Why has there been no “Shanzhai Season” in this cycle? The old market paradigm driven by high leverage and speculation has been completely dismantled, replaced by a new system led by regulatory thresholds and institutional capital. Investment logic is shifting from capturing liquidity spillovers to screening for long-term value assets with genuine utility and regulatory adaptability.

This article is adapted from David Attermann’s piece “The New Market Regime,” compiled, translated, and written by Blockbeat.

(Previous context: Bitcoin frenzy, altcoins buried: a two-year bull market review, why are your assets shrinking?)

(Additional background: Arthur Hayes: Shanzhai Season has long arrived, you just don’t admit it; HYPE and SOL are proof.)

Table of Contents

• Despite having the most favorable macro environment, altcoins remain stagnant
  • Ideal liquidity conditions
  • Strong regulatory momentum
  • On-chain fundamentals hit record highs
• Clearly a structural issue
• What exactly went wrong?
  • Liquidity engine stalls
  • Distribution channels break down
  • Liquidity amplifiers fail
• Structural decline in altcoin liquidity
  • Market depth collapses
  • Demand shifts to top assets
  • Crazy token issuance hits a market with no buyers
• Investing in the new landscape
• Taking a step back, what have we achieved?

Why has there been no “Shanzhai Season” in this cycle? The author points out that the old paradigm relying on high leverage and speculation has been thoroughly ended, replaced by a new system dominated by regulatory thresholds and institutional capital. In this new landscape, investment logic shifts from capturing liquidity spillovers to selecting long-term value assets with real utility and regulatory compliance.

The original content is as follows:

Since 2022, the general performance of altcoins has been poor, reflecting a fundamental structural shift rather than a typical market cycle.

The liquidity architecture that once channeled capital broadly across risk curves has collapsed and has never been rebuilt.

Instead, a new market pattern has emerged, changing how opportunities are generated and accessed.

The Luna collapse in 2022 unraveled the liquidity system that once transmitted capital down the risk curve into crypto assets. The market did not suddenly crash on October 10; it had been broken years earlier, and everything since has been just aftershocks.

Post-Luna era has brought the most bullish macro, regulatory, and fundamental backdrop in crypto history. Traditional risk assets and gold surged significantly, but long-tail crypto assets did not. The reason is structural: the liquidity system that once drove broad asset rotation no longer exists.

This is not a loss of a healthy growth engine. It’s the disintegration of a market structure fundamentally mismatched with persistent value creation.

2017-2019:

2020-2022:

May 2022 onwards:

(Note: “OTHERS” = total crypto market cap excluding the top ten tokens)

Despite the most favorable macro backdrop, altcoins remain stagnant

In the years following Luna’s collapse, especially 2024-2025, the crypto industry has entered an unprecedented confluence of macro, regulatory, and fundamental tailwinds. Under the pre-Luna market structure, these forces would reliably trigger deep risk curve rotations. Yet, what confuses investors is that this has not happened over the past two years.

Ideal liquidity conditions

Global liquidity expands, real interest rates decline, and central banks shift toward risk-on mode (Risk-on), pushing traditional risk assets to new highs.

Strong regulatory momentum

· Long-term, regulatory clarity has accelerated as a threshold for large allocators:

· The US has introduced its first government support for cryptocurrencies.

· Bitcoin and Ethereum spot ETFs launched.

· ETP frameworks have been standardized (paving the way for the upcoming DAT boom).

· MiCA established clear, unified handling procedures.

· The US passed the stablecoin bill (GENIUS Act).

· The Clarity Act is just one vote away from passing.

On-chain fundamentals hit record highs

Activity, demand, and economic relevance have surged:

· Stablecoin market cap surpasses $300 billion.

· RWA (Real World Assets) surpasses $28 billion.

· DePIN revenue rebounds.

· On-chain fees reach new highs.

This is clearly a structural issue

This is not a failure of demand, narrative, regulation, or macro conditions. It’s the consequence of a broken liquidity transmission system. The market structure that dominated 2017-2021 no longer exists, and no macro, regulatory, or fundamental force can revive it.

This does not mean opportunities are gone; rather, the way opportunities are generated and captured has shifted. Over time, this shift will prove to be a decisive bullish factor.

The previous market did generate larger nominal “pump” moments, but it was structurally unstable. It rewarded reflexivity (Reflexivity) rather than fundamentals, leverage rather than utility, fostering manipulation, insider advantages, and extractive behaviors—all incompatible with institutional capital or mainstream adoption.

What exactly went wrong?

Market liquidity consists of three layers: capital providers, distribution channels, and leverage amplifiers. Luna’s collapse inflicted devastating impacts on all three.

Liquidity engine stalls

From 2017 to 2021, Shanzhai Season was driven by a concentrated group of balance sheet providers willing to deploy capital across thousands of illiquid assets:

· Cross-platform market makers.

· Offshore lenders providing unsecured credit.

· Exchanges subsidizing long-tail markets.

· Proprietary trading firms taking on risk.

Then Luna collapsed. Three Arrows Capital (3AC) went bankrupt. Alameda’s risk exposure was exposed. Genesis, BlockFi, Celsius, and Voyager all faced crises. Offshore market makers withdrew entirely. Capital providers disappeared, and no new entrants with comparable balance sheets, risk appetite, or willingness to step into long-tail markets appeared.

Distribution channels break down

More important than capital itself is the mechanism for distributing capital. Before 2022, liquidity naturally flowed down the risk curve as a few intermediaries kept transporting it:

· Alameda smoothed prices across venues.

· Offshore market makers quoted thousands of trading pairs.

· FTX provided highly capital-efficient execution.

· Internal credit lines transferred liquidity between assets.

When Luna’s crisis spread to 3AC and FTX, this layer vanished. Capital could still enter crypto, but the pipelines that once transported it into long-tail markets were broken.

Liquidity amplifiers fail

Finally, liquidity is not only supplied and channeled but also amplified. Small inflows can move markets because collateral is aggressively reused:

· Long-tail tokens used as collateral.

· BTC and ETH leveraged into a basket of altcoins.

· Recursive on-chain yield cycles.

· Multi-venue re-hypothecation.

Post-Luna, this system rapidly disintegrated, and regulators froze residual parts:

· SEC enforcement actions limited institutional risk exposure.

· SAB-121 kept banks out of custody.

· MiCA implemented strict collateral rules.

· Institutional compliance departments restricted activity to BTC and ETH.

While lending volumes in top CeFi (centralized finance) have recovered, the underlying markets have not. The lenders of the previous generation’s system have vanished, replaced by a more risk-averse system almost entirely concentrated in top assets. The re-emergence of lending without long-tail credit transmission mechanisms.

This system can only operate when leverage growth outpaces risk exposure growth; this dynamic is doomed to eventual failure.

Structural decline in altcoin liquidity

Once engines stall, channels break, and collateral amplifiers shut down, the market enters an unprecedented state: a multi-year structural liquidity decline. A completely different market emerges.

Market depth collapses

Historically, depth always recovers because the same players rebuild it. But without them, altcoin depth can never return to previous levels.

· Long-tail asset depth drops 50-70%.

· Price spreads widen.

· Many order books are effectively abandoned.

· Cross-venue price smoothing mechanisms disappear.

Demand shifts to top assets

Liquidity migrates upstream and never flows back down.

· Institutional compliance departments prohibit long-tail exposure, sticking to mainstream assets like BTC and ETH.

· Retail investors exit.

· ETFs and DATs focus only on blue-chip tokens with sufficient existing liquidity.

Crazy token issuance hits a market with no buyers

Peak VC activity in 2021-2022 created a massive future supply wave.

When these projects issue tokens in 2024-2025, they hit a market lacking all absorption mechanisms. The damaged system cannot withstand ongoing sell pressure.

( As the 2021-2022 VC issuance cycle clears, token unlocks are expected to normalize by 2026, alleviating a key structural barrier to long-tail liquidity )

The conditions that once drove Shanzhai Seasons have been systematically dismantled. So, where are we today?

Investing in the new landscape

The post-2022 period has been painful for altcoins, but it marks a decisive break from a market structure fundamentally unsuited for scaling. What follows is not a typical market retracement but a system defined by a lack of reflexivity and liquidity driven by leverage. This deficiency still characterizes the market today.

In the current structure, even assets with strong fundamentals trade under conditions of persistent illiquidity. Weak order books, limited credit, and broken routing dominate price movements, not fundamentals. Many assets will remain stagnant long-term. Some will fail to survive. This is the inevitable cost of operating without artificial liquidity or balance sheet expansion.

Substantial change will only come with regulatory shifts.

The upcoming Clarity Act is a key inflection point for the Shanzhai market structure. It unlocks access to a vast capital pool: regulated asset managers, banks, and wealth platforms managing trillions of dollars, which, without clear legal classification, custody rules, and regulatory certainty, are prohibited from holding risk exposure.

Before capital can participate, the Shanzhai market will remain trapped in a liquidity-starved system. Once participation is possible, the market structure will change fundamentally.

Major financial institutions are already preparing for this shift:

· BlackRock (BlackRock) is building dedicated digital asset research units, treating tokens like stocks.

· Morgan Stanley (Morgan Stanley) is doing the same.

· Bloomberg (Bloomberg) is also involved.

· Cantor Fitzgerald has begun publishing stock-style research reports on individual tokens.

This institutional buildout marks the beginning of a new market regime. Capital unlocked by regulatory clarity will not flow through offshore leverage, reflexivity, or retail momentum. Instead, it will enter slowly and selectively through familiar institutional channels. Allocation decisions will be driven by qualification, durability, and scale potential—rather than narrative speed or leverage amplification.

The message is clear: the old Shanzhai script is outdated. Opportunities will no longer come from systemic liquidity waves. They will come from assets that can withstand long-term illiquidity through fundamentals and demonstrate institutional allocability once regulatory capital is permitted.

Previously, these screening criteria were optional. Under the new regime, they are mandatory.

· Persistent demand: Does the asset capture recurring, non-discretionary demand, or only activity when incentives, narratives, or speculation are present?

· Institutional qualification: Can regulated capital own, trade, and underwrite the asset without legal or custodial risk? Regardless of technical advantages, assets outside institutional authorization will remain illiquid.

· Rigorously modeled economics: Supply, issuance, and unlocking must be predictable and limited. Value capture must be explicit. Reflexive inflation is no longer tolerated.

· Proven utility: Is the product used because it offers differentiated, valuable functions, or only survives on subsidies while waiting for relevance?

Beyond stablecoins and tokenized assets (which continue to attract attention), blockchain-based systems are quietly integrating into healthcare, digital marketing, and consumer AI.

These applications rarely reflect in token prices and are largely overlooked—not only by mainstream society but even by many Web3 practitioners themselves. They are not designed to dazzle or go viral; their appeal is subtle, embedded, and easy to miss.

However, the shift from speculation to reality has begun: infrastructure is live, applications are real, and novel differentiation has been validated. As more market participants turn toward institutional allocators and regulated capital, the gap between adoption and valuation will become increasingly hard to ignore.

Eventually, this gap will close.

Taking a step back, what have we achieved?

I first fell into the crypto rabbit hole in 2014, and I realized then that blockchain is not just digital currency; it’s a disruptive technology for data networks.

Ten years later, ideas once considered abstract are operating in the real world.

Software can finally be both secure and useful: your data is under your control, private and protected, yet still usable to deliver genuinely better experiences.

This is no longer experimental. It is becoming part of everyday infrastructure.

We have succeeded: not by achieving a “cryptocurrency supercycle,” but by realizing the true goal.

Now it’s time for execution.