[Long English Thread] Framework and Direction for the Next Cycle of the Crypto Market

Chainfeeds Guide:

The biggest structural conclusion is: the crypto market will not decouple from the macro economy.

Source:

Author:

arndxt

Opinion:

arndxt: The biggest structural conclusion is that the crypto market will not decouple from the macro economy. The timing and magnitude of liquidity rotation, the Federal Reserve's interest rate path, and the pace of institutional adoption will determine the evolution of this cycle. Unlike 2021, even if a new altcoin season emerges, it will be slower, more selective, and more institutionalized. If the Federal Reserve releases liquidity through rate cuts and Treasury issuance, while institutional funds continue to accumulate, 2026 could become the most important risk cycle since 1999–2000. Crypto assets are expected to benefit, but in a more restrained manner rather than explosive growth. In 1999, despite the Fed raising rates by 175 basis points, the stock market still soared to its 2000 peak. Currently, the forward market expects the Fed to cut rates by a cumulative 150 basis points by the end of 2026, which means the environment will be one of "increasing liquidity" rather than "withdrawing liquidity." If this scenario materializes, 2026 may be seen as an "enhanced version of 1999/2000." However, compared to 2021, there are multiple differences in the current environment: high interest rates and inflation make market risk-taking more disciplined, there will no longer be a liquidity flood caused by the pandemic-era M2 surge, and after a tenfold market expansion, extreme returns of 50–100 times are no longer realistic. Institutional capital dominance means flows will be slower and more inclined toward consolidation. Bitcoin's performance relative to liquidity conditions has lagged because new liquidity is trapped upstream in Treasuries and money market funds, and has not yet flowed smoothly into risk assets. As the asset class at the far end of the risk curve, the crypto market typically only truly benefits after liquidity successfully trickles down. Historical experience shows that crypto usually sees significant gains in the later stages of the cycle, with stocks and gold benefiting first. To trigger crypto assets' outperformance, several key catalysts are needed: first, bank loan expansion with the ISM index returning above 50; second, funds flowing back from money market funds after rate cuts; third, the Treasury issuing long-term bonds to lower long-term rates; fourth, a weaker dollar to ease global financing pressures. Once these conditions are met, funds will naturally flow into the crypto market. In addition, the 2026 cycle is unlikely to be defined by speculative liquidity shocks, but rather by the structural integration of crypto with global capital markets. Institutional capital inflows, more restrained risk-taking, and policy-driven liquidity rotation will intertwine, gradually elevating crypto from "bull-bear cycles" to the status of a "systemic asset." Although the overall liquidity framework leans optimistic, risks remain: geopolitical factors leading to higher long-term rates, a stronger dollar tightening global liquidity, weak bank credit, or money market funds remaining stagnant could all interrupt the transmission of funds to risk assets. On the industrial policy front, U.S. manufacturing is experiencing adverse effects. The latest data shows the ISM PMI has fallen to 48.7, indicating manufacturing contraction. Although orders have slightly increased, output, exports, and employment have all declined. Tariffs have not improved competitiveness; instead, they have raised development costs and product prices in industries such as electronics and electrical appliances, while profit margins continue to fall. Companies have not returned domestically; instead, tariff costs have pushed them overseas, leading to signs of industrial "hollowing out." The transportation sector has fallen into a stagflation state of "rising prices and declining volumes," and home appliance manufacturers have cut 15% of high-skilled positions, with capital expenditures and hiring frozen. Unlike the 1980s motorcycle industry, which benefited from targeted tariffs, today's comprehensive tariffs distort cost structures, effectively taxing domestic production, compounding inflationary pressures, and undermining industrial revival goals. The greater risk is the shift of corporate capacity overseas, further hollowing out domestic manufacturing while consumer prices rise in tandem. These structural misjudgments, coupled with labor mismatches caused by tighter immigration policies, are dragging down U.S. employment and GDP growth. [Original text in English]