The 2024 Bitcoin rally stalled because speculative momentum migrated to AI and space stocks, leaving crypto in a "trough of disillusionment" that only a brutal shakeout of excess token supply can fix.
The Momentum Migration and the Trough of Disillusionment
- Bitcoin struggles to maintain the $90,000 level despite a favorable regulatory environment and the end of quantitative tightening (the process of central banks reducing liquidity to cool inflation). Rahm Alawalia argues that the "Genius Cycle" of peak expectations has passed, shifting the attention of the momentum crowd toward gold and high growth tech stocks like Rocket Lab. This transition represents a classic market cycle where hype outpaces reality, leading to a temporary capital desert.
- Speculative capital is currently favoring AI and robotics over digital assets.
- The market discounted the next two years of regulatory wins in a single two month period.
- Bitcoin hit all time highs before its halving for the first time, compressing the typical cycle.
- A true market bottom requires "uncomfortable buys" triggered by fund blowups or negative mainstream headlines.
- “The momentum crowd will go to wherever the hottest hand is... and we're not seeing that in the asset.” — Rahm Alawalia
The 2026 Filtering Event
- John Woo and Rahm Alawalia project that 2025 will serve as a transition period, setting the stage for a robust 2026. The current market suffers from an explosion of supply, with millions of on chain tokens diluting the stagnant demand from a fixed pool of retail investors. John Woo predicts a "filtering out" process where worthless projects disappear, allowing capital to concentrate on viable utility.
- Stagnant retail demand cannot absorb the current volume of new token launches.
- Institutional access via RIA (Registered Investment Advisor) channels represents a $40 trillion potential tailwind.
- Consolidation will likely occur through M&A (mergers and acquisitions) rather than simple protocol failures.
- The death of the four year cycle is a growing consensus as the investor base diversifies.
- “Market forces are filtering out the nonsense supply; consolidation will manifest itself in M&A.” — John Woo
Institutional Settlement Wars
- The competition for institutional blockchain dominance pits centralized consortia against permissionless networks. John Woo highlights the distinction between Canton, which focuses on private chains for mega banks like Goldman Sachs, and Avalanche, which targets mid size institutions. Avalanche recently partnered with FIS (a dominant financial technology provider) to automate asset backed securities, aiming to provide capital efficiency to the broader market.
- Canton over indexed on centralization and is now attempting to reverse engineer connectivity.
- Avalanche focuses on automating manual workflows for mid tier banks to reduce entry costs.
- The "Fat Protocol" thesis (the idea that value accrues to the base layer) faces challenges as investors demand clearer utility.
- Permissionless systems must prove they can handle KYC (Know Your Customer) requirements without sacrificing decentralization.
- “Canton is over indexed to the larger institution, which is literally what the permissionless world was trying to go against.” — John Woo
The Token Equity Friction
- A central conflict persists regarding whether value should accrue to equity holders in a "Labs" entity or to protocol token holders. This tension is evident in the "unification" proposals from Uniswap and the governance disputes at Aave. John Woo compares the current crypto structure to the hotel industry, where one entity owns the real estate while another manages the brand and cash flows.
- Investors are increasingly wary of "double dipping" where founders capture value in both equity and tokens.
- The market is shifting toward a preference for tokens with free cash flow and buyback mechanisms.
- MicroStrategy acts as an extrinsic cash flow engine for Bitcoin through its equity issuance.
- Future regulations like the Clarity Act will likely force a formal taxonomy (a system of classification) for these assets.
- “Investors have to be taken care of... the double dipping has to stop.” — Rahm Alawalia
The Super App Convergence
- Coinbase and Robinhood are racing to become "everything apps," integrating trading, payments, and lending into a single interface. Rahm Alawalia predicts that crypto will eventually function like TCP/IP (the foundational communication protocol of the internet), becoming an invisible backend layer. The real battle lies in who owns the end user relationship, with X (Twitter) and Big Tech companies looming as potential competitors.
- Coinbase holds a structural advantage due to its long term focus on KYC and on ramps.
- Super apps aim to solve real world problems like lowering the cost of interchange and financing.
- Competition between major platforms will likely compress profit margins for the winners.
- Stablecoins are emerging as the primary source of Net Interest Income (the profit margin between interest earned and interest paid) for these platforms.
- “Crypto is going to start looking more and more like TCP/IP on the back end... it's going to be more around who owns the end user relationship.” — Rahm Alawalia
Investor & Researcher Alpha
- The New Revenue Primitive: Stablecoins are the new Net Interest Income. Platforms that control stablecoin distribution or partner with issuers will capture the yield previously reserved for banks.
- The M&A Catalyst: Watch for "outside" acquisitions. If a legacy player like Visa or Mastercard acquires an on chain protocol rather than a centralized company, it will signal a definitive shift in institutional strategy.
- The Curation Bottleneck: The failure of 85% of recent TGEs (Token Generation Events) indicates that the "launch and pray" model is dead. Capital will move toward platforms that provide rigorous curation and underwriting, similar to traditional investment banks.
Strategic Conclusion
The market is purging the "nonsense supply" of the previous cycle. Success in 2026 depends on projects moving beyond hype to solve specific capital efficiency problems for mid tier institutions. The next step for the industry is the formalization of token equity structures to ensure transparent value accrual.
