The Crossroads of the Crypto Market: The Game Between Macroeconomic Environment and Industry Evolution

The current market expectations for a Federal Reserve interest rate cut are soaring, as if this will become a catalyst for a new round of asset appreciation. However, some financial analysts have raised a thought-provoking question: what if this is a "type of erroneous easing"? The answer to this question will determine whether we will witness a comedic "soft landing" for the economy or fall into the tragic "stagflation" of stagnation and high inflation. For cryptocurrencies closely related to the macroeconomy, this is not only about the direction of development but also a survival test.

Let us delve into these two possibilities and outline the potential impacts of "error-type easing". This situation could not only reshape the traditional asset landscape but also trigger profound "great divergence" within the crypto world, while putting unprecedented stress tests on the infrastructure of decentralized finance (DeFi).

The Double-Edged Sword Effect of Interest Rate Cuts

The effect of interest rate cuts largely depends on the economic environment at the time.

In a positive scenario, economic growth is stable, inflation is controlled, and interest rate cuts aim to further stimulate the economy. Historical data supports this view. An analysis from a research institution shows that since 1980, the average return of the US stock market within a year after the start of such "correct interest rate cut" cycles has reached 14.1%. This is because lower capital costs stimulate consumption and investment enthusiasm. For high-risk assets like cryptocurrency, this means an upward momentum can be leveraged.

However, if economic growth is weak and inflation remains high, the central bank may be forced to cut interest rates to avoid a more severe recession, making the situation complicated. This is known as "mistaken interest rate cuts," which can lead to "stagflation." The United States experienced such a situation in the 1970s, where the oil crisis and loose monetary policy together caused a dilemma of economic stagnation and high inflation coexisting. At that time, the annualized real return rate of the U.S. stock market fell to -11.6%. In this environment, most traditional assets performed poorly, with only gold standing out, achieving an annualized return rate of up to 32.2%.

A major investment bank recently raised its expectations for the probability of a recession in the United States and predicted that the Federal Reserve may cut interest rates in 2025 due to economic slowdown. This warns us not to ignore the possibility of negative scenarios.

The Fate of the Dollar and the Rise of Bitcoin

In the macroeconomic landscape, the US dollar plays a central role, and its trend will directly affect future developments, especially in the crypto market.

A commonly observed phenomenon is that the Federal Reserve's easing policy is often accompanied by a weakening of the dollar. This is directly beneficial for Bitcoin. When the dollar depreciates, the price of Bitcoin, priced in dollars, naturally rises.

But the impact of "error-type easing" goes far beyond this. It will become a critical moment for testing the theories of two macro analysts in the crypto market. One believes that Bitcoin is a "digital property" against the continuous devaluation of fiat currency, a safe haven away from the traditional financial system. The other believes that the enormous debt burden of the United States leaves it with no choice but to "print money" to cover the fiscal deficit. An "erroneous interest rate cut" could be a key step toward these predictions coming true, at which point capital may flood into hard assets like Bitcoin seeking protection.

However, this situation also carries significant risks. When a weak dollar drives up Bitcoin, the cornerstone of the crypto world—stablecoins—may face challenges. With a market capitalization of over $160 billion, stablecoins are almost entirely backed by dollar assets. This is a contradiction: the macro forces driving up Bitcoin may simultaneously undermine the actual value and credibility of the financial instruments used to trade Bitcoin. If global investors lose confidence in dollar assets, stablecoins will face a severe crisis of trust.

Yield Rate Collision and the Evolution of DeFi

Interest rates are the guiding force of capital flow. When "wrongful easing" occurs, the yields of traditional finance and DeFi will experience an unprecedented and fierce collision.

The yield on US Treasury bonds is globally recognized as the "risk-free" benchmark. When it can provide a stable return of 4%-5%, the similar yields in DeFi protocols, which carry higher risks, become less attractive. This pressure of opportunity cost directly limits the funds flowing into DeFi.

In response to this challenge, the market has launched "tokenized U.S. Treasury bonds," attempting to bring the stable returns of traditional finance into blockchain. But this could be a double-edged sword. These assets, considered safe treasury bonds, are increasingly being used as collateral for high-risk derivative trading. Once a "wrong rate cut" occurs, resulting in a decline in treasury yield, the value and attractiveness of tokenized treasury bonds may also decrease, potentially triggering capital outflows and chain liquidations, transmitting the macro risks of traditional finance to the DeFi space.

At the same time, economic stagnation may reduce the demand for speculative borrowing, which is precisely the source of high yields for many DeFi protocols. In the face of internal and external pressures, DeFi protocols may be forced to accelerate their transformation from a closed speculative market to a system that can integrate more real-world assets and provide sustainable real returns.

Signals and Noise: The Differentiation of the crypto market

When macro "noise" fills the market, we need to pay more attention to the "signals" from blockchain. Some institutional data shows that regardless of market fluctuations, the core data of developers and users continues to grow steadily. The construction work has never stopped. Some seasoned investors also believe that with the improvement of the regulatory environment, the market is entering the "second phase" of the bull market.

However, the situation of "error-type easing" could become a double-edged sword, splitting the crypto market in two and forcing investors to make a choice: are they investing in macro hedging tools or technology growth stocks?

In this case, Bitcoin's "digital gold" attribute may be greatly amplified, becoming the preferred hedge against inflation and the depreciation of fiat currency. The situation for many other cryptocurrencies may become unstable. Their valuation logic is similar to that of growth tech stocks, but in a stagflation environment, growth stocks often perform poorly. Therefore, funds may withdraw significantly from these currencies and flow into Bitcoin, causing a massive differentiation within the market. Only those projects with strong fundamentals and actual revenue will survive in this wave of "flight to quality."

Conclusion

The crypto market is facing a tug of war between two huge forces: on one side is the macro impact of "stagflation-style easing," and on the other side is the endogenous power driven by technology and applications.

The future development will not be a single linear path. A "wrong interest rate cut" may simultaneously drive up Bitcoin while eliminating most other encryption currencies. This complex environment is pushing the crypto market towards maturity at an unprecedented pace, and the true value of projects will be tested in a harsh economic environment.

For industry participants, understanding the logic of different scenarios and grasping the complex relationship between the macro and micro will be key to navigating future cycles. This is not just a bet on technology, but a grand game about which development path you choose to believe in at critical moments in the global economy.