generation inherits wealth from the aging baby boomers, the present moment is the best time for the crypto economy to emerge from its own small bubble.

Many analysts frame the present through classic frameworks, such as the Gartner Technology Maturity Curve and the "post-hype" stage described by Carlotta Perez, suggesting that the optimal return period has passed, followed by a more subdued practical phase. However, the truth is far more interesting.

The crypto economy is not a neatly uniform market moving towards maturity; it is a collection of various products and enterprises evolving on different adoption curves. Perhaps more importantly, when a technology enters a growth phase, speculation does not disappear; it will merely ebb and flow with shifts in sentiment and the cadence of innovation. Anyone who tells you the age of speculation is over is likely disheartened or simply ignorant of history.

It is reasonable to maintain a healthy skepticism, but do not descend into cynicism. We are reimagining how money, finance, and our most crucial economic systems are governed. This should be both fascinating and exciting while also being fraught with challenges.

From now on, your task is to think clearly about how to best leverage this emerging reality, rather than endlessly arguing on Twitter why everything is destined to fail.

Because behind the fog of disillusionment and uncertainty lies a once-in-a-lifetime opportunity for those willing to bet on the dawn of a new era, not mourn the setting sun of the old.