The Great Tide Reversal: The Collapse and Liquidation of Crypto Faith

Beijing, Jianguomen. I met a VC friend at a coffee shop downstairs, with the February sky outside the floor-to-ceiling windows—a clear, gray sky unique to this month. This was my first coffee chat with someone in the Crypto circle in a long time, and I felt this itself was a signal. Sure enough, as soon as my friend sat down, she gave me a helpless look: “How long do you think the bear market will last? We haven’t made a move in half a year.”

Half a year, for an industry that measures iteration speed in days, is almost a century.

She told me it’s not because there are no startups anymore; they still talk to many entrepreneurs each month. But now, they’re confused, not sure what good directions or opportunities remain.

She stirred her coffee and smiled bitterly: “Sigh, my boss told me to look into AI, but I still have faith in crypto.”

In this sentence, I heard a final struggle and reluctance from an industry insider. When the wind of capital has clearly shifted, faith becomes the cheapest and most luxurious thing.

The next day, Kyle Samani, co-founder of Multicoin Capital, once known as the “Solana High Priest” and a proponent of “paper-driven investing,” announced on social media that he’s leaving the scene— the high priest has defected.

When the industry’s smartest minds and most sensitive capital simultaneously choose to exit, I realize we are approaching a critical moment.

The Great Retreat

Over the past decade, the story of cryptocurrency has been written on the flood of global liquidity. Now, the floodwaters are receding, but it’s not just crypto that’s being washed ashore.

February 2026 will be a nightmare for all risk asset holders worldwide. What we see no longer resembles a pendulum effect; US stocks, gold, cryptocurrencies—assets with historically different risk preferences—are now hand in hand, jumping into the abyss together.

Behind this broad decline is a fact we’ve long foreseen but refused to believe: the era of cheap money, where we could close our eyes and believe “tomorrow will be better,” has officially come to an end.

Economist Minsky once said, “The end of prosperity is often the beginning of collapse.” Now, that moment has arrived. The root of this crisis is the tightening faucet in Washington. During nearly ten years of quantitative easing, near-zero interest rates flooded the global markets with hot money seeking high returns. This money, like a flood overtopping the dam, poured into any asset that could tell a sexy story, and cryptocurrencies, undoubtedly, were among the most alluring.

However, when hawkish figures like Kevin Warsh are nominated as the next Federal Reserve Chair, when the Fed begins shrinking its balance sheet, when the dollar index continues to strengthen, and global funding costs rise, the tide recedes. The first to be exposed are those assets most dependent on stories rather than fundamentals.

The Collapse of Two Temples

There are two temples in the crypto world. One is the Temple of Value, worshiping digital gold Bitcoin; the other is the Application Temple, worshiping the next-generation internet Web3. Now, they are nearly collapsing simultaneously.

First, the Temple of Value. Since Satoshi Nakamoto’s white paper in 2008, digital gold has been Bitcoin’s core and most resilient narrative. It’s considered an inflation hedge, decentralized, and an independent store of value outside sovereign control.

But when a real crisis hits, the market votes with money. In recent years, as Bitcoin has been adopted by various mainstream institutions, its correlation with US tech stocks once climbed to 0.8. This means it’s no longer a hedge against risk but an amplifier of risk. It’s not a safe haven but a storm eye. When Nasdaq sneezes, Bitcoin might directly end up in ICU.

With the value temple teetering, what about the application temple?

To understand its collapse, we must grasp a broader context: the fundamental narrative of technology has changed in recent years.

From 2010 to 2020, blockchain technology was almost the only “future tech” capable of igniting capital imagination. It was the main protagonist of technological innovation narratives of that era, a card that all VCs couldn’t afford to miss. Bitcoin’s rise was not just a monetary phenomenon but a reflection of the underlying technological value.

But now, the protagonist has changed. AI has become the new deity.

The rise of AI is like a mirror, revealing the emptiness of Web3 applications. Initially, when the AI wave surged, the crypto industry still harbored some optimistic illusions. We tried to combine the two, creating a narrative that “AI is productivity, blockchain is production relations.” But now, it seems this was wishful thinking. AI doesn’t need blockchain to prove its value; capital and talent will always flow to the easiest, most sexy, most bubble-prone areas. Today, that place is AI.

This mirror also leaves believers like Kyle Samani feeling despairing. Samani and his firm, Multicoin, were among the most devout advocates of Web3. They were early and key supporters of Solana, and their DePIN paper was once considered the most feasible path for Web3 to reach the real world.

However, when this high priest finally admitted that blockchain’s essence is just an asset ledger, it was no different from declaring the collapse of the application temple. We once thought we were building a future Roman city, only to realize we were just repeatedly swapping chips and carpets for a casino.

The more serious problem is that the industry is losing its most precious asset: imagination for the future.

Top developers and young talents are voting with their feet, leaving an industry that keeps repeating Ponzi schemes for others. When the indicators of startup incubators no longer point to Web3, we know a new era may have ended.

But technology never disappears because of narrative collapse. Decentralized ledgers, smart contracts, breakthroughs in cryptography—these technologies still quietly exist.

It’s just that, at this moment, no one knows where they truly belong. Perhaps they are destined not to reshape the world as dramatically as AI, but to solve specific problems in more concrete scenarios. But such stories are no longer sexy, nor can they attract hot money and followers.

The State of Humanity

The collapse of grand narratives ultimately affects every individual. When temples turn to ruins, what we see is a bleak portrait of humanity.

In January 2026, the so-called most hardcore decentralized custody startup Entropy announced its closure after four years of operation; in the same month, the trading platform Bit[.]com also announced it would gradually shut down; in February, the compliant exchange Gemini, founded by the Winklevoss brothers, announced layoffs of 25% and a full exit from the UK, EU, and Australia markets, shrinking back to the US. Since its peak in 2022, the company’s staff has decreased by over 70%.

I open social media and see developers whose bios once read WAGMI and appended “.eth” now signing off as Building with LLMs.

On Twitter, I see Princess reminiscing about the industry’s future four years ago in that coffee shop, and many old friends recounting the industry’s past prosperity and interesting moments.

When an industry begins to nostalgic, it means it can no longer find a future. We start to miss the summer of 2021, the peak of a $3 trillion global crypto market cap, the madness of selling a monkey picture for over a million dollars, the illusion that money was as easy as air.

When the avalanche comes, every snowflake feels innocent. But we are not snowflakes; we once created the snow ourselves, and now we watch it melt in our hands.

Will there still be consensus at the conference?

Next week, under the dazzling lights of Victoria Harbour, the Consensus conference will be held in Hong Kong. It’s easy to imagine that global crypto believers will gather again. They will be dressed in suits, talking about consensus. But will there still be real consensus in the venue?

This evokes a strong sense of absurdity. In an industry that has lost the narratives of digital gold and Web3, in a winter where cheap capital is gone and high priests are defecting, what consensus can we still reach? Is it a consensus to huddle together for warmth, or to admit failure?

Perhaps, true consensus has never been achieved in noisy conference halls, but in each practitioner’s quiet introspection, in the courage to start over after the illusions shatter.

This industry needs a thorough, top-down self-cleansing. But cleansing does not mean destruction. When the tide recedes, some things will remain on the ruins.

Those who truly believe in decentralized technology may find sparks in the wreckage, but they will no longer be blazing flames that change the world—only faint glimmers that solve problems. Maybe, in the next decade, we will see blockchain applications rooted in industry, serving specific communities, not aiming for hundredfold tokens. They might appear in supply chain finance, digital identity verification, or in corners we cannot yet imagine.

These will be smaller, slower stories—more genuine. They no longer need grand narratives or myths of overnight riches. All they need is patience and time. For those still at the table, perhaps that is the only hope.