The White House Encryption Summit is about to be held. Can it last a bull market?

Author: Coin Market Trader

On February 21, a black swan incident suddenly appeared in the cryptocurrency market: Bybit exchange wallet was hacked, with losses of up to US$1.5 billion, setting a record for the largest security accident in history. Since the stolen crypto assets are mainly Ethereum and its pledge certificates, ETH plunged more than 5% during the session, dragging down the market to weaken.

Although Bybit, the main responsible party for the safety accident, has announced that the full compensation for the user's losses, the impact of the currency theft incident on the industry and the market has not yet ended.

First of all, whether Bybit has enough own assets to make up for the asset gap caused by theft of coins is still an open question. Taking Binance's assets in January as a reference, its $100 billion customer assets corresponds to a $8.7 billion reserve. Then the corresponding reserves of Bybit's $15.7 billion customer assets should be US$1.37 billion. This means that the pressure to fully compensate customers' assets is still huge. At present, whether it is to fill the funding gap through internal fund scheduling or external financing, Bybit needs to audit the exchange's asset status and publicize the results in order to restore market confidence as soon as possible. Otherwise, Bybit may face the risk of a run again, which will trigger market panic.

Secondly, the main reason for the success of this attack on Bybit wallet is that the hacker obtained the AWS S3 or CloudFront account/API key of Safe.Global, thus tampering with the front-end JavaScript file stored in S3, and implanting malicious code for Bybit cold wallet addresses. Many professionals believe that this safety accident may involve the cooperation of an insider. As one of the important multi-signal wallet service providers in the Web3 field, SAFE still manages more than $100 billion in crypto assets, which has caused huge concerns about spillovers of security risks. In addition, when Bybit uses an external wallet system, it does not conduct a secondary review of important transactions, and its security awareness is weak, resulting in a crisis of trust for users in decentralized exchanges. Therefore, it may still take a long time to solve a series of problems caused by the currency theft incident and rebuild market confidence.

In addition to the concentrated outbreak of internal risks, the impact of macro risks is also one of the important reasons for the continued decline of the crypto market. U.S. stocks continue to turmoil amid Trump cuts fiscal spending and wielding a tariff stick, with the median decline of 13% in the past week. This makes it difficult for the crypto market to enjoy the liquidity spillover of US stocks again. Therefore, while US stocks plummeted, Bitcoin ETFs also encountered record outflows. Without policy (National Reserve Bitcoin) favorable or technological breakthrough (basic improvement) as a hedge, the crypto market will continue to be under pressure in the decline of US stocks.

However, despite insufficient motivation for innovation in the crypto market, most application-like tokens are valued below 80% of the historical quantile and the price is still below 90% of the historical quantile, which means that most projects have returned to the level at Bitcoin’s $15,500. Extremely low valuations have reflected the sluggish fundamentals in advance. In addition, despite huge resistance to establishing Bitcoin nation reserves, Trump has begun to fulfill his campaign promise to "reversal the SEC's crypto-regulatory attitude" since last week.

First, in the past week, the US SEC has withdrawn its lawsuit against Coinbase and terminated its investigation into projects such as Robinhood Crypto, OpenSea, Uniswap Labs, Tron, etc. In response to the US SEC abandoning its investigation into Uniswap, Uniswap Hayden Adams said that the previous investigation lasted three years, wasted a lot of time and millions of dollars, and had a significant impact on the company. The human, material and financial pressures that need to be borne in litigation are not something that ordinary companies can afford. This means that many small and medium-sized projects will basically be closed once they are targeted by the SEC. With the end of the era of barbaric supervision, the living environment of blockchain projects will be greatly improved.

Secondly, President Trump will hold the first White House Cryptocurrency Summit on March 7 and deliver a speech. The summit will be chaired by White House crypto-director David Sax and will be managed by Bo Hines, executive director of the task force. At that time, the founders, executives, investors and members of the President’s Digital Assets Working Group will gather. The goal of the summit is to develop a clear regulatory framework, promote innovation and protect economic freedom. After the summit, Trump may sign a series of executive orders to promote the development of the crypto market. Although these policy benefits will be difficult to reverse the market decline in the short term, the top-level design of crypto-regulation and the acceleration of technological innovation will create favorable soil for the new bull market.

In this round of adjustment, Meme coins are undoubtedly the hardest hit area for this round of killing. The two most typical representatives, Ai16z and TRUMP, plummeted 89% and 88% respectively in the past month. This also verifies the past market law: market value growth driven by emotions will eventually be backfired by the emotional ebb. Therefore, the rapid rise of Meme coins is and how tragic it is when it falls. It is worth noting that this decline is likely not a conventional technical adjustment, but a signal that the Meme currency has been fully ebbed. There are two main reasons: 1. After TRUMP, Mile's LIBRA and CAR in the Central African Republic both showed "died in the light", which means that the game of pure capital games is difficult to continue. 2. The largest launch platform of Meme coins, the average daily agreement fee this week was only US$1.47 million, down 90.4% from the historical peak of US$15.38 million. In 2022, the signal of a full-scale decline in NFT also began with the 90% plunging OpenSea revenue. More importantly, when the hype logic of NFT was falsified by the market, NFT has not rebounded decently since 2022. In other words, investors currently trapped by Meme may never have the chance to get out of the trap.

According to Coinmarketcap data, there are currently 11.29 million crypto tokens included by the platform, of which 99.2% of the tokens have a daily trading volume of less than US$50 million. . According to data disclosed by Coinbase CEO Brian Armstrong, the current market has added up to 1 million new tokens per week. Judging from historical experience, when the market entry threshold continues to lower and the target supply continues to increase, funds usually flow to the top projects, which will also achieve higher valuation premiums. The current issuance mechanism of the crypto market is crazier than the registration system of Hong Kong stocks and US stocks, and the market's trend towards Hong Kong stocks and US stocks will eventually be irresistible. Therefore, in the long run, only by adhering to fundamentals can long-term asset appreciation be achieved.

In the previous article, we mentioned that this decline has evolved from killing valuation to killing logic, marking the arrival of a deep bear market, and the market downturn will last for a long time. However, the most obvious feature of this week's adjustment is that strong currencies have begun to make up for declines and low levels have begun to resist declines, which means that the prototype of the stage bottom has appeared. Of course, bottoming is also a very long stage. Stay patient and wait for the new cycle to arrive.