The Crossroads of the Crypto Market: The Game of Macroeconomic Environment and Technological Development

The current market's expectation of a Federal Reserve rate cut is like a carnival about to begin. However, an important question arises: what if this is a "wrong type of easing"? The answer to this question will determine whether the future is a comedy of an economic soft landing or a tragedy of stagnation and high inflation coexisting. For cryptocurrencies closely tied to the macroeconomy, this is not only about choosing a direction but also a test of survival.

The Dual Nature of Interest Rate Cuts

The effect of interest rate cuts highly depends on the current economic environment. In a positive scenario, with strong economic growth and controlled inflation, interest rate cuts can further stimulate the economy. Data shows that since 1980, in the 12 months following the start of a "proper interest rate cut" cycle, the average return on U.S. stocks has reached 14.1%. This could mean a potential surge for high-risk assets like encryption.

However, if economic growth is weak and inflation remains high, the Federal Reserve may be forced to cut interest rates to avoid a deeper recession, which would change the situation. This "mistaken interest rate cut" could lead to stagflation, similar to the experience in the United States in the 1970s. At that time, the actual annualized return rate of the U.S. stock market was -11.6%, while the annualized return rate of gold reached as high as 32.2%.

A large investment bank recently raised its expectations for the probability of a U.S. economic recession and predicted that the Federal Reserve may cut interest rates in 2025 due to economic slowdown. This warns us that the possibility of negative scenarios cannot be ignored.

Dollar Trends and Bitcoin Prospects

The Federal Reserve's loose monetary policy is usually accompanied by a weakening of the dollar, which is a direct benefit to Bitcoin. However, the impact of "misguided easing" is far-reaching, as it will test the theories of two well-known figures in the crypto market. One believes that Bitcoin is a "digital property" against the devaluation of fiat currency, while the other predicts that the U.S. will have to resort to "money printing" to cope with massive debt.

However, this situation also hides risks. When the dollar weakens and drives up Bitcoin, the cornerstone of the encryption world—stablecoins—may face challenges. Stablecoins, with a market value of over $160 billion, are mainly supported by dollar assets. If global investors lose confidence in the dollar, stablecoins may encounter a crisis of trust.

The Evolution and Challenges of DeFi

In an "error-type easing" environment, the yield of traditional finance and decentralized finance (DeFi) will collide intensely. When U.S. Treasury bonds can provide a stable return of 4%-5%, the higher-risk yields in DeFi protocols seem less attractive.

The "tokenized U.S. Treasury" spawned by the market attempts to bring the stable returns of traditional finance on-chain, but this may introduce new risks. If Treasury yields decline, it could trigger capital outflows and chain liquidations, transmitting macro risks to the DeFi sector.

At the same time, economic stagnation may weaken the demand for speculative borrowing, which is the source of high yields for many DeFi protocols. In the face of these challenges, DeFi protocols need to accelerate their evolution, shifting from a closed speculative market to a system that can integrate more real-world assets and provide sustainable real yields.

The Differentiation of the Crypto Market

Despite the uncertainty in the macro environment, the development of blockchain technology has never stopped. Data from a well-known venture capital institution shows that core metrics for developers and users continue to grow steadily. Some seasoned investors believe that as the regulatory environment improves, the market is entering a new phase of a bull market.

However, "error-type easing" may exacerbate the differentiation in the crypto market. Bitcoin's "digital gold" attribute may be further strengthened, becoming the preferred tool for hedging against inflation and fiat currency depreciation. In contrast, many altcoins may face difficulties. Their valuation logic is similar to that of growth tech stocks, which often perform poorly in a stagflation environment.

This may lead to a massive flow of funds from altcoins to Bitcoin, causing a huge differentiation within the market. Only projects with strong fundamentals and real income can survive in this "quality first" wave.

Conclusion

The crypto market is at the intersection of macroeconomic pressures and technological innovation forces. The future development path may be more complex, as a "wrong interest rate cut" could simultaneously drive up Bitcoin while hitting most altcoins. This complex environment is accelerating the maturation of the encryption industry, and the actual value of projects will be tested in a harsh economic environment.

For market participants, understanding the logic of different scenarios and grasping the complex relationship between macro and micro factors will be key to successfully navigating future cycles. This is not only a bet on technology but also a grand game regarding the future direction at critical moments in the global economy.