Messari Report Analysis: Six Key Aspects to Focus On (Part 1)

At the beginning of December, the annual Messari year-end report arrived as scheduled. The full text is rich in content, detailed in data, and well-researched, making it the best summary and review of the entire 2021 crypto industry. After thoroughly reading this report, I believe it is necessary to share the most outstanding insights with you.

Reading this report provides at least three key benefits.

First, this report can strengthen your confidence in the crypto industry and point out the direction of its development. What direction? Clearly, Web3 is the direction. After enduring the centralized internet (Web2) for 20 years, we finally have the opportunity to present a complete solution through decentralization. Whether you are a "missionary" of the crypto world or a speculator, you will find that the force driving this crypto movement is precisely our pursuit and yearning for decentralization. Web3, formed by the organic combination of decentralized networks and financial systems, is an excellent solution to replace the decaying traditional institutional system.

Second, you will discover that you are in a massive blue ocean market. Although currently every project is caught up in fierce competition for expensive traffic and high fees, this is not an industry problem, but rather the fact that Web3 has yet to realize the network value generated by scale effects. Simply put, the blockchain world is still small — it is a blue ocean market. Although it is small, it is by no means something that can be ignored like it was a decade ago. The current crypto industry is a $3 trillion asset class, with over $150 billion in stablecoin , $5 trillion in annualized on-chain trading volume, and even higher magnitude off-chain stablecoin trading. Cryptocurrency is beginning to move around regulated banking services, which in turn will inversely impact policy.

Third, although the current crypto market is in a deep correction during the bear market, the future of the crypto world looks bright. As the original report states, I am 99% confident that the cryptocurrency market will grow by an order of magnitude by 2030, because this market has enormous expectations and powerful appeal. We are in a period of comprehensive global economic transformation, and the emergence of cryptocurrency will have an impact greater than mobile communications, or even the internet.

In summary, Messari's report serves as a telescope for you to overlook the entire crypto industry and points the way for future work and investment. Beyond these three overarching perspectives, I believe the seven key points detailed in the report are also worth paying special attention to. If you don't have time to read the full report in detail — after all, the original is over 100,000 words and 100+ pages — just read this condensed version.

1 , When will it peak? How will this bear market be different?

The report mentions that we all know a "crash" is coming, and this cycle may be more gradual than previous ones. However, as we have said, there is still "residual heat" in the market — so before the crash arrives, how much upside remains?

To explain when Bitcoin will peak, the Messari report introduces the MVRV index. The report suggests that if you are not a HODLer and cannot endure a four-year bear market, then whenever MVRV reaches 3, that is the best time to take profits (when MVRV drops below 1, you can sell a kidney to buy).

The MVRV calculation formula and chart are as follows:

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Data source: https://www.lookintobitcoin.com/charts/mvrv-zscore/

This indicator estimates overall market sentiment by fitting and calculating Bitcoin's "market capitalization" and "realized value." As shown in the chart above, when the indicator enters the red zone, it indicates the entire crypto market is overheated and risk precautions are needed. Conversely, when it enters the green zone, it indicates the market is cold.

The Messari report notes that in the previous three bubbles, the duration of MVRV above 3 has been progressively shorter. In 2011, MVRV stayed above 3 for four months. In 2013, it remained there for 10 weeks, and in 2017 for three weeks. Earlier this year, it stayed there for only 3 days.

The Messari report tends to believe that when MVRV reaches 3 again this time, Bitcoin's price could reach the $100,000–$125,000 level!

However, no single indicator can make the most accurate judgment on the overall crypto trend. Under the expectations of Fed rate hikes, the probability of Bitcoin staging a comeback is quite low.

The Messari report also gives us a heads-up on how to cope with the bear market.

The report points out that in previous bear markets, the crypto winter caused many people to lose confidence, unable to endure the collapse of their souls and years of hardship.

In a bear market, we will see people breaking down, going bankrupt, losing confidence, and other negative news. But this year's bear market seems set to be even worse, facing unprecedented regulatory nightmares. Stripping away the bull market veneer, consumer protection, market fraud, product abuse, systemic risks, ESG, and market conduct compliance issues are likely to deal a double blow to the entire market. At the same time, the "grassroots" population in the crypto market will decline sharply — the reason being that when you lose 90% of your savings, you have no choice but to find a real job, making it even harder to "fight" against traditional markets.

Before losing confidence, you need to ask yourself a few questions:

1) Has the centralized world truly begun to decline?

2) In the future, is Web3 worth expecting as a "bargaining chip" against the traditional world?

3) Are the building blocks of our envisioned new domain (bridges, DAOs, NFTs) still worth significant investment in the next phase?

4) Will it be easier to find fundamentally strong projects in the next downturn?

5) Is there still sufficient capital available to fund interesting projects?

6) Do you still believe the crypto market will return to a bull market in 5–10 years?

7) If you still believe in all of this, put on your helmet, embrace the winter, and keep in mind these "winter survival tips": deleverage early, time your tax strategy wisely, take profits promptly, and don't try to speculate on the exact timing of the top.

In summary, although the MVRV indicator cited by Messari suggests there may still be new highs ahead, it also reminds us to prepare for the coming bear market. Never fight a battle without preparation. When a real bear market arrives, don't despair about the market, because concepts like Web3 are entering the mainstream.

2 , Can Ethereum surpass Bitcoin?

Whether Ethereum will experience a "flippening" — i.e., surpass BTC in market cap — has been an ongoing topic of discussion in the crypto industry. It is generally believed that with the arrival of ETH 2.0, ETH will become the underlying protocol for Web3, unlocking greater application potential, and that ETH's market cap surpassing BTC is merely a matter of time. But Messari does not see it that way.

Messari believes the probability of a "flippening" occurring next year is around 20%. If ETH does surpass BTC , it will not be because it is a superior "currency," but because the market values the world's most unique user-owned computing platform and its returns and growth potential more than it values digital gold. In other words, we will look at ETH and BTC the same way we view M0 (circulating cash) and Google.

Messari does not believe ETH can surpass BTC next year, not only because Ethereum faces scaling challenges, but also because the current public chain landscape is fiercely competitive, and the market is more inclined toward building a multi-chain parallel ecosystem in the future. As h/t Arthur Hayes has pointed out, can public chains like BSC/Solana/Polkadot "collectively overturn" Bitcoin the way FAMGA (Facebook/Apple/Microsoft/Google/Amazon, etc.) collectively surpassed M1 (M0 + corporate demand deposits) in market cap?

So, can Ethereum surpass Microsoft, Apple, or Google? Currently, Ethereum is 3–5 times smaller. Can ETH surpass the combined market cap of FAMGA? That would be a gap of 15–20 times, and the requirement is quite high. After all, with Ethereum currently representing 5% of FAMGA's total market cap, ETH is still quite "cheap."

3 , The arrival of Web3 is inevitable

From Twitter, Instagram, Telegram to country clubs, from Cape Town, South Africa to Washington, North America, from Beijing to Tokyo — nearly every internet professional is talking about this new term: Web3. In fact, Web3 is not a new term at all. It was coined by Polkadot founder Gavin Wood back in 2014 as "Web 3.0."

Clearly, Web3 is the direction of development. After enduring the centralized internet (Web2) for 20 years, we finally have the opportunity to present a comprehensive solution through decentralization. Whether you are a "missionary" or a speculator in the crypto world, you will find that the force driving this crypto movement is precisely our pursuit and yearning for decentralization. Web3 (the organic combination of decentralized networks and financial systems) is an excellent solution to replace the decaying traditional institutional system.

As the Messari report elaborates, we are transitioning from an era of internet hegemony based on "renting land" to a brand new era of unlimited possibilities. In this frontier domain, the development of cryptocurrency is like an unavoidable revolution that frightens all those who profit from monopoly economies.

In the long run, the momentum of Web3 development is unstoppable.

A16z partner Chris Dixon describes Web3 as "the internet owned collectively by builders and users, mediated by tokens."

In her article "Web3: One Word, In Summary," Messari researcher Eshita describes the evolution from Web1 to Web2 to Web3 as moving from "read-only" to "read-write" to "read, write, own." No matter which model you prefer, in the long run, users stand to gain higher returns in Web3 than in Web2 (the monopolistic internet economy).

In fact, we already have all the key ingredients needed for Web3 success: 1) Talent: brilliant, passionate, far-sighted young people are flooding into and building the crypto world; 2) Capital: the cryptocurrency market has raised substantial risk investment funds, cryptocurrency startups are beginning to raise capital, and the number of emerging liquidity protocols online is growing rapidly. 3) Timing: during the last bear market, the critical infrastructure of the crypto world was fully deployed, making it easier for society to accept and accommodate the launch of the "crypto movement" (a technology revolution with a certain political dimension).

In short, the current environment is truly "the right time, place, and people" for Web3.

Additionally, in a recent article by Eric Peters, he mentioned that we are currently in a period of societal transformation. Younger generations are passionate about new investment opportunities and are unwilling to continue putting money into traditional investments favored by older generations. Currently, it appears that traditional institutions only help those older generations who have already accumulated significant assets to further "build wealth." These new investment methods have the opportunity to disrupt those traditional investments — even to the point of bankruptcy. This opposing dynamic is inevitable, as young people have come to realize that traditional institutions are exploiting them.

The most obvious evidence is that DeFi provides savers with 5% annual returns, while Wall Street offers only 0.5%. The emergence of NFTs (non-fungible tokens) has created greater earning opportunities for creators, without the 50% commission fees like Hollywood takes. The rise of GameFi and SocialFi has broken the monopoly, and internet giants will lose 100% of their market dominance, while institutional risk is simultaneously reduced.

I am 99% confident that the cryptocurrency market will grow by an order of magnitude by 2030, because this market has enormous expectations and powerful appeal. We are in a period of comprehensive global economic transformation, and the emergence of cryptocurrency will have an impact greater than mobile communications, or even the internet.

Due to the length of this article, the second half will be published on December 21. Stay tuned.

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