Author: Luke, Mars Finance
For crypto investors who experienced the grand bull market of 2020-2021, the current market is undoubtedly confusing and torturous. That was an era ignited by global central banks' "massive liquidity injection", with overflowing liquidity and universal price increases, where seemingly buying any project blindly could yield amazing returns. However, those days are gone forever. Now, the global financial market hangs on a delicate balance point: on one side are surprisingly strong US economic data, and on the other, the Federal Reserve's unwavering hawkish stance, with a historically high interest rate environment weighing heavily on all risk assets.
This paradigm shift dominated by the macro environment has made the current crypto cycle the "most difficult era" for retail investors. The past "liquidity-driven bull" model relying purely on emotional speculation has failed, replaced by a "value bull" market that focuses more on intrinsic value, driven by clear narratives and fundamentals.
However, on the other side of difficulty lies opportunity. When the tide recedes, true value investors will usher in their "golden age". Because it is in such an environment that institutional compliance entry, technological programmatic deflation, and real applications integrated with the real economy can highlight their true, cycle-transcending value. This article aims to deconstruct this profound transformation and explain why this era that feels challenging for speculators is precisely the golden path paved for prepared investors.
I. The Most Difficult Era: When the "Liquidity Flood" Recedes
The difficulty of this cycle stems from the fundamental reversal of macro monetary policy. Compared to the extremely friendly environment of "zero interest rates + unlimited quantitative easing" in the previous bull market, the current market faces the most severe macro headwinds in decades. The Federal Reserve's unprecedented tightening cycle to curb the worst inflation in forty years has doubly suppressed the crypto market, completely ending the old mode of easy profits.
1. Macro Data Puzzle: Why Rate Cuts Seem Distant
The key to deciphering the current market's predicament lies in understanding why the Federal Reserve is reluctant to ease at the end of its rate hikes. The answer is hidden in recent macroeconomic data - these seemingly "good" data have become "bad news" for investors hoping for easing.
Stubborn inflation and a hawkish dot plot: Although inflation has fallen from its peak, its stickiness far exceeds expectations. The latest data shows that while the US May CPI year-on-year rate was slightly below expectations, the core inflation rate remains stubbornly high at 2.8%.
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This is still significantly far from the Federal Reserve's 2% target. This stubbornness is directly reflected in the Fed's latest economic projections (SEP) and the closely watched "dot plot". After the June meeting, Fed officials significantly lowered rate cut expectations, reducing the median number of rate cuts this year from three to just one. This hawkish shift heavily dampened market optimism. As Powell said in the post-meeting press conference: "We need to see more good data to increase our confidence that inflation is continuously moving towards 2%." In other words, the Fed's threshold for rate cuts has become very high.
Strong job market: Meanwhile, the US labor market continues to show remarkable resilience. The May non-farm employment report showed 139,000 new jobs, better than market expectations, with the unemployment rate remaining low at 4.2%. A strong job market means consumer spending is supported, which in turn puts upward pressure on inflation, making the Fed more hesitant about rate cuts.
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Powell's "historical script": As Nicholas Colas, co-founder of DataTrek Research, pointed out, the current chairman is following his predecessors' script, adopting a hawkish tone in the final stage of his term to solidify his historical legacy of successfully curbing inflation. This consideration of personal and institutional reputation means that unless economic data shows a cliff-like decline, policy shifts will be extremely cautious and slow.
2. The "Gravity" of High Interest Rates: The "Bleeding" Effect on Crypto Assets
This macro background directly leads to the crypto market's difficult situation:
Liquidity drought: High interest rates mean less "hot money" in the market. For the crypto market, especially Altcoins, which heavily rely on new funds entering to drive price increases, the tightening of liquidity is its most fatal blow. The previous "universal price increase" has been replaced by a structural market with "sector rotation" or even "only a few hot spots".
Dramatically increased opportunity cost: When investors can easily obtain over 5% risk-free returns from US Treasury bonds, the opportunity cost of holding assets like Bitcoin that don't generate cash flow and have extreme price volatility increases sharply. This causes large amounts of funds seeking stable returns to flow out of the crypto market, further exacerbating the "bleeding" effect.
For retail investors accustomed to chasing hot spots in an environment of overflowing liquidity, this environmental change is brutal. Strategies lacking deep research and simply following trends are extremely likely to suffer heavy losses, which is the core of this cycle's "difficulty".
In April 2024, Bitcoin's fourth "halving" will reduce its daily new supply from 900 to 450 coins. This code-defined, predictable supply contraction is the unique charm that distinguishes Bitcoin from all traditional financial assets. With demand remaining stable or even growing (especially from ETFs), the halving provides a solid, mathematical underlying support for Bitcoin's price. Historical data shows that Bitcoin has reached all-time highs within 12-18 months after each of the previous three halvings. For value investors, this is not a short-term hype, but a reliable, cycle-transcending long-term logic.
3. Narrative Revolution: When Web3 Begins to Solve Real Problems
Macroeconomic headwinds have forced market participants to shift from pure speculation to exploring projects' intrinsic value. The core hot spots of this cycle are no longer baseless "meme coins", but innovative narratives attempting to solve real-world problems:
- AI + Crypto: Combining AI's computational power with blockchain's incentive mechanisms and data ownership to create new decentralized intelligent applications.
- Real World Assets (RWA) Tokenization: Putting real-world assets like real estate, bonds, and art on-chain to release their liquidity and break down barriers between traditional and digital finance.
- Decentralized Physical Infrastructure Networks (DePIN): Using token incentives to enable global users to collectively build and operate physical world infrastructure networks, such as 5G base stations and sensor networks.
The rise of these narratives marks a fundamental shift from "selling air" to "investing in value". Crypto venture capital giant a16z crypto emphasized in its annual report the potential of "AI+Crypto" as the core innovation engine of the next cycle. For retail investors, this means greatly increased opportunities to discover value through in-depth research, where knowledge and cognition have become more important than pure courage and luck for the first time.
III. New Cycle Survival Rules: Patiently Positioning Between the Finale and Prelude
We are at a crossroads of an era. The Federal Reserve's "hawkish finale" is unfolding, while the prelude to easing has yet to begin. For retail investors, understanding and adapting to new rules is key to crossing the cycle and seizing golden opportunities.
1. Fundamental Transformation of Investment Paradigm
- From Chasing Trends to Value Investing: Abandon the fantasy of finding the "next 100x coin" and turn to researching project fundamentals, understanding its technology, team, economic model, and track landscape.
- From Short-Term Trading to Long-Term Holding: In a "value bull" market, true returns belong to investors who can identify core assets and hold through volatility, not frequent traders.
- Build a Differentiated Investment Portfolio: In the new cycle, different assets' roles will become clearer. **Bitcoin (BTC)** as the institutionally recognized "digital gold" is the portfolio's ballast; Ethereum (ETH), with its powerful ecosystem and ETF expectations, is a core asset with both value storage and productive properties; while high-growth Altcoins should be "rocket boosters" with small positions based on in-depth research, focusing on frontier tracks like AI and DePIN with real potential.
2. Maintain Patience and Prepare in Advance
DataTrek's research reveals an interesting phenomenon: In the last 12 months of the past three Fed chairs' terms, even with rates maintained at high levels, the S&P 500 averaged a 16% increase. This indicates that once the market is convinced the tightening cycle has ended, risk appetite may warm up even before rate cuts occur.
Such a "front-running" trend may also appear in the crypto market. While the market's focus is generally on short-term speculation about "when rates will be cut", true sages have already begun thinking about which assets and tracks will occupy the most advantageous positions in the future feast driven by macroeconomic tailwinds and industry cycles when the easing prelude finally plays.
Conclusion
This crypto cycle is undoubtedly an ultimate test of retail investors' cognition and mentality. The era of easily profiting through courage and luck has passed, and a "value bull" era requiring deep research, independent thinking, and long-term patience has arrived. This is precisely its "difficulty".
However, it is in this era that institutional funds are flowing in at an unprecedented scale, providing a solid market bottom; the value logic of core assets is becoming increasingly clear; and truly value-creating applications are beginning to take root. For retail investors willing to learn, embrace change, and view investment as a cognitive realization journey, this is undoubtedly a "golden age" where they can compete with top minds and share the industry's long-term growth dividends. History does not simply repeat, but it is surprisingly similar. Between the finale and prelude, patience and foresight will be the only path to success.
