As capital shifts, is value investing finally returning?

Original title: "The Speed Trap - A Meditation on Markets"
Original author: Ryan Watkins
Original translation: zhouzhou, BlockBeats

Editor's note:This article points out that the current market speculation atmosphere may seem empty, but the market is moving in a fundamental-driven direction, and real projects are beginning to trade at reasonable valuations. Venture capital returns may shrink, and funds will flow to public markets to support emerging winners. Market changes take time to appear, and investors should follow the trend and seize the opportunity to own basic digital platforms.

The following is the original content (the original content has been reorganized for easier reading and understanding):

"In their focused meditation, the sound of hidden things gradually approached, they listened devoutly, and the people outside the street were completely unaware." - C. P. Cavafy

The crypto economy has proven time and again that it is the fastest horse when the monetary environment is relaxed. Syncracy believes that this time will not be much different, coupled with the stimulation of institutionalization and regulatory transparency. However, the key difference between today and previous cycles is that returns are less likely to be driven by thematic trends and more likely to be dispersed.

Unlike previous cycles, there was no innovative trigger to trigger the market's rebound this time. Instead, it was the promise of Bitcoin ETFs and institutionalization that drove the rise of this asset class, and the speculative funds that followed lacked a clear focus. Unlike 2021, there’s no DeFi or NFT excitement this time around — just a general sense that things are looking up, and early signs of maturing infrastructure.

At the same time, the number of assets in the cryptoeconomy has grown by 1-2 orders of magnitude, making it harder to see unified gains across the industry, or even an entire asset class. As a result, speculative capital lacks a clear direction, and many cynically believe that the only guiding logic is financial nihilism - perhaps the only notable technological breakthrough in this cycle is more efficient infrastructure for launching and trading tokens.

The challenge facing the asset class right now is that valuations for many of the “real” projects are not cheap. The average application climbing the “Slope of Enlightenment” trades at 44x forward-looking revenues, even though they are only showing early signs of overcoming cyclical forces and transitioning to compounding long-term growth.

While some niche projects trade at relatively reasonable valuations when compared to traditional equities, the projects as a whole still need to grow to match their valuations. While there are compelling reasons to believe these applications are undervalued over the long term, especially compared to non-monetary blockchain infrastructure trading at ~200x higher multiples, it is not clear that there is any sense of urgency to take long positions on an absolute basis.

Meanwhile, the market is fatigued by the growing number of venture capital projects that are listed at high valuations but with little fundamental basis. With secular winners emerging from the crypto economy’s foundation, the industry is clearly oversaturated, and overfunded venture investors continue to invest in this type of infrastructure, which may eventually pay the price for misallocating capital. Retail investors know this well and now refuse to blindly bid for new tokens whose upside is fully priced in privately (if not overpriced).

Against this backdrop, investors are increasingly flocking to “Meme” assets, and as speculative interest rises, opportunities for rational investment remain limited. These assets lack a clear valuation framework, making them highly reactive and prone to bubbles.

For example, L1 assets still trade at relative valuations to BTC and ETH, which themselves are priced as non-sovereign currencies that cannot be intrinsically valued. Meanwhile, AI tokens are trading on a relative valuation basis, despite the fact that as an emerging field, AI’s potential is huge but difficult to quantify. Meme coins, meanwhile, have completely abandoned any pretense of value and are priced based solely on attention.

The appeal of meme assets is amplified by the crypto market’s rising short-termism, a phenomenon that can be called the “speed trap.” In an investing world increasingly influenced by social media and gamified trading, herd mentality and instant gratification have warped investor psychology, with retail speculators chasing quick gains at an accelerating pace. This phenomenon is not surprising, as it reflects a broader shift in the global economy toward on-demand goods and services. Just as consumers expect food to be delivered quickly, retail investors now expect instant returns through mobile trading apps such as Robinhood.

There is growing evidence that these trends are making the stock market less efficient. Syncracy observes that these trends are also distorting the crypto market - few market participants can see further ahead, even beyond two weeks, let alone two or two years. For many, trading has quietly become a semblance of gambling. So, as a fundamentals-driven investor, how does one navigate all this?

The synthesis of these views is to own projects that are both fundamentally sound and have meme appeal.

While pure fundamental assets have a valuation floor, there is also a ceiling, which makes them less attractive to retail investors, unless they are small-cap stocks. On the other hand, pure meme assets benefit from reactivity, but are now oversupplied, trading behavior is highly gamified and extremely volatile, limiting their appeal to institutional investors.

Assets like SOL combine these two characteristics, offering the best of both worlds — fundamentals rooted in reality with thriving on-chain activity, yet attracting speculative money from retail and institutional investors who price it relative to ETH and BTC. Non-capitalization assets like TAO also fit this profile, with TAO being called “AI money” as the promise around decentralized AI accelerates economic growth and speculative enthusiasm.

Taking all of this into account, Syncracy believes that asset classes are beginning to diverge between Bitcoin and stablecoins, which are on the Plateau of Productivity, while other assets are at best on the Slope of Enlightenment. Across multiple adoption metrics, the crypto economy is similar to the internet in the late 1990s, during the dot-com bubble — a phase where the revolutionary potential of the internet was clear, but valuations were astronomical, and a basic framework for valuing internet companies did not exist.

As mentioned before, Bitcoin may have passed this uncertainty phase and is on its way to global adoption as digital gold. However, other asset classes are once again seeing the beginnings of a speculative boom similar to the late 1990s.

“We always overestimate what we can do in two years and underestimate what we can do in ten.” - Bill Gates

While many view this speculation as nihilism, we are seeing signs of progress. It is encouraging to see real projects starting to trade more on a fundamental basis, similar to stocks, and being forced to flow value back to token holders. This is a positive development, with public market investors becoming more discerning, pushing new projects to launch at more reasonable valuations.

Venture returns are likely to contract as a result, which will drive capital into public markets for better allocation to emerging secular winners. The crypto economy must digest these changes in order to make the next leap forward in the asset class.

In the meantime, it is clear that we must swim with the tide, not against it. The massive structural changes we are witnessing - from the decline of venture capital to the rise of the influence of institutional allocators - will take time to fully manifest.

The beauty of this speculative chaos is that the market presents incredible opportunities to own underlying digital platforms that act as commodity currencies with great asymmetric yield potential and institutional-scale liquidity. This trade will not last forever, but in the meantime, the game is money, memes and speculation.

Important Legal Notice

The above reflects the views of Syncracy Fund Management ("Syncracy"), but should not be construed as financial or investment advice.

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