Overlooked opportunities often hold the greatest potential.
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In any market, the most promising opportunities are often initially obscure and overlooked. Most investors tend to gravitate towards established and popular sectors or products, seeking to minimize risk and bolster confidence. However, this focus on the familiar intensifies competition and can lead to missed opportunities in less explored areas.
Solana’s post-FTX resurgence: A case study.
Solana’s trajectory after the FTX collapse in late 2022 exemplifies this phenomenon. With SOL plummeting to $10 and users abandoning the ecosystem, prominent projects like Phantom wallet embraced multi-chain support, while NFT collections Degods and y00ts migrated to Polygon and Ethereum.
However, as highlighted in the Solana Q1/2023 ecosystem report, network infrastructure steadily improved, and development persisted. Solana subsequently experienced a remarkable turnaround, with SOL’s price surging and new projects revitalizing the ecosystem. Those who maintained faith in Solana during its darkest hour reaped significant rewards through token appreciation and airdrops from emerging projects.
Identifying and capitalizing on these under-the-radar opportunities can provide investors with a substantial edge. Let’s delve into potential indicators that could influence future market trends.
Key Indicators of a Potential Market Shift
The Ethereum Revival
Ethereum’s Current State:
Recent activity on the Ethereum network has been subdued, with gas fees occasionally dipping below 1 gwei.
Ethereum Gas Fees – Source: Etherscan.io
Declining ETH prices and Total Value Locked (TVL) have further contributed to a shift in attention towards alternative ecosystems, notably Solana.
Over the past year, Ethereum has also seen diminished capital flow. Coingecko data reveals that top-performing tokens predominantly belong to meme coins and Solana-based projects. With 40,000 to 50,000 new meme coins created daily, primarily on low-fee, high-speed networks like Solana and BSC, Ethereum’s dominance appears challenged.
Daily Meme Coin Creation Across Chains – Source: DexScreener
While Ethereum currently lags in on-chain activity and capital flow, will this trend persist?
ETFs, Layer 2, and the Memecoin Resurgence:
1. Ethereum ETFs:
The launch of Ethereum ETFs, while initially experiencing more selling than buying pressure, mirrors the early days of Bitcoin ETFs. This new investment vehicle could eventually attract significant capital from traditional markets into ETH.
Ethereum ETF and Bitcoin ETF Trading Volume – Source: Coinglass
Ethereum’s real-world demand exceeding its inflationary rate positions it as a potentially profitable blockchain “company,” attracting traditional investors seeking exposure through ETFs.
2. Ethereum Layer 2:
Ethereum’s strategic focus on Rollups necessitates evaluating its ecosystem holistically, including Layer 2 solutions. Despite a decline in TVL mirroring the broader Ethereum trend, transaction volume on Layer 2 remains stable.
Layer 2 TVL and Daily Transactions – Source: L2beat
This resilience is partly attributed to the emergence of new Layer 2 solutions, with Optimistic Rollups currently attracting significant value. The advent of technically complex ZK Rollups further strengthens Ethereum’s scalability prospects.
Analyzing Transactions Per Second (TPS) reveals sustained growth in network activity despite market conditions. Specialized Layer 2 solutions catering to AI, gaming, and social applications provide Ethereum with a distinct advantage in addressing diverse capital flows.
Ethereum and Layer 2 TPS – Source: L2beat
The continuous improvement in the quantity and quality of Layer 2 solutions will significantly contribute to Ethereum’s growth.
3. Ethereum and Value-Driving Narratives:
ETH’s demand exceeding inflation fosters the development of complex systems like restaking. EigenLayer, a pioneering restaking project with a TVL nearing $13 billion, plans a token launch in late Q3 2024, airdropping 45% to the community. This, along with potential airdrops from related projects, could incentivize increased activity on Ethereum, mirroring previous trends observed on Solana.
Beyond restaking, Ethereum’s meme coin landscape exhibits promising signs. Tokens associated with influential memes like Doge and Pepe reside on the Ethereum network. While Solana boasts higher meme coin trading activity due to lower fees, Ethereum’s meme coins command significantly higher market capitalization and trading volume, indicating superior capital attraction.
Comparison of Similar Meme Coins on Ethereum and Solana – Source: Geckoterminal
Ethereum demonstrates positive signals in terms of its fundamental strength and ability to attract capital. Currently representing nearly 15% of the total crypto market cap, and over 46% excluding Bitcoin, ETH’s movements significantly influence the broader market, particularly altcoins.
Other Notable Indicators
The trend of low initial circulating supply and high Fully Diluted Valuation (FDV) has significantly impacted token price action, limiting profit opportunities for retail investors in the secondary market and driving them towards alternatives like meme coins. However, as meme coin hype subsides, observing reversal signals becomes crucial.
1. Break-Even Point:
Investors often experience psychological relief upon reaching their break-even point. Reaching or surpassing this threshold reduces selling pressure, particularly for fundamentally sound projects undergoing active development. While determining precise break-even points for institutional investors can be challenging due to limited information disclosure, analyzing early-stage valuations provides valuable insights.
Comparison of Announced Valuations and Current FDV for Select Projects
As token prices approach initial investment valuations, well-positioned projects are likely to experience reduced selling pressure.
2. Innovative Products:
Despite their relative nascency, numerous projects are adopting novel approaches. This differentiation is crucial in the crypto market. While innovation doesn’t guarantee success, it’s the foundation for groundbreaking advancements.
In the short term, project tokens will likely face continued selling pressure due to high FDVs compared to initial investments. Meme coins might temporarily capitalize on this sentiment, but liquidity for high-risk meme coins will diminish, potentially shifting focus towards established, community-driven meme coins.
As the crypto market matures, token prices approach break-even points, and compelling products emerge, a resurgence of project-based coins can be anticipated.
Conclusion: Identifying the Signs of Shifting Trends in Crypto
Analyzing historical market trends and the examples provided reveals key characteristics of trend shifts in the crypto market:
General Market:
- Rising tides lift all boats: Bull markets facilitate broader project visibility and capital inflow.
Industry Trends:
- Projects aligned with prevailing industry trends (DeFi, GameFi, Meme coins) or broader technological advancements (AI) often gain significant traction.
Product-Specific:
- Under-the-radar projects with dedicated communities.
- Continuous product development and improvement.
- Innovative and disruptive product concepts.
Recognizing these signals enables investors to capitalize on early opportunities and mitigate competition. However, emerging opportunities inherently carry higher risks, necessitating thorough research and prudent capital allocation strategies.
