The Current State of the Crypto Market

The cryptocurrency market continues to evolve and mature, with new trends emerging and established narratives being challenged. In a recent episode of the Unlayered podcast, Ryan Connor from Blockworks Research shared his insights on the current state of the market, offering a nuanced perspective on various aspects of the crypto ecosystem.

Connor, who spent the first seven years of his career as a macro investor focused on short-term time frames, has since shifted his approach to longer-term, more fundamentally oriented thinking. This shift in perspective allows for a more comprehensive view of the market's dynamics and potential future trajectories.

When asked about his feelings on the current market conditions, Connor expressed a measured optimism:

"I'm doing my best to not know the price of Bitcoin. It's below 60. I know that much. I know Germany's selling. But I think when the biggest piece of bad news is that a big person is selling or a whale is selling, it could be worse. It's not a massive leverage unwind. An exchange hasn't committed fraud. The government isn't cracking down on all the crypto on-ramps and off-ramps. Things could be much worse."

This perspective highlights the relative stability of the current market compared to previous periods of turbulence. While there are certainly challenges and uncertainties, the absence of major systemic issues or regulatory crackdowns suggests a level of resilience in the crypto ecosystem.

The Evolution of Altcoins and Market Sentiment

One of the notable trends discussed in the podcast is the shifting sentiment towards altcoins. Connor observed that many investors are becoming increasingly focused on a select few cryptocurrencies, primarily Bitcoin, Ethereum, and Solana. This concentration of interest reflects a broader trend of consolidation within the crypto market, as investors seek stability and proven track records.

However, Connor cautioned against dismissing the broader altcoin market entirely. He noted that there are still interesting developments and opportunities emerging across various projects and sectors:

"There's a lot of really interesting things happening in crypto. I think that meme coins are super interesting and investable. I think that the crypto AI intersection and the way that it's changing markets, there are a lot of opportunities there. I think in the DeFi space, you have a few protocols that can generate real revenues that are trading at meaningful or realistic valuations that aren't crazy like everything else."

This balanced perspective emphasizes the importance of remaining open to new developments while maintaining a critical eye on valuations and fundamentals. As the market matures, the ability to discern genuine innovation and value creation from hype-driven projects becomes increasingly crucial.

The TON Ecosystem: Opportunities and Challenges

A significant portion of the podcast discussion centered around the TON (The Open Network) ecosystem and its native cryptocurrency, TON Coin. Connor provided an in-depth analysis of both the bullish and bearish cases for TON, offering valuable insights into this emerging blockchain platform.

The Bull Case for TON

The primary strength of the TON ecosystem lies in its unique relationship with Telegram, a major web2 company that is actively integrating blockchain technology into its platform. This integration provides TON with a potentially massive distribution channel, given Telegram's large and active user base.

Connor explained the significance of this distribution advantage:

"Distribution is the most powerful force in finance, argue or sorry, in technology markets arguably. It's the reason why Apple was able to flip a switch on the phone and enable payments and generate $2 billion in revenue within 24 months. It's how Microsoft was able to whittle away at AWS's market share because they had pre-existing distribution on-prem with enterprises."

This analogy highlights the potential for TON to leverage Telegram's existing user base to drive adoption and usage of its blockchain ecosystem. The integration of a wallet feature within the Telegram app could serve as a powerful onboarding tool for new crypto users.

Challenges and Considerations

Despite the compelling bull case, Connor also identified several challenges and potential limitations facing the TON ecosystem:

1. User Engagement Metrics: While Telegram boasts a large number of monthly active users (MAU), the daily active user (DAU) to MAU ratio is relatively low compared to other social and messaging apps. This suggests that the actual monetizable user base may be smaller than initially apparent.

2. Fragmented Distribution: Unlike platforms like WeChat, which primarily serve a homogeneous market (mainland China), Telegram's user base is spread across diverse geographic and linguistic regions. This fragmentation complicates the development and marketing of applications built on TON.

3. Developer Ecosystem: The programming language used for TON, FunC, is not as widely adopted or admired as languages used by other blockchain platforms. This could potentially limit developer adoption and ecosystem growth.

4. Valuation Concerns: At the time of the podcast recording, TON Coin was trading at a significantly higher price-to-fees ratio compared to other Layer 1 and Layer 2 tokens. This high valuation raises questions about the potential for future price appreciation.

Connor summarized his perspective on TON's valuation:

"If TON is one-50th of the price today, it is a massive buy. Like, I think all of us put a significant portion of our wealth into it, but it's not. It's trading at 950 times fees. I think the median L1 or L2 token is trading at 500 or 600 times fees. Solana is trading at 130 times fees, Arbitrum is trading at 100 times fees. The growth is priced in."

This analysis underscores the importance of considering valuation metrics when evaluating investment opportunities in the crypto space. While TON's potential is significant, the current pricing may already reflect much of that potential.

The Rise of Meme Coins and Attention Tokens

One of the most intriguing trends discussed in the podcast was the continued prominence of meme coins and attention tokens in the crypto ecosystem. Despite often being dismissed as purely speculative or lacking in fundamental value, Connor argued that these assets serve an important function and are likely to remain a significant part of the crypto landscape.

The Staying Power of Meme Coins

Connor challenged the notion that meme coins are merely a passing fad:

"I think that meme coins, I think the narrative gets it wrong in that they have had staying power. They are here to stay. They are not ephemeral. The reason that I believe that is because to me, meme coins are an extension of traditional gambling."

This perspective frames meme coins as part of a broader trend in consumer behavior, driven by factors such as increased disposable income and a desire for short-term, high-excitement investment opportunities. Connor drew parallels between meme coin trading and sports betting, highlighting the social and entertainment aspects that contribute to their appeal.

The Market Opportunity

To illustrate the potential market size for meme coins and attention tokens, Connor shared a compelling statistic:

"Americans wager 90 billion in 2022 casinos gambling apps with did 186 billion in volume since its first listing in January of this year, which seems to suggest that as you said in the tweet the market for meme coins is larger than what people give it credit for."

This comparison suggests that the appetite for speculative, entertainment-driven financial activities is substantial and that meme coins may be tapping into a similar psychological and social need as traditional gambling.

Evolving Platforms and User Experiences

The podcast discussion also touched on the emergence of new platforms and user experiences in the meme coin space. Platforms like PumpFun have gained significant traction, with Connor noting:

"I'm really rooting for PumpFun. I think it's so cool that they've generated like 60 million in total revenue so far. Like what is that I think they and they had one day where they outpace the daily revenue of Ethereum like fantastic. Absolutely fantastic."

This success highlights the potential for innovative platforms that can capture user interest and provide engaging experiences in the meme coin space. The evolution of these platforms may play a crucial role in shaping the future of this market segment.

The Future of Social Finance (SocialFi)

The intersection of social media and finance, often referred to as SocialFi, emerged as another key topic of discussion. Connor shared his thoughts on the potential and challenges of integrating speculative elements into social platforms.

Balancing Speculation and User Experience

While acknowledging the power of financialization in driving engagement, Connor cautioned against the unbridled introduction of speculative elements into social platforms:

"It would be great if we saw more applications allow varying degrees of speculation over time instead of just opening up the floodgates. Like maybe allow a subset of creators or just across certain dimensions like selling NFTs or maybe like the promotion would have to be approved in some way, because it can get like really scammy really quick."

This nuanced approach suggests that the successful integration of financial elements into social platforms may require careful curation and gradual implementation to avoid negative impacts on user experience and community dynamics.

The Potential of Decentralized Trending Lists

An intriguing concept discussed was the potential for meme coins to enable decentralized, incentivized trending lists. This idea, attributed to Tarun Chitra, suggests that meme coin activity could provide a crowdsourced mechanism for determining what topics are genuinely trending in real-time.

Connor commented on the current manifestations of this concept:

"You're kind of seeing that today too right with like I think Dexscreener or Gecko terminal will have that like trending coins list. Unfortunately from like a money-making perspective like it's probably late if it's there."

While the implementation of such systems is still in its early stages, the potential for decentralized, market-driven trending mechanisms could have significant implications for how information and attention are valued and distributed in digital ecosystems.

The Role of Layer 2 Solutions and Value Accrual

The discussion also touched on the challenges facing Layer 2 (L2) solutions, particularly in terms of value accrual to their native tokens. Connor highlighted the potential issues with L2s building on top of networks like TON:

"There are L2s raising some of them, EVM L2s on TON to solve that developer friction point. And if you are building an L2 on TON, like to me, that's a value capture problem for the TON ecosystem, because the L2 is going to own that relationship with that EVM developer, it's not going to be TON coin, it's not going to be the TON chain."

This observation raises important questions about the long-term value proposition of base layer tokens in ecosystems where much of the activity and user interaction occurs on L2 solutions. It also underscores the complexity of value capture in multi-layered blockchain ecosystems.

Challenging the Moneyness Claims of Cryptocurrencies

One of the most thought-provoking segments of the podcast centered around the concept of "moneyness" as applied to cryptocurrencies like Bitcoin and Ethereum. Connor presented a strong argument challenging the notion that any cryptocurrency has achieved true money status:

"I'm willing, since I've held for a long time the view that nothing in crypto is even close to money. The BWR guy, like the guys on my team, they're all super smart. They've changed my mind on a lot of things. Maybe they changed my mind on this and like kind of I am moving slightly in that direction. But I think objectively, if you look at the market today, nothing is money in crypto. Nothing is even close to being money in crypto."

Connor supported this assertion with several key observations:

1. Preference for Stablecoins: The crypto market has shown a revealed preference for US dollar-pegged stablecoins over native cryptocurrencies for trading pairs and value storage.

2. Limited Real-World Usage: Even in cases where crypto is used for regulatory arbitrage or to circumvent traditional financial systems, stablecoins are often preferred over volatile cryptocurrencies.

3. Accounting Practices: Major companies and exchanges typically do not hold significant reserves of cryptocurrencies beyond what is necessary for immediate operations, unlike their practices with fiat currencies.

This perspective challenges popular narratives about the monetary nature of cryptocurrencies and suggests that the path to true "moneyness" may be longer and more complex than many enthusiasts believe.

The Resilience of the US Dollar

In discussing the potential for cryptocurrencies to challenge traditional fiat currencies, Connor offered a strong defense of the US dollar's position:

"The dollar is in the best shape it's ever been. The dollar is up since the lows in 2008. The DXY is up like 50% against the backs of basket of competing currencies. It's strengthened. When financial crises happen, the dollar goes up in value, not down because there's a massive rush for dollars because it's a safe haven still today."

This analysis suggests that despite concerns about inflation and monetary policy, the US dollar remains the dominant global reserve currency and continues to benefit from its status as a safe haven asset during times of economic uncertainty.

Connor also highlighted the role of technological innovation and effective monetary policy in maintaining the dollar's strength:

"I think there are two big trends over that decade. I think one was the technology sector. It was software and Silicon Valley was the place to do it. It happened in the United States. We had the venture capital. We had the minds. We had the universities. It worked here. We had the developed capital markets that really helped. I think the other thing that really helped is monetary policy."

This perspective emphasizes the interconnected nature of technological innovation, economic policy, and currency strength, suggesting that the US dollar's dominance is underpinned by a complex set of factors that extend beyond purely monetary considerations.

The Future of Crypto Analysis and Investment

As the crypto market continues to mature, the approaches to analysis and investment are evolving. Connor shared valuable insights for aspiring crypto analysts and investors:

1. Intellectual Curiosity: The ability to dive deep into niche areas of the crypto ecosystem and develop expertise in specific topics is highly valued.

2. First Principles Thinking: Rather than following trends, successful analysts should be able to think from first principles and develop unique insights.

3. Continuous Learning: The crypto space is rapidly evolving, requiring analysts to constantly update their knowledge and perspectives.

4. Open Information Sharing: Unlike traditional finance, the crypto community tends to be more open about sharing information and strategies, providing opportunities for collaborative learning and growth.

Connor emphasized the importance of practical experience and engagement with the crypto ecosystem:

"Just keep doing things like crypto is the easiest place to kind of put yourself out there. Think about trad fi. You know a quant guy doesn't want to tell you about his strategy it's like his secret. Everyone wants to talk to you in crypto. Just keep doing things just keep talking information like you generate information that's feedback."

This advice underscores the unique opportunities available in the crypto space for those willing to engage actively and share their insights and experiences.

Conclusion: Navigating the Evolving Crypto Landscape

The discussion with Ryan Connor on the Unlayered podcast provides a comprehensive overview of the current state and potential future directions of the cryptocurrency market. From the challenges facing established projects like TON to the persistent appeal of meme coins and the complexities of integrating financial elements into social platforms, the crypto ecosystem continues to present both opportunities and risks for investors and developers.

Key takeaways from the discussion include:

1. The importance of maintaining a balanced perspective, considering both bullish potential and bearish risks when evaluating projects.
2. The need for careful consideration of valuation metrics, even for projects with strong fundamentals and distribution advantages.
3. The enduring appeal of meme coins and attention tokens as extensions of traditional gambling and entertainment-driven financial activities.
4. The challenges and potential of integrating financial elements into social platforms in a responsible and user-friendly manner.
5. The ongoing debate about the "moneyness" of cryptocurrencies and the persistent strength of traditional fiat currencies, particularly the US dollar.
6. The evolving nature of crypto analysis and the importance of intellectual curiosity, first-principles thinking, and active engagement with the ecosystem.

As the crypto market continues to mature and evolve, the insights provided by experienced analysts like Ryan Connor offer valuable guidance for navigating this complex and rapidly changing landscape. By maintaining a critical and nuanced perspective, investors and enthusiasts can better position themselves to capitalize on opportunities while managing risks in this dynamic and innovative sector.

Facts + Figures

• TON Coin was trading at 950 times fees at the time of the podcast recording
• The median L1 or L2 token was trading at 500-600 times fees
• Solana was trading at 130 times fees
• Arbitrum was trading at 100 times fees
• Telegram's daily active user to monthly active user ratio is around 15-20%, lower than typical social or messaging apps (40-80%)
• Americans wagered $90 billion in casinos and gambling apps in 2022
• Meme coin platforms like PumpFun generated $186 billion in volume since its first listing in January of the recording year
• PumpFun generated approximately $60 million in total revenue
• PumpFun had one day where it outpaced the daily revenue of Ethereum
• The DXY (US Dollar Index) is up about 50% against a basket of competing currencies since the lows in 2008
• Ethereum's highest month in revenues was November 2021 with $1.8 billion in fees and MEV
• Ethereum's most recent month (at the time of recording) generated $160 million in fees and MEV, a 90% drawdown
• The top mini-apps on Telegram have significant subscriber numbers: Hamster Combat (48 million subs), Tap Swap (25 million subs), Pixel Verse (10 million subs), Not Coin (8 million subs)

Questions Answered

What is the current state of the crypto market according to Ryan Connor?

Ryan Connor views the current crypto market with measured optimism. He notes that while there are challenges, such as large holders selling, the market is not facing major systemic issues like exchange frauds or severe regulatory crackdowns. Connor emphasizes that volatility can be seen as an opportunity and that the bear market will continue, but the Bitcoin selling pressure is finite.

Why does Ryan Connor believe meme coins are here to stay?

Connor argues that meme coins have staying power because they are an extension of traditional gambling. He sees them as fitting into a paradigm that gives retail users a short feedback loop, preserves the potential to make multiples on capital, and increases fun while reducing the mental friction of risk-taking. Connor compares meme coin trading to sports betting apps, noting that they tap into similar psychological and social needs.

What are the main challenges facing the TON ecosystem?

The main challenges facing the TON ecosystem, according to Connor, include: 1) A lower daily active user to monthly active user ratio for Telegram compared to other social apps, 2) Fragmented distribution across diverse geographic and linguistic regions, 3) Potential limitations of the FunC programming language for developer adoption, and 4) High valuation concerns, with TON Coin trading at a much higher price-to-fees ratio compared to other Layer 1 and Layer 2 tokens.

How does Ryan Connor view the concept of "moneyness" in cryptocurrencies?

Connor strongly challenges the notion that any cryptocurrency has achieved true money status. He argues that the crypto market has shown a revealed preference for US dollar-pegged stablecoins over native cryptocurrencies for trading and value storage. Connor points out that even in cases where crypto is used for regulatory arbitrage, stablecoins are often preferred. He also notes that major companies and exchanges typically don't hold significant reserves of cryptocurrencies beyond operational needs, unlike their practices with fiat currencies.

What advice does Ryan Connor give for aspiring crypto analysts?

For aspiring crypto analysts, Connor emphasizes the importance of intellectual curiosity and the ability to dive deep into niche areas of the crypto ecosystem. He advises thinking from first principles rather than following trends, and stresses the need for continuous learning in the rapidly evolving crypto space. Connor also highlights the open nature of information sharing in crypto compared to traditional finance, encouraging analysts to actively engage with the ecosystem and share their insights and experiences.