After four sequels, today we bring the last insight into understanding crypto-market rotations.
Getting into an early recovery is when we will start looking at new entrants and when the tide of liquidity returns. In traditional markets in the early stages of recovery, liquidity first moves to the markets of industry, energy and basic materials, which enters the construction of infrastructure for the economy and gets people back to work again.
Similarly, early cryptocurrency recovery infrastructure (exchange, custody, data), scalability (side chains, chain routing alternatives) and fiat on-ramping services (exchanges, digital money applications, digital banks, wallets) will be the main focuses that will bring more people into the crypto economy.
The prevailing opinion is that the next big crypto bull run will come from security tokens and tokenized assets that are likely to slowly evolve over several years because there are so many legal rights, and this bull run will be initiated by institutional and accredited investors.
In the late part of the recovery and towards the market top, investors are becoming more tolerant for risky and exotic stocks as the herd mentality takes over, and this can be seen in the outsized rallies of the tech stock laden NASDAQ index compared to the late-stage Dow Jones Industrial Index in two of the the last three stock cycles, from Dotcom Boom (98-2001) to FAANG shares (2010-present). At the late stage of cryptocurrency recovery, we expect to see similar behavior as hype and new products and ideas like the next big Dapps and DAOs.
The crypto sectors for the Internet of Things and decentralized computing and file sharing are still several years away from having a market use case as there is still no need for such solutions in the real world and they are unlikely to realize their true value in the next cycle.
The time of the next wave of liquidity will depend on what is happening in the broader market and economy as it will be triggered by the migration of traditional investors who are mostly exposed to stocks and bonds.
While this is just a guideline on how we can begin watching the crypto market mature with more diversity of players and sectors, we cannot say how it will play out.
Now is a good time to think about not only the next bull run (eg security tokens) but how broader market cycles and environments will be more favorable to some sectors than others.