Crypto's Throne Has Been Taken

What happened to crypto? It used to be the place to be. Every other day there was a new coin or protocol that caught the attention of the entire market. No matter the day, there was always a sector printing new highs. These days, however, the story has inverted. New coins are sold into oblivion, and the market leaders struggle to stay afloat. Volumes are down, attention is dwindling, and the market, as a whole, has lost its spark. This brings us back to our original question—what happened to the market that was once at the peak of global mindshare?

Speculation Matures 

Crypto built itself up on a promise about the future. One where the world would bank with crypto and use crypto. That promise has largely fallen flat.

While a handful of products have absolutely delivered on their promises (Hyperliquid and Tether come to mind), 99% of the coins in circulation promised the world and delivered nothing. The vast majority don't have cash flows. And most don't even have an MVP. That is fine when the industry is in its infancy, but when Bitcoin is trading at a six-figure handle, the market is going to demand something tangible. Think about it this way: if a clothing company offers you the opportunity to buy a suit in the future for $5, it's easy to say yes; even if the company doesn't deliver on its promise, it's a small price to pay. But when that same company is offering it to you at $500, it becomes much more difficult to justify that gamble. The same thing is happening in crypto. Buying a layer-one protocol that promises to deliver a working interoperable chain at a $100M valuation is acceptable. But package that same protocol and try to sell it at $10B? That's something the market will simply not accept.

Another major factor that aids in speculation is global liquidity. The first crypto bubble was formed in 2013, largely sustained through cheap valuations and some offshoots of the liquidity surge that followed the GFC bailout in 2009. In 2017, we witnessed the second bubble, much larger than the first. Global liquidity was considerably higher thanks to the continuation of quantitative easing, and despite being a larger market than it was in 2013, crypto was still extremely small relative to the global economy. Then Covid hit in 2020, and the resulting increase in liquidity, the largest in history, birthed one of the most spectacular bubbles in human history. But this time around, global liquidity has decreased via quantitative tightening. And it's no coincidence that this is the first time in crypto's history that the majority of coins have failed to eclipse their previous cycle highs. A combination of failed promises, a maturing market, and quantitative tightening has resulted in a lack of demand for cryptocurrencies.

Artificial Intelligence Steals The Spotlight 

For nearly 13 years, crypto held the title of 'most interesting asset class'. The possibilities were endless, and as stated above, that was one of the primary reasons people speculated on it. Of course, there were equities that presented intriguing investment stories as well, such as biotech startups and a variety of new and upcoming tech companies, but they lacked what crypto could provide: an unknown and exciting future.

Equities, for the most part, are anchored to fundamentals, such as earnings, cash flows, and growth projections. When the numbers are realized and growth can be projected with some reasonable level of confidence, it becomes difficult for those assets to rapidly appreciate. Analysts will always point out that x stock is trading at x P/E, and that will inevitably scare new buyers off. But crypto was not weighed down by this. There were no cash flows to base these assets on, and there were infinite pathways to success. That's why it dominated mindshare and was the talk of the town, especially between 2017 and 2021. That moat, however, diminished once AGI was born.

There are a variety of factors that have contributed to crypto's decline in attention, but if we had to choose the single most impactful reason, it would undoubtedly be related to AGI. ChatGPT released its first model in November 2022. I can admit that when I first asked a question and it answered with a cohesive response, I was stunned. There are only a handful of moments in life when I've had my reality shattered, and that was one of them. And that was the result of using the first, clunky version of LLMs!

As the models became more accurate, the use cases expanded alongside them. Not too long after typing my first question into ChatGPT, everyone around me was also using it. Like crypto, AGI has an endless number of possibilities. But unlike crypto, these possibilities can and will produce tangible benefits in the real world. These aren't vaporware products. They are legitimate, and they will undoubtedly reshape the world. We are truly on the cusp of the singularity, and as you may have inferred, the excitement surrounding this type of technology has eclipsed crypto by many, many orders of magnitude.

If you are a crypto native, ask yourself this: why would you expect a market participant to invest in crypto instead of AI? If you can find an answer to that question, you have me beat, because I cannot think of a single reason to purchase crypto over AI. The inability to answer that question will help you understand why AI stocks have risen tenfold over the past few years, while crypto has largely remained flat.

Crypto is no longer the most interesting tech on the block. AGI is, and we expect it to remain the frontrunner for capital attraction.

The Art of Grifting 

While Covid birthed an incredible bull market, it also spawned what we like to call the 'Age of Grifting'. And this idea isn't just central to crypto; it has largely become a global phenomenon. We saw it with PPP loans, Chamath launching SPACs, and most importantly, we saw it with the President of the United States launching his own memecoin.

When the leader of the most powerful nation on earth, alongside members high up in the government, is openly defrauding their citizens, it shifts the Overton Window. Citizens themselves start to believe that the only way to get ahead is through nefarious activities. If the government is doing it, why can't I?

This idea has manifested itself in the stock market in the form of pump-and-dumps, insider trading scandals, and garbage-filled product launches. But those activities don't have the same effect as they do in crypto, because money that flows to bad actors in the stock market will more often than not stay within the stock market. In crypto, it's a different story.

Pump.fun 

If you've spent time trading crypto, you've likely heard the term 'max extract', which describes a protocol or token creator whose primary goal is to launch a token and exit as quickly as possible. The most common vehicle to max extract through is the memecoin. Enter Pump.fun. Perhaps the worst protocol to ever launch.

Pump.fun allows anyone, from anywhere, to create a token in seconds. It looks harmless on the surface, but the downstream effects are incredibly toxic. It's a very simple premise to understand—increasing supply + flat demand = saturation. And this effect is magnified when the supply is toxic. While we can't put an exact number on it, we are confident in claiming that at least a third of all tokens created through Pump.fun are being used to extract funds. In other words, more than a third of Pump.fun tokens are pure scams.

Every time a token goes under, market participants lose their money. But unlike the stock market, where extractors reinvest their proceeds, crypto extractors permanently remove those funds from the crypto markets. Over 12 million tokens have been created on Pump.fun since it launched in early 2024. Imagine how much money has left the crypto markets forever. That is damage that cannot be reversed.

The Trump Token

President Trump decided to join in on the fun of launching a memecoin shortly after he was elected as the 47th US President. To this day, the launch of $TRUMP is one of the most devastating events in crypto's history.

While launched at a mere $300M valuation, the President's token would later hit a $30B valuation (fully diluted). But its massive valuation wasn't the issue. The core issue stemmed from the token distribution: 80% of supply was controlled by Trump-affiliated entities, mainly CIC Digital LLC and Fight Fight Fight LLC. And, as expected, they started to offload their holdings into the pump. $TRUMP is now trading at a mere $2B fully diluted valuation and is considered one of the largest and most devastating pump-and-dumps in history.

But it wasn't just the monetary extraction that hurt crypto; it was Trump giving the stamp of approval to launch and sell your own coin without being subject to securities laws. Celebrities such as Iggy Azalea and Kanye West launched their own memecoins, and 'celebrity memecoins' quickly became a meta. The impacts are still being felt today, as Solana's network activity has dropped 97% one year after the launch of $TRUMP, while active traders have fallen from over 30 million in late 2024 to under 1 million monthly.

Fear of the Unknown (Quantum Overhang) 

Quantum computing poses a significant risk to crypto, primarily through its ability to crack encryption. While you could claim that quantum poses a risk to nearly every institution on earth, the effects on crypto are more acute.

Every wallet and transaction created on the Bitcoin network is visible to the public. If quantum is able to break public-key encryption, the entire value proposition behind Bitcoin vanishes. By contrast, if a bank's security system is cracked by quantum computing, criminal activity can largely be unwound. The other major issue is that the 'Bitcoin Committee' is slow-moving. Companies and institutions can pivot and sign off on security changes rather quickly. Bitcoin security proposals, on the other hand, would go through the Bitcoin Improvement Proposal system, an incredibly slow-moving process. And even if developers write the code, it means nothing unless the network adopts it.

While this threat is not immediate, it is present and will likely act as an overhang until meaningful proposals are passed.

What Does Crypto’s Future Look Like 

There is no denying that crypto is in a tough spot. It's a bloated market, and it's rapidly losing share to the AGI supercycle. Having said that, there most certainly are some bright spots.

Bitcoin continues to mature into a legitimate global asset. It is the first coin to establish structural inflows via ETFs, and, most importantly, it's a dynamic asset. Depending on what the market is searching for, Bitcoin can often fill that role—censorship-free money, a hedge, a risk asset, and so on. At heart, it's really a shapeshifting asset. Hyperliquid is another great example of a coin that successfully found true PMF. Not only is HYPE one of the best-performing assets of the past few years, but it is now also impacting how global markets trade.

There are several other success stories in crypto, most of which boil down to two simple factors: create a product that the market genuinely wants and distribute the token fairly, meaning insiders aren't hoarding supply while users are incentivized to earn tokens through actual product usage. We expect there to be many more crypto-based success stories in the near future.

However, we would be naive not to explicitly state that crypto is not, and will not be, the market that it once was. Those massive, outsized gains that were captured in 2017 and 2021 will not persist. AGI has become the god of the market's attention. What we are witnessing through LLMs and other AGI applications is akin to a modern-day industrial revolution. And while crypto will certainly provide opportunities, it is no longer the place to be.