Variant Investment Partner: In the Second Half of the Bull Market, Which Two Camps Are Marginal Dollars Flowing To?

Author: Alana Levin (Variant Investment Partner)

Compiled by: Deep Tide TechFlow

Deep Tide Introduction: As the cryptocurrency market completes a crucial bottoming phase in the summer of 2026, investors' core inquiry has shifted from "When will it bottom?" to "Where will the bull market momentum come from?" Variant Investment Partner Alana Levin points out that a profound institutional consensus is forming in the current market: marginal dollars will primarily flow into two major camps, assets that serve as currency/value storage (with Bitcoin as the core anchor) and protocols with real profitability. Investors should be wary of the arbitrage traps where tokens are disconnected from equity returns in the third category of narrative-driven projects chasing AI concepts. More importantly, the remarkable resilience of quality projects in the past cycle indicates that the cryptocurrency market is bidding farewell to the brutal crashes of over 90% and shifting towards a more moderate retracement pattern similar to the 10% to 30% declines seen in mature traditional financial markets. This article provides an in-depth analysis of the cryptocurrency liquidity market in the fourth quarter of 2026.

Market Bottom Established, Core Inquiry Paradigm Shift

When contemplating market trends, my habit is usually to start by identifying the most critical questions at hand.

Throughout the summer, the most pressing question surrounding the cryptocurrency market has been: When will the market hit bottom? In early July, I wrote that Bitcoin was priced at $59,000, Ethereum at $1,600, and Zcash at $420, indicating that the market bottom was within reach.

Now, this question has a clear answer: the bottom has likely been established, occurring at some point in July this year. Therefore, the primary focus of investors has completely shifted. The core proposition worth deep consideration now is:

• Is this bull market truly setting sail, or is it a highly deceptive pump fake?

• If we are indeed in the initial phase of a full bull market, which types of projects are most capable of capturing excess returns?

Regarding the first topic, the market naturally extends many follow-up questions: How long can the bull market be sustained? What are the underlying forces supporting the rally? What potential black swans could burst the bubble? I will elaborate on these questions in subsequent articles. For now, let’s establish a baseline assumption: we are indeed in the early stages of a new cryptocurrency bull market.

Two Core Reservoirs for Marginal Incremental Funds

The current market is reaching an increasingly broad consensus: the assets most capable of attracting every new marginal dollar inflow are primarily concentrated in two clear categories:

• Assets that are themselves currency (Protocols that ARE money, such as Bitcoin representing digital value storage).

• Protocols that can genuinely make money (Protocols that MAKE money, with real business cash flows and fee revenues).

These two asset groups are recognized as the core reservoirs most likely to capture subsequent capital inflows. The second-order thinking that follows is: when all market participants firmly believe that these two types of assets are the core holdings to have, what second-order effects will the market produce?

Deep Consideration of Second-Order Effects: Value Anchoring and Income Quality Inquiry

For assets that are "themselves currency": Bitcoin is undoubtedly the absolute king of digital value storage (Store of Value, SOV) today. Any competitive asset attempting to vie for the status of a digital reserve currency inevitably must be valued relative to Bitcoin, specifically: what percentage of that asset's total market cap is relative to Bitcoin's market cap, and how does that percentage evolve over time? Pure value storage assets theoretically have unlimited upside potential (as their potential reachable market TAM is essentially the total amount of money in human existence), thus, the "market cap percentage relative to Bitcoin" provides investors with the most solid horizontal anchoring benchmark.

For protocols that can "make money", the lens through which investors examine them is entirely different. Specifically, I expect secondary market investors to begin rigorously questioning the true quality of protocol revenues:

• Is the revenue entirely reliant on highly speculative pure crypto-native scenarios (e.g., Pump), or is it deeply benefiting from broader traditional financial activities (e.g., high-frequency financial infrastructure like Hyperliquid)?

• Once the overall cryptocurrency bull market tide recedes, does the protocol's business model possess sufficient retention resilience?

• What are the unit economic models and real profit margin structures (Margin Profiles) of the protocol?

In other words, the inquiries posed by cryptocurrency investors today are increasingly aligning with the stringent requirements that traditional U.S. stock markets impose on publicly listed companies.

Valuation Premium Differentiation and Speculative Traps of Traditional Business-Like Assets

Different answers to the aforementioned quality questions will directly lead to significant premium differentiation in protocol valuation multiples. Projects that possess all three of the following characteristics are most likely to enjoy higher revenue multiples and price-to-earnings valuation premiums:

1. Business depth exposed to the ongoing expansion of real-world assets (RWA) and stablecoins, rather than solely relying on crypto-native speculative activities;

2. A clear and defined vision for institutional-level user adoption and compliance pathways;

3. Having fully traversed the trials of the previous brutal bear market, still led by visionary founders and CEOs.

Additionally, there exists a third category of assets not captured by the above two mainstream classifications: projects that map traditional non-crypto business models on-chain. These assets are likely to become purely narrative-driven swing trades (Narrative Trades). I must emphasize that the vast majority of these types of assets are only suitable as short-term trading chips, rather than long-term value investments.

The theoretical appeal of these projects lies in investors easily pointing to mature valuations in non-crypto traditional fields and asking, "If this on-chain version could achieve the same scale, how much potential space would there be?"

The most typical current representatives are projects attempting to benchmark various levels of the AI industry technology stack: including routing protocols, decentralized reasoning, GPU computing networks, data collection, and interactive front ends. Frankly, I have significant doubts about whether the vast majority of such businesses truly need blockchain. More critically, these projects often face extremely dubious "token vs equity split" issues: the core business value is legally embedded in the equity of the entity company, while the project party merely symbolically offers meager profits to casually repurchase tokens in the secondary market. Just because a project can generate revenue does not mean that the token can capture value! This is an old script that has played out countless times in the cryptocurrency industry. Although they may still serve as decent speculative chips during euphoric periods, I personally view them as a reverse indicator of market tops: once I see these types of projects surge across the board and outperform the market, it often signifies that the rational discipline of the entire market has collapsed, and top risks are rapidly approaching.

The Deep Significance of the Three-Dimensional Classification Framework: The Retracement Paradigm of Mature Markets

The cryptocurrency market has always exhibited strong cyclicality. Over the past decade, the entire industry has generally followed a relatively regular four-year bull-bear cycle. However, in this cycle, an unprecedented structural change has quietly occurred: some fundamentally solid core assets have never truly entered a deep bear market, instead continuously achieving compound accumulation under the support of strengthening underlying data.

I firmly believe that future institutional capital will increasingly gravitate towards these truly capable of generating blood flow assets. While they will also experience periodic market adjustments, I expect their retracement magnitude to begin closely resembling that of traditional mature financial markets (with typical retracement ranges of 10% to 30%), rather than the devastating crashes of over 90% seen in previous brutal cycles.

Ultimately, these positive transformations are an exciting testament to the maturation of cryptocurrency finance.