Original: Empire
Compiled by: Yuliya, PANews
In the volatile crypto market, it is crucial to accurately grasp trends and opportunities. As one of the most influential research institutions in the industry, Delphi Digital is well-known for its in-depth market analysis and accurate investment insights, and its research reports have become an important decision-making reference for institutional investors.
In the latest episode of Hivemind podcast, the core team members of Delphi had an in-depth conversation about the prospects of the crypto market in 2025. The host Jose (Head of Delphi Labs) discussed hot market topics such as the evolution of AI narrative, Bitcoin L2 ecology, and the return of infrastructure value with Ceteris Parabus (Head of Institutional Research), Duncan (Small Currency Investment Expert), and Jason (Market Director of Research Department). PANews compiled this podcast in text.
*Note: The podcast was recorded on January 16, which is significantly different from the current market data and popular tracks.
Market Observation
Ceteris:
The market has been very volatile in recent weeks. Looking back, there was a wave of selling in the market after the FOMC (Federal Open Market Committee) meeting at the end of December last year. At that time, the price of Bitcoin was close to a high of $100,000, but it plummeted to below $90,000 in just a few hours.
My main point is that this market volatility has not changed the fundamentals. For example, in the past decline, the best performing asset is still Bitcoin, while some DeFi projects and old Meme coins (OG Memes) are still not moving much. This shows that the market's interest has not fundamentally shifted. The best performing projects in the rebound, such as Virtuals and ai16z-related frameworks, are still those assets that performed well at the bottom.
In summary, I think the market volatility this time is influenced by both macro factors, such as CPI data and other policy rumors, and technical adjustments. The price charts of many tokens have looked very "crazy" in the past few weeks, and these extreme price movements will naturally trigger pullbacks and liquidations.
Jason:
A lot of volatility is related to market positioning, such as the news last week that the DOJ was going to sell $6 billion in Bitcoin, which now seems to be false or over-interpreted. As Trump's inauguration approaches, if they really intend to sell but have not taken action, this is actually a positive factor.
From my perspective, last week's macro data was better than expected, which could raise near-term targets. However, I feel that the more it rises before a major event, the more likely it is to "sell the news." Like Trump's inauguration next Monday, if Bitcoin continues to rise before then, I would worry about a short-term pullback, just like when the ETF was approved.
On the other hand, Trump may issue a series of executive orders as soon as he takes office, as he did in 2016, some of which may target cryptocurrencies. Given the relatively small liquidity of the crypto market, he is fully capable of affecting the crypto market as much as the traditional financial market, or even more.
Ceteris:
I see that Trump's youngest son and his circle are involved in cryptocurrencies, which may mean that he will use the price of Bitcoin as a "stock market indicator" for his young people. Although this claim needs to be verified, it is credible considering that his children are involved. If he really starts talking about becoming the first "crypto president" or "bitcoin president", he does have many ways to help promote cryptocurrency.
Jose:
There are a lot of levers Trump can pull to help crypto, but obviously we had a massive rally after the election that the market is now pricing in. I think the size of future market moves will depend a lot on what Trump actually does with crypto and the impact of his appointees on the larger macro market , like how Scott Benson performs as Treasury Secretary.
This dip before Trump's election feels like a good buying opportunity . I think there's a pretty simple corollary to Trump's election - he could easily pass some policy measures that would benefit cryptocurrencies. There's a crypto bill going on in Washington right now, and the industry has gone from being ignored and generally hated to now having the Crypto Bowl and the upcoming Crypto Advisory Board. So really without overthinking it, I think Trump is clearly bullish on cryptocurrencies. Of course, there's also the possibility that he does nothing, and it's not uncommon for politicians to not deliver on their promises, especially Trump, who isn't the most trustworthy person. But I think it's in his interest to promote cryptocurrencies , so I'm still pretty bullish.
AI Bubble
Jose:
I actually bought a lot of AI framework-related coins during this decline. As far as I'm concerned, I think AI itself will be the biggest narrative in 2025. My overall view is that we may achieve general artificial intelligence (AGI) in 2025. The investment of hyperscale technology companies in capital expenditure is amazing, Microsoft alone plans to spend $80 billion, and other companies have invested almost all of their free cash flow in the construction of computing infrastructure for training AI models. Progress in 2025 may be faster than in 2024.
To me, AGI is defined as AI that reaches or exceeds human performance in multiple areas, with some autonomy to perform tasks for the user. In simple terms, it's like a research assistant or investment analyst with PhD-level intelligence.
Right now, only a few people in Silicon Valley and the tech community really understand how AI will impact the world, but in the next few years, the world will realize this. I believe this will be one of the biggest bubbles in financial history because the fundamentals of AI are so strong and the most attractive story can be built around it. There has never been a technology with such strong fundamentals at such an early stage, such as OpenAI's revenue and the potential revenue that code assistant tools will bring in the future.
Despite the strong fundamentals of AI, humans will always get overexcited about some emerging things, leading to cyclical fluctuations in the market. I don't think the big AI bubble has really arrived yet, but its emergence is almost inevitable. Even assuming that there are no fundamentals for crypto AI at all, I believe that the flow of funds itself is enough to drive the market. Just imagine how ordinary investors can participate in the narrative of AI? The valuations of the "MAG7" (Microsoft, Apple, Google and other seven major technology companies) are high, but not unaffordable; however, buying stocks of large technology companies does not easily achieve wealth reversal. In addition, stock picking in the stock market is very difficult, and many people feel that it is a "manipulated game", and venture capital is out of reach for 99.9% of people. So, what's left is to bet on crypto AI projects.
I think this space, like the Agentic space, is currently worth about $10 billion, and the entire crypto AI market is worth about $50 billion. As we mentioned in our forecast, this size will only continue to grow.
Ceteris:
My strategy has always been to "act first, then research". I think the focus now is to get in touch with those hot tracks and determine their position in the industry when truly valuable projects emerge. At the same time, I am also betting on the growth of the entire industry. However, last week's market performance reminded us that this field is very volatile. For example, the price of some projects may drop by 50% in two days, and such violent rotations may occur repeatedly in the next year. Therefore, I will not stick to AI tokens all year, but will flexibly adjust according to market dynamics.
The main market leaders right now are Virtuals and ai16z, but I don't think they have insurmountable moats.
- The advantage of Virtuals lies in its built-in token value capture mechanism. For example, users need to pay Virtuals tokens to start an agent, which provides it with a stable cash flow.
- Ai16z, on the other hand, relies more on the widespread adoption of its framework, but currently lacks a clear profit model.
Ultimately, the market is driven by the attractiveness of the platform, especially its ability to attract more developers and users. It is worth noting that this is also the first time that users have seen a decrease in their focus on the chain itself. Many proxy functions run off-chain, and the chain mainly provides support for token trading or liquidity. Therefore, users care more about the functionality and convenience of the platform itself, rather than which chain it runs on.
The Moat of Proxy Tokens
Jason:
I think the main moat right now is traction, or the ability to be a Launchpad, which is key to capturing value. The value of a Launchpad depends on how many users and attention it can attract, and whether those users think the platform's fees are reasonable. This is why Binance can charge projects 3% to 10% of the token supply as Launch Pool fees, and Virtuals has proven that it can do this. But this moat is very fragile and competition can be fierce.
There will be brutal fund rotation in the market in the future, and it may be difficult to keep up with these changes completely. I hope that there will be time in the future to see different platforms gradually emerge and be able to reduce risks. Take TAO as an example. It was originally the main choice in the field, but its position began to be weakened as better options continued to emerge. The current leaders, such as Virtuals and ai16z, are likely to face the same situation. Now, they are the main choices for betting on this narrative, but in the future, better solutions will emerge and new narratives will rise in the field of AI. Once this happens, I think it is wise to keep reallocating the portfolio. This is more like a trading behavior than an option suitable for long-term holding.
Ceteris:
Personally, I have not yet found any team that I feel confident in the long term. While some would argue that you should invest in infrastructure such as “mining tools”, it is unclear whether these “tools” will continue to work, even at the end of this year.
Duncan:
For example, Pump.Fun is pretty dominant in the Launchpad space, but I doubt Virtuals can maintain that position for long.
Ceteris:
From what I have learned, the actual technical framework of Virtuals is not excellent, but it is more because of the convenience of launching agents that attracts users. For example, a team initially released an agent through Virtuals, but recently switched to the Eliza framework. Although this agent still belongs to the Virtuals ecosystem and runs on the Base chain in pair with Virtuals, the technical core has shifted to Eliza.
Jose:
This situation is not uncommon. Some people who were originally bullish on Virtuals switched to the ai16z framework after using its products. This shift has made many investors who were originally optimistic no longer optimistic. I think this phenomenon may recur in the market. For Virtuals and other AI tokens, the market is full of uncertainty about their future. Despite this, these projects are currently seen as credible options, so a lot of money has poured into these projects, driving their short-term growth.
In addition, from my communication with industry insiders, I found that there are still many people in the market who are skeptical of the AI narrative and have not participated in the investment. This shows that there is still a lot of potential funds that may enter this market. Although current AI projects are considered the only options worth buying, if new projects with more long-term value and stronger moats emerge in the future, they may perform better.
Jason:
As for the technical level, my team is currently studying these platforms in depth, including their technical trade-offs. Larry's point - "crypto AI agent frameworks have almost no technical advantages, and big tech companies can replicate these features in a few weeks" - may be correct, but it doesn't say much because tech giants have extremely high resource advantages. However, I also agree that the current state of the market is that these projects are the only seemingly credible investment options, and capital is pouring into them.
The Decline of OG Memes
Jose:
I think AI is essentially a bigger meme than WIF. It's easier to tell a story and easier to get excited about because there are at least some fundamental possibilities. I think by 2025, most of the capital flows in the cryptocurrency market, not just meme coins, will shift to AI. The shift in the meme coin market may be more direct because AI proxy memes are somehow superior to traditional memes and can tell bigger stories.
Jason:
I generally agree with this view. This may not be because AI is inherently better than memes, but the market is tired of traditional memes. People have been playing FROG, WIF, BONK, etc. for more than a year. Although making money is fun, most people still want to buy something that has at least some actual value or path to value.
But that doesn't mean I have to buy those things. You can hold both beliefs at the same time when the market is clearly telling you that people are not paying attention to this at a certain time. This is also the key to being a good tactical trader - it's not what you believe or hope is true, but what the market tells you.
For most of 2024, the market was telling us that it favored meme coins, whether it was due to a lack of new users entering the market, people chasing patterns from previous cycles, or a poor regulatory environment. But starting in mid-November, the market made it clear that it preferred AI.
I think some of the OG meme coins may still do well, but the March wave of meme coins may be finished. In fact, I think most meme coins and these proxy projects will eventually die. Someone should tell the Coinbase listing team that the meme coin era is over. But looking at the chart of DOGE, I don't think it has peaked yet.
I think DOGE is a good benchmark to evaluate the overall memecoin market. The meta narrative has definitely shifted and the easy money is now in the proxy and AI space. This doesn't mean all memecoins are doomed, just that they won't be the only space worth investing in like they were last year.
Now that Trump is coming back, people might be more willing to invest in crypto, so I could consider DeFi coins or projects like Ethena. Since there is someone in the White House who supports crypto and AI now, maybe I should buy all AI coins because there might be some positive catalysts.
Duncan:
In the long run, with the exception of a few projects like Bitcoin or DOGE that have achieved escape velocity and mind share, any project without an actual business backing it up is likely to eventually go to zero, especially given the rate at which new projects are launched nowadays.
Fundamentals return
Ceteris:
I agree with the view that projects without fundamentals are difficult to sustain in the long term. I think we are entering a new era in infrastructure, and it is difficult for these projects to be sustainable without a long-term revenue story. We have seen that projects that can actually generate revenue, such as some L1/infrastructure projects, are gaining more attention.
According to the latest data from Blockworks, more than 50% of the revenue in the crypto space now comes from Solana applications. (Of course, not all of this revenue belongs to Solana. JTO will take a small portion, but this part is not included in the revenue statistics. These all belong directly to the stakers.) Specifically:
- Solana accounts for 56.8%
- Ethereum accounts for 17.9%
- Base accounts for 8.7%
- BNB accounts for 4%
- Arbitrum accounts for 1%
If Solana can reach 80% on these metrics by the end of the year, it’s hard not to believe that it has the potential to surpass ETH. Here are two key metrics:
- Revenue generated by applications, also known as "on-chain GDP"
- R value, which is the most objective indicator to measure the economic value generated by the chain
When Solana generates 80% of the industry’s revenue, other softer metrics like “Ethereum has more developers” or “Ethereum is more decentralized” become less important.
Duncan:
I agree with this view. We have indeed seen bubbles in infrastructure tokens, high FDV low liquidity tokens, and meme coins. The market is moving towards a certain equilibrium, and those basic coins that can generate real income will find buyers at a certain price, while those meme coins or overvalued infrastructure tokens will find it difficult to find a price bottom because they basically have no income.
Jose:
I would also like to point out that there are some problems with these indicators. For example, the income indicator mainly only calculates DEX and on-chain currency markets, etc. And with the emergence of new mechanisms like Pump.Fun, the income distribution model may change.
Ceteris:
On the topic of app-specific sequencing, I think crypto researchers may have over-promoted it a bit. Many people believe that applications will get 100% of the economic value on the chain, but this is not the case. There is a synergy between applications and L1 and validators, and some form of profit distribution is needed. Although L1 does take 100% now, this situation will not last. Even if L1 only takes 30% and applications take 70% in the end, this model will still be very beneficial to L1 as the chain expands and more applications are added.
I prefer application-specific ordering over app chains because it maintains the same shared state. But there are trade-offs - every time we invent a new mechanism like this, it brings new centralized power to some extent. UniChain is the first project to implement pure application ordering from the beginning, so I am very interested in its development.
People always say that the purpose of building an application chain is to capture all economic value, but if you look at the GDP chart, you will know that the most profitable applications are on Ethereum. Some people say that these applications should build their own application chains, but this completely contradicts the fact that the fundamentals tell us - the most profitable applications are on Solana , why leave? Just because you can get more income?
This doesn’t take into account the tradeoffs that come with building a standalone chain. For example, Pump works well on Solana, and perhaps in the long run it would be better as a standalone chain from a perfect world perspective, but for now it is able to take advantage of the pool of funds and shared state on Solana.
We have indeed seen bubbles in infrastructure tokens, high FDV low circulation tokens, and meme coins, and now it may be the turn of AI concepts. Although the overall prospects of AI may be great, these tokens that are skyrocketing now will eventually return to equilibrium over time. Those fundamental projects with real income will find buyers at a certain price, while those meme coins or overvalued infrastructure tokens are difficult to determine the bottom because they basically do not generate income and can only be measured by subjective indicators.
The market is maturing, which is a good sign. The severely overvalued infrastructure tokens, high FDV low circulation tokens or meme coins are losing momentum, and investors are starting to focus on projects with real business support and sound fundamentals.
Duncan:
If there was a Chain Abstraction wallet with a particularly good user experience, would the differences between these chains become less important?
Ceteris:
My view is that this really depends mainly on the user experience, not the shared state. However, chain abstraction cannot completely eliminate the differences between multiple chains, because there will inevitably be latency issues when using different state machines. This means that performance will be reduced due to cross-chain operations.
For example, a portfolio tracker like the Lighthouse.one app is an example of chain abstraction. It aggregates the user's assets across different chains and displays them in a single front-end interface, which is very convenient. However, if cross-chain interaction is required, such as switching between different state machines, performance will always be affected. Therefore, although chain abstraction improves the user experience, from a technical perspective, it cannot completely replace shared state.
Next-generation L2 and L3
Jose:
Regarding the development of L2, I think they performed well last year. Although there is no unified token to invest in, and this success does not directly benefit ETH, it is still very successful from a product perspective. The total locked volume (TVL) of L2 has doubled from 22 billion to 40 billion. However, it should be noted that a large part of Base's TVL comes from Coinbase's customer deposits, which is more like a centralized exchange doing accounting on its own proprietary blockchain.
Looking ahead, I am bullish on Solana and L2, and I think by 2025, at least one large financial institution will announce the launch of its own L2. Institutions like BlackRock may put tokenized securities on L2 because it provides them with greater flexibility while solving some of the limitations of traditional blockchains. Of course, this "private blockchain" model may spark controversy about decentralization, but if securities are really going to be on the chain, this will be a more realistic option.
Ceteris:
There are only three L2s that have higher TPS (transactions per second) than Ethereum, which is incredible. Ethereum has limited throughput, about 12 TPS. We are seeing a winner-take-all effect, where the strong get stronger. Specifically, these L2s have lower TPS because of lack of demand, not technical capabilities. I expect that when Mega ETH launches, it may perform well, but its funding will likely be diverted from existing L2 projects . Currently, there is not much ETH bridged to L2, only about 2.5%.
Ceteris:
I am also optimistic about the development of the application level, especially AI agent-related projects. This is also infrastructure to some extent, but it is different. As I said before, people are beginning to care less about whether the project is built on BSC or Solana, which is a good trend.
I find it interesting that a lot of people thought Solana wouldn’t succeed because they thought technology didn’t matter, which has always seemed like a weird perspective to me. Now it’s clear that technology does matter, and you can see the entire industry moving toward these high-performance systems. My main conclusion is this: we no longer have any excuse not to build great applications.
Bitcoin Dominance
Duncun:
In light of the gradually loosening regulatory environment, will we see altcoins rally, or will Bitcoin’s dominance continue to rise?
If you look at the BTC.D (Bitcoin dominance), it has been rising steadily since the beginning of 2022. It was 40% in 2022, peaked at 61% a few weeks after the election, and is now around 58%. We did experience a small altcoin rally in November and early December, a bit like what happened in March.
The key question is: will this become the new normal, like in March when Bitcoin formed a temporary top near $72,000 and then oscillated between $60,000-70,000 while altcoins generally fell? Or will this be a stronger cycle, bringing in new money and allowing altcoins to truly outperform the market?
Jose:
I think even if BTC dominance remains the same, you may still see some small-cap coins perform well. In 2021 and 2022, when Bitcoin peaked, we saw a crazy altcoin run. But after Bitcoin hit a new high in March this year, most altcoins suffered during Bitcoin's consolidation. Traditionally, this should have been altcoin season, but things have changed.
I think the concept of a traditional "altcoin season" may be outdated. Instead, projects with strong fundamentals and a clear narrative will outperform , while others will languish.
Jason:
When it comes to the top prediction of BTC dominance, it is basically talking about the ETH/BTC ratio, because it is mainly a competition between these two currencies. Of course, XRP and BNB are also at the forefront now. In theory, if the entire AI sector surges 10 times, it may also have a little impact on BTC dominance.
From this perspective, I think Bitcoin could still outperform Ethereum this year , especially if some favorable executive orders emerge. This is a bold prediction, but I made a similar prediction last year and it came true. However, the gap may not be as large this year, as factors such as an improved regulatory environment and a crypto-friendly president will be favorable to ETH, as can be seen from the flow of funds in ETFs.
Six months ago I expected BTC dominance to reach 66%-68%, but now it seems that it may not reach that high. If Bitcoin rises to $125,000-150,000, I think BTC dominance may return to 62%-63% and then start to fall back.
Duncun:
It is worth noting that BTC dominance was 73% in January 2021, and then fell all the way to 40%. In contrast, the recent wave from November to December only fell from 61% to 55%, and the fluctuation range was only about one-eighth to one-tenth of that in 2021.
Bitcoin L2 Feasibility
Jose:
I think Bitcoin L2 could be a dark horse in 2025. Bitcoin holders rarely do anything with their Bitcoin in the past, and WBTC peaked at only about 6% of Bitcoin supply. Existing multi-signature L2s have not seen much adoption, but we may see some real ZK L2s go live on Bitcoin in 2025, such as projects like Citrea or Alpen Labs .
This could have a huge impact because Bitcoin holders really value security and the market size is huge. Bitcoin L2 not only provides scalability, but also programmability. On Ethereum L1, you can use smart contracts, but on Bitcoin L1, you can hardly do anything. So Bitcoin L2 brings a bigger change - not only greater scalability benefits, but also programmability. Even if only 1-2% of Bitcoin enters the L2 ecosystem, it is enough to double the TVL of L2.
Ceteris:
I’m excited to see Bitcoin rollups develop. I’ve never believed the argument that “Bitcoiners don’t want to use DeFi” or “don’t want to do anything with their Bitcoin”, and that argument has always seemed ridiculous to me. Sure, there are some very vocal people on Twitter who might never do it, but this is a $2 trillion+ asset and a lot of people are going to want to use it, even if it’s just to get on-chain loans, and without any wrappers.
Currently, a trusted bridge is required to achieve this, but if OP_CAT passes, trustless bridging can be achieved through ZK proofs and other methods. OP_CAT has been running on the Bitcoin testnet for about a year, and some people say it may be officially launched in 2025. This feature actually existed in the early days of the protocol, but was later removed due to a catastrophic vulnerability, but now this problem no longer exists.
I think Starkware's Starknet could be a dark horse for Bitcoin L2 . Once OP_CAT passes, they can start submitting proofs to Bitcoin. The space is very vibrant right now, and it can only be good for Bitcoin. Even if people don't use Bitcoin DA (data availability), just submitting proofs to Bitcoin makes sense.
Even if only 2.5% of Bitcoin holders use these services, that would be a $50 billion market. And it’s not just existing holders who would use it, there would be people buying Bitcoin specifically to use these services.
Jose:
I think we will see some non-custodial solutions this year. It would be worth writing a new report to update all the latest progress on Bitcoin L2, as our existing report is almost a year old. If Bitcoin L2 really takes off, it may put a lot of pressure on Ethereum.
There are about 10,000 Bitcoins in existing Bitcoin L2s, such as W-BTC (Wrapped Bitcoin), etc. I think this number can grow about 10 times in the future, especially if it is not multisig. Bitcoin holders are actually very concerned about this issue because many of these L2s may move to EVM in the future. If there is a ZK bridge, or an extremely reliable code base (such as Aave or Morpho) that allows you to deposit Bitcoin and borrow stablecoins such as USDC, or do a Maker CDP (debt warehouse) operation, I think this solution will definitely have a certain market.
Jason:
From a financial perspective, the demand for lending exists, and BlockFi has done a lot in the past in terms of deposits. After the launch of the Bitcoin ETF, traditional finance has also begun to provide custody solutions for Bitcoin. Will it also provide credit solutions for Bitcoin? Will more people tend to use these crypto-native solutions in the future, or will they choose a platform like JP Morgan, which, although centralized, has more safeguards and room for remedy in case of problems.
I think the main source of future Bitcoin demand is likely to be non-crypto native markets . There are currently about $32 billion of Bitcoin in a state similar to L2, including Bitcoin on chains such as Ethereum, Arbitrum, Base, Solana, etc. These data are very interesting, although most of these solutions are not truly "secure" solutions, except for the Lightning Network. However, if a real solution for Bitcoin can emerge, this number will increase significantly.
