Author's Note
First of all, after thinking for a long time, I have decided to create a WeChat community. Discord is not very convenient for many readers, and I am not frequently on Discord, so I have missed a lot of information.
However, I will manage the WeChat community strictly. I will remove anyone who clearly induces investment, promotes scam contracts, or engages in contract trading, etc. The purpose of the community is for communication, such as discussing the business logic of projects, discussing trends, and even sharing jokes related to the cryptocurrency industry.
In addition, I hope that readers who join the community can help by liking and sharing my articles. I am grateful for your support. The maximum limit for joining the group by scanning the QR code is 200 people. If it reaches 200 people, you can private message me to invite you to the group. I will also update the group QR code in the menu of the official account. If it reaches 500 people, I will create a second group.
Furthermore, Weissman's Notes does not have a paid group and does not provide investment advice. Everything is free in the community. I simply want fans to like and share my articles to gain some exposure.
Now, let's get to the main topic. Since today's article is about casual discussions, as usual, the article will be more scattered and stream of consciousness.
In fact, many readers have asked me questions such as which projects are good, what projects I recommend, and what projects I am bullish on. But I have never given a direct answer, and most of the time, I have evaded the question.
It's not that I don't have projects that I am bullish on, but I am well aware of the relationship between project quality and token price: they are not directly related.
To understand this statement, in short, project quality and token price are two different dimensions. Project quality is determined by factors such as technological innovation, sound business logic, user base, total value locked (TVL), and solving industry pain points. Token price is not directly related to these factors.
The parameters directly related to token price are circulating supply, token release schedule, and most importantly, the market sentiment in the secondary market. If there is demand, the price will rise; if there is selling pressure, the price will fall. This is the simplest and most direct logic.
As for positive and negative news, they are indirect factors that influence market sentiment and are not direct factors. Therefore, I prefer to observe the inflow and outflow of funds from on-chain holders to judge their trading intentions, rather than considering project quality.
To summarize this point, project quality is only related to the project itself and does not have a direct relationship with token price. The factors directly related to token price are market sentiment and trading intentions. All other information influences the decision-making of buying or selling based on market sentiment.
Point Two: Project Quality and Trading Targets are Not Directly Related
In conversations with some traders, there are often cases where they ask me for recommendations on new high-quality projects for trading. However, this is also a misconception.
The choice of trading targets is not related to whether they are good projects. For traders, profitability is the primary goal, and as mentioned in Point One, high-quality projects do not directly affect token prices.
From a trader's perspective, the focus should be on trading depth rather than the specific trading targets. In other words, traders are looking to profit in USD or BTC terms, so it is more logical to choose well-established projects with high trading volume. With sufficient trading depth and participation, the candlestick indicators are more likely to reflect the objective market conditions.
As for those new high-quality projects, they may not even have daily trading volume or technical validity.
Point Three: High-Quality Projects Do Not Necessarily Care About Price
I have seen many projects, including high-quality ones, with low token prices that are not even listed on exchanges. Some readers may think this is an opportunity, but what if the price continues to drop 90% after you buy?
Strictly speaking, many small projects may have innovative ideas. However, these projects are often the result of collaboration among programmers, and they may have advantages in technology that other projects do not have. However, they may also not care about token prices.
This is particularly evident in geeky projects. Their prices may follow the overall market trend, but they may not necessarily rise with the market. This is because these projects believe in the saying "good wine needs no bush." As long as the product is good and the technology is strong, there will naturally be buyers.
However, in most cases, market participants are more concerned about token price fluctuations, even when considering high-quality projects, especially those that have just emerged from hackathons. They buy tokens with the expectation of high returns after the token launch, rather than buying based on the quality of the technology.
Many high-quality projects seek investment from cryptocurrency investment institutions, even if they don't need the money. The main purpose is to let more professional investment institutions handle secondary market promotion, including listing on top centralized exchanges (CEX) or promoting the project in local markets.
In short, many high-quality projects do not have the goal of maintaining market value or driving price increases. Even if they issue tokens, it is mainly for the promotion or incentive of the project itself. Two typical examples are Uniswap and DYDX.
Although UNI, the governance token issued by Uniswap, is considered a governance token, it does not have specific governance functions. It was mainly distributed as an incentive token to counter the vampire attack by Sushiswap. As for DYDX, it was simply distributed as an incentive token to encourage the use of the DYDX trading platform.
The prices of these tokens can reflect the fact that they have been declining since their launch. The project teams have no intention of spending money to maintain market value because it is not their goal.
But can you deny that these two projects are high-quality projects? Actually, you can't. Both of them are leading projects in the on-chain DEX space and have high-quality standards. However, token prices are influenced by market sentiment and are not directly related to project quality.
Point Four: Project Quality and Token Operations are Two Different Things
As mentioned earlier, project quality is more related to research and development factors, while token operations are related to marketing factors.
There are many meme projects in the market that have almost no research and development, but they rely on so-called "consensus" to attract people to invest and drive price increases.
From this, it can be seen that price fluctuations are not directly related to project quality. As long as there are buyers, the price will rise. This is a simple principle.
This has been widely exploited by people who understand cryptocurrency psychology, giving rise to a new category of meme tokens. Many recent projects in the form of DAOs are also like this. They form a DAO by creating a Discord group, and the consensus of the DAO is to encourage more people to buy the token. (I have omitted the flashy marketing articles in between and focused on the ultimate goal)
Therefore, I classify meme projects and Discord DAOs as projects that rely on token operations. I do not have a reliable model to evaluate whether these projects are high-quality because most of them likely do not even have a product, and having an official website is already considered good enough for them.
So I consider these projects as projects that I don't understand, so there is no need to ask me for my opinion on them because I don't have one. And I want to reiterate that project quality is not directly related to token price.
Point Five: High-Quality Projects are Defined by Long-Termism
Many people have expectations for high-quality projects, but these projects do not necessarily rise immediately after being purchased. The bullish view on high-quality projects is based on the long-term prospects of the project itself, considering factors such as strong technology, sound business logic, and long-term potential. This long-term view can be one year or even three to four years.
ChainLink can be used as an example. When its mainnet was launched in 2019, it was relatively unknown and was considered a very high-quality project overall. However, it was not until the DeFi summer in 2021 that the importance of oracle services became prominent, leading to widespread adoption and a market capitalization of billions of dollars.
Now, in 2022, ChainLink is still a crucial pillar in the DeFi world with widespread usage. However, the price has continued to decline. Does this mean that ChainLink is no longer a high-quality project?
In fact, ChainLink is still the same ChainLink, still high-quality and important. But these factors do not directly influence the token price, so it continues to decline.
Therefore, going back to Point Five, defining a high-quality project is actually quite simple if you have sufficient knowledge. However, trying to define a price range based on high-quality projects is not feasible in my opinion and may not be as meaningful as traders using candlestick charts for reference.
In conclusion, the core purpose of selecting high-quality projects is to increase the probability of successful investments.
Strictly speaking, whether it is a high-quality project, an ordinary project, or a scam project, there is a possibility of a sudden price increase. However, I believe that the purpose of selecting high-quality projects should be to increase the probability of successful investments, rather than focusing solely on the return on investment in trading.
The likelihood of success for high-quality projects is definitely higher than that of scam projects. However, this does not mean that a high-quality project will be successful, and even if a high-quality project is successful and listed on top exchanges like Binance and Coinbase, does it mean that the price will not fall?
Therefore, in the short term or even the medium term, high-quality projects are not directly related to token prices. Just like someone who was bullish on Luna six months ago, from that perspective, Luna was indeed a high-quality project in terms of technology, ecosystem, and business logic. However, it experienced a major black swan event that caused a death spiral and almost went to zero.
This is also the title of my article, "The Dialectical Relationship Between Projects and Price Fluctuations in Cryptocurrency Philosophy."
Author: Liu Ye Jing Hong
Official Account: Weissman's Notes
Personal WeChat: liuyejinghong_
RSS3 Personal Homepage: liuye.rss3.bio
ETH Donation Address: liuyejinghong.eth
Discord: https://discord.gg/6tu2hpwvUh\\
Reply "web3" in the official account to receive free web3 learning resources.
Reply "Industry Report" in the official account to receive the 2022 industry report for free.
Recommended articles from previous issues:
"42. Analyzing the Differences in NFT Markets at Home and Abroad, Exploring the Key Differences Between Digital Art Markets and NFT Markets."
"41. Web3 Philosophical Reflections: Cryptocurrency Planned Economy and Cryptocurrency Governance Through Voting."
"40. When 3AC (Three Arrows Capital) Liquidates, It May Become the Lehman Brothers of the Cryptocurrency Economy: A Comprehensive Analysis of the Event."
"39. A Discussion on Cryptocurrency Profit Logic: Insights for Those Who Are Still Confused."
"38. The Industry's Downturn and the Future of NFT: Analyzing and Speculating on the Future Development Trends of NFT from Macro and Micro Perspectives."
"37. The Unanchoring of stETH: Aave's Potential Collapse, Billions of Dollars at Risk, but Also Opportunities."
"36. Another Discussion on the Logic of Making Money in Cryptocurrency: Perhaps Useful for Those in the Confused Stage."
"35. Correct Token Guidance for Web3 Projects: Explaining the Five Types of Token Functions and Their Use Cases."
Summary:
The core purpose of selecting high-quality projects is to increase the probability of successful investments. Whether it is a high-quality project, an ordinary project, or a scam project, there is a possibility of a sudden price increase. However, the focus should be on increasing the probability of successful investments rather than solely pursuing short-term trading gains. High-quality projects are defined by their long-term prospects and should not be solely judged based on token prices. The relationship between project quality and token price is complex and influenced by various factors such as market sentiment and trading intentions.