The old altcoin script is outdated; let you understand the new market system

Title: The New Market Regime
Author: David Attermann
Translation by: SpecialistXBT

Author: Rhythm BlockBeats

Source:

Repost: Mars Finance

Editor’s note: Why has there been no “Shanzhai Season” in this cycle? The author points out that the old market paradigm driven by high leverage and speculation has been completely ended, replaced by a new system dominated by compliance thresholds and institutional capital. In this new landscape, investment logic will shift from capturing liquidity spillovers to screening for long-term value assets with genuine utility and regulatory adaptability.

Below is the original content:

Since 2022, the general performance of altcoins has been poor, reflecting a structural shift rather than a typical market cycle.

The liquidity architecture that once widely transmitted capital across risk curves has collapsed and has never been rebuilt.

Instead, a new market pattern has emerged, changing the way opportunities are generated and accessed.

The Luna collapse in 2022 dismantled the liquidity architecture that once channeled capital down the crypto risk curve. The market did not suddenly crash on October 10; it had been broken years earlier, and everything that happened afterward was just aftershocks.

The post-Luna era has ushered in the most favorable macro, regulatory, and fundamental backdrop in crypto history. Traditional risk assets and gold soared significantly, but long-tail assets in crypto did not. The reason is structural: the liquidity system that once drove broad asset rotation no longer exists.

This is not a loss of a healthy growth engine. It is the collapse of a market structure fundamentally mismatched with sustained value creation.

2017-2019:

2020-2022:

May 2022 to present:

(Note: “OTHERS” = total market cap of crypto excluding the top ten tokens)

Despite the most favorable macro backdrop, altcoins remain stagnant

In the years following the Luna collapse, especially 2024-2025, the crypto industry has experienced an unprecedented combination of macro, regulatory, and fundamental tailwinds. Under the pre-Luna market structure, these forces would reliably trigger deep risk curve rotations. However, what confuses crypto investors is that this has not happened over the past two years.

Ideal liquidity conditions

Global liquidity expansion, declining real interest rates, central banks shifting to risk-on mode, and traditional risk assets reaching new highs.

Strong regulatory momentum

· Accelerated clarity process as a long-standing threshold for large allocators:

· The US has welcomed its first government supportive of cryptocurrencies.

· Spot ETFs for Bitcoin and Ethereum launched.

· ETP framework standardized (paving the way for the DAT boom mentioned below).

· MiCA established clear, unified handling procedures.

· The US passed the GUS (Genius) Act for stablecoins.

· The Clarity Act is just one vote away from passing.

On-chain fundamentals hit record highs

Activity, demand, and economic relevance have surged:

· Stablecoin market cap surpasses $300 billion.

· RWA (Real-World Assets) exceed $28 billion.

· DePIN revenue rebounds.

· On-chain fees approach new highs.

This is clearly a structural issue

It is not a failure of demand, narrative, regulation, or macro conditions. It is the consequence of a broken liquidity transmission system. The market structure that dominated 2017-2021 no longer exists, and no macro, regulatory, or fundamental force can revive it.

This does not mean opportunities are gone; rather, the way opportunities are generated and captured has shifted. Over time, this shift will prove to be decisively positive.

The previous market indeed generated larger nominal “pump” effects, but it was structurally unstable. It rewarded reflexivity rather than fundamentals, leverage rather than utility, fostering manipulation, insider advantages, and extractive behaviors, all of which are incompatible with institutional capital or mainstream adoption.

What exactly went wrong?

Market liquidity consists of three layers: capital providers, distribution channels, and leverage amplifiers. Luna’s collapse inflicted devastating impacts on all three.

Liquidity engine stalls

From 2017 to 2021, Shanzhai Season was driven by a concentrated group of balance sheet providers willing to deploy capital across thousands of illiquid assets:

· Cross-platform market makers.

· Offshore lenders providing unsecured credit.

· Exchanges subsidizing long-tail markets.

· Proprietary trading firms accumulating risk.

Then Luna collapsed. Three Arrows Capital (3AC) went bankrupt. Alameda’s risk exposure surfaced. Genesis, BlockFi, Celsius, and Voyager all faced crises. Offshore market makers withdrew entirely. Capital providers disappeared, and no new entrants with comparable balance sheets, risk appetite, or willingness to engage in long-tail markets appeared.

Distribution pipeline breaks

More important than capital itself is the mechanism that distributes capital. Before 2022, liquidity naturally flowed down the risk curve because a few intermediaries kept transporting it:

· Alameda smoothed prices across venues.

· Offshore market makers quoted thousands of trading pairs.

· FTX provided highly efficient capital execution.

· Internal credit lines transferred liquidity between assets.

When Luna’s crisis spread to 3AC and FTX, this layer of the chain disappeared. Capital could still enter crypto, but the pipelines that once delivered it to long-tail markets were broken.

Leverage amplifiers fail

Finally, liquidity is not only supplied and channeled but also amplified. Small inflows of liquidity could move markets because collateral was aggressively reused:

· Long-tail tokens used as collateral.

· BTC and ETH leveraged into a basket of altcoins.

· Recursive on-chain yield loops.

· Multi-platform re-collateralization.

Post-Luna, this system rapidly disintegrated, and regulators froze remaining parts:

· SEC enforcement actions limited institutional risk exposure.

· SAB-121 kept banks out of custody.

· MiCA implemented strict collateral rules.

· Institutional compliance departments restricted activities to BTC and ETH.

While lending volumes in top CeFi (Centralized Finance) have recovered, the underlying markets have not. The lenders that defined the previous generation’s system have vanished, replaced by a more risk-averse system almost entirely concentrated in top assets. The re-emergence of long-tail credit transmission mechanisms is absent.

This system can only operate if leverage growth outpaces risk exposure growth; this dynamic is doomed to eventual failure.

Structural decline in Shanzhai coin liquidity

Once engines stall, pipelines break, and collateral amplifiers shut down, the market enters an unprecedented state: a multi-year structural liquidity recession. A completely different market emerges.

Market depth collapses

Historically, depth always recovers because the same players rebuild it. But without them, the depth of Shanzhai coins can never return to previous levels.

· Long-tail asset depth declines by 50-70%.

· Spreads widen.

· Many order books are effectively abandoned.

· Cross-venue price smoothing mechanisms disappear.

Demand shifts to the top

Liquidity migrates upstream and never flows back down.

· Institutional compliance departments prohibit long-tail exposure, sticking to mainstream assets like BTC and ETH.

· Retail investors exit.

· ETFs and DATs focus only on blue-chip tokens with sufficient existing liquidity.

Crazy token issuance hits a market without buyers

The peak VC activity in 2021-2022 created a massive future supply wave.

When these projects launch tokens in 2024-2025, they hit a market missing all absorption mechanisms. The damaged system cannot withstand ongoing selling pressure.

(As the 2021-2022 VC issuance cycle clears, token unlocks are expected to normalize by 2026, alleviating a key structural obstacle to long-tail liquidity)

The conditions that once drove Shanzhai Season have been systematically dismantled. So, where are we today?

Investing in the new landscape

The period after 2022 has been painful for Shanzhai coins, but it marks a decisive break from a market structure fundamentally unsuited for scaling. What follows is not a typical market retracement but a system defined by a lack of reflexivity and liquidity driven by leverage. This deficiency still characterizes the market today.

In the current structure, even fundamentally strong assets trade under persistent illiquidity conditions. Weak order books, limited credit, and broken routing dominate price movements, not fundamentals. Many assets will remain stagnant long-term. Some will fail to survive. This is an inevitable cost of operating without artificial liquidity or balance sheet expansion.

Substantial change will only come with regulatory shifts.

The upcoming passage of the Clarity Act is a key inflection point for the Shanzhai coin market structure. It unlocks access to a vast capital pool: regulated asset managers, banks, and wealth platforms managing hundreds of trillions of dollars. Without clear legal classification, custody rules, and compliance certainty, their authorization to hold risk exposure is restricted.

Before this capital can participate, the Shanzhai coin market will remain trapped in a liquidity-starved system. Once participation is possible, the market structure will change fundamentally.

Major financial institutions are already preparing for this shift:

· BlackRock is establishing dedicated digital asset research units, treating tokens like equities.

· Morgan Stanley is doing the same.

· Bloomberg is also involved.

· Cantor Fitzgerald has begun publishing stock-like research reports on select tokens.

This institutional build-out signals the beginning of a new market system. Capital unlocked by regulatory clarity will not flow through offshore leverage, reflexivity-driven rotations, or retail momentum. Instead, it will slowly and selectively enter through familiar institutional channels. Allocation decisions will be driven by qualification, durability, and scale potential—rather than narrative speed or leverage amplification.

The message is clear: the old Shanzhai coin script is outdated. Opportunities will no longer come from systemic liquidity waves. They will come from assets that can sustain long-term illiquidity through fundamentals and demonstrate institutional allocability once compliant capital is permitted to participate.

Previously, these screening criteria were optional. Under the new system, they are mandatory.

· Persistent demand: Does the asset capture recurring, non-discretionary demand, or only activity driven by incentives, narratives, or speculation?

· Institutional qualification: Can regulated capital hold, trade, and underwrite the asset without legal or custody risks? Regardless of technological advantages, assets outside institutional authorization will remain limited in liquidity.

· Rigorously modeled economics: Supply, issuance, and unlocking must be predictable and constrained. Value capture must be explicit. Reflexive inflation is no longer tolerated.

· Proven utility: Is the product used because it offers differentiated and valuable functions, or only survives on subsidies while waiting for relevance?

Beyond stablecoins and tokenized assets (which continue to attract attention), blockchain-based systems are quietly integrating into healthcare, digital marketing, and consumer AI, operating beneath the surface.

These applications rarely reflect in token prices and are largely overlooked—not only by mainstream society but even by many Web3 practitioners themselves. They are not designed to dazzle or go viral; their appeal is subtle, embedded, and easy to miss.

However, the shift from speculation to reality has begun: infrastructure is live, applications are real, and novel differentiation has been validated. As more market participants turn toward institutional allocators and regulated capital, the gap between adoption and valuation will become increasingly hard to ignore.

Eventually, this gap will close.

Looking back, we have achieved

I first fell into the crypto rabbit hole in 2014, and I realized then that blockchain is not just about digital currency; it is a disruptive technology for data networks.

Ten years later, once abstract ideas are now functioning in the real world.

Software can finally be both secure and useful: your data is under your control, kept private and protected, yet still used to deliver genuinely better experiences.

This is no longer experimental. It is becoming part of everyday infrastructure.

We have succeeded: not in achieving a “cryptocurrency supercycle,” but in realizing the true goal.

Now, it’s time for execution.