Variant Fund Investment Partner: In the early stages of a bull market, which projects will benefit the most?

Author: Alana Levin, Investment Partner at Variant Fund

Compiled by: Gu Yu, ChainCatcher

When thinking about the market, I usually try to identify the right questions to ask first.

Throughout the summer, the most pressing question about the crypto market was: When will we hit the bottom? I wrote in early July------at that time BTC was $59k, ETH was $1600, ZEC was $420------the bottom seemed to be near.

We now have the answer to that question: the bottom has likely already occurred, and it indeed happened sometime in July. Therefore, the most pressing question has shifted. Right now, what I am pondering is:

Has the bull market truly begun, or is this just a false rally?

If we are in the early stages of a full bull market, which projects are most likely to benefit the most?

Topic #1 has a series of follow-up questions. How long might the bull market last? What factors will support it? What could deflate the market? And so on. This is the subject of another (upcoming) article.

For now, let’s assume we are indeed in the early stages of a new crypto bull market. There seems to be an increasing consensus that there are two types of projects that will attract marginal dollars: protocols that are currencies themselves (such as store of value) and protocols that can generate revenue. These groups are most likely to attract the marginal dollars flowing in.

Thus, the follow-up question becomes: If everyone believes these are the asset classes to hold, what are the second-order effects?

Second-Order Considerations

For assets that are currencies themselves: BTC is currently the king of digital store of value. Every asset that is expected to compete for digital store of value status will likely be valued relative to BTC------that is, what percentage of the asset's market cap is relative to Bitcoin's market cap, and how does this ratio change over time? Store of value assets theoretically have unlimited upside potential (TAM literally means currency), so the "market cap relative to BTC" metric at least provides investors with a benchmark for comparison.

Protocols that can generate revenue have other considerations. Specifically, I expect investors to start examining the quality of revenue------is it derived from crypto-native sources (such as Pump), or is it exposed to tailwinds from more traditional financial activities (such as Hyperliquid), and how durable is this revenue even if the crypto market retracts, along with profitability metrics, etc.? In other words, these are the types of questions that public market investors typically ask of publicly traded companies.

The answers to these questions will likely drive multiple premiums. Those that 1) are exposed to the growth of real-world assets and stablecoins / do not solely rely on crypto-native activities, 2) have a visible path to attract institutional users, and 3) have demonstrated durability in previous bear markets and still have founders serving as CEOs, seem most likely to achieve higher revenue and profit multiples.

There is also a third category of assets not mentioned above: on-chain projects that can be compared to non-crypto businesses. These are most likely narrative trades. (Moreover, it needs to be emphasized that I believe most of these will be trades rather than long-term investments). Their theoretical appeal comes from being able to point to known valuations of non-crypto versions and ask: What if the on-chain version could also reach there?

The prominent theme is those projects that can benchmark certain parts of the AI technology stack: routers, inference, compute, data collection, and interfaces. I am skeptical about the extent to which most of these need blockchain. (If you have counterexamples, please let me know)! Relatedly, these projects often have questionable token/equity splits------value essentially accrues to equity, while there is some arbitrary buyback for tokens. A project making money does not mean the token can capture value. This is an old story in crypto. However, some of these may still be good trades. Personally, if I see such projects genuinely rise/outperform, I might use it as a top signal, as it reflects a loosening of market discipline.

Why This Three-Pronged Classification Is Important

The crypto market tends to be highly cyclical. Over the past decade, bull and bear markets have exhibited a relatively consistent four-year pattern. However, this year, some assets never truly entered a bear market. They have continued to compound based on strengthening fundamentals. I still believe that capital will increasingly align with these types of projects. While they may experience pullbacks, I expect it will start to resemble traditional market corrections (10-30%) rather than the >90% pullbacks we saw in some previous cycles.

Overall, these are exciting signs of true market maturation.