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

The market is holding its breath, with many viewing the Federal Reserve's interest rate cuts as the start of a new round of asset frenzy. However, some analysts warn that if this is "the wrong type of easing," the situation could be entirely different. This issue is crucial, as it will determine whether we experience an economic "soft landing" or fall into the "stagflation" dilemma of stagnation alongside high inflation. For cryptocurrencies closely tied to the macroeconomy, this is not only about the choice of direction but also a test of survival.

Let us delve into these two possibilities and attempt to outline how the future might unfold if "error-type easing" becomes a reality. This scenario would not only reshape the traditional asset landscape but could also trigger a profound "great divergence" within the crypto world, while subjecting the infrastructure of decentralized finance (DeFi) to an unprecedented stress test.

The Dual Nature of Interest Rate Cuts

The effect of interest rate cuts depends entirely on the economic environment at the time. In positive situations, where economic growth is robust and inflation is controlled, interest rate cuts will further stimulate the economy. Historical data supports this view: since 1980, the average return on the US stock market has reached 14.1% in the 12 months following the start of such "correct interest rate cut" cycles. For high-risk assets like cryptocurrencies, this means that one can ride the wave of liquidity.

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 entirely. This is known as a "wrong interest rate cut" and is synonymous with "stagflation". The United States experienced such a situation in the 1970s, where the oil crisis and loose monetary policy led to a coexistence of economic stagnation and rampant inflation. During that period, the annualized real return rate of U.S. stocks was a dismal -11.6%, while gold became one of the few winners, recording an annualized return rate of 32.2%.

Recently, some analysts have raised the probability of a recession in the United States and predicted that the Federal Reserve may cut interest rates in 2025 due to an economic slowdown. This warns us that negative scenarios are not impossible.

The Fate of the Dollar and the Rise of Bitcoin

In the macroeconomic landscape, the US dollar plays a central role, and its trends will directly impact future directions, especially in the crypto market.

A repeatedly verified rule is that the Federal Reserve's easing usually accompanies a weaker dollar. This is directly favorable for Bitcoin. When the dollar depreciates, the price of Bitcoin, priced in dollars, naturally rises.

But the impact of "erroneous easing" goes far beyond that. It will become the ultimate test of the theories of two macro prophets in the crypto world. One sees Bitcoin as a "digital property" to combat the continuous devaluation of fiat currency, while the other believes that the enormous debt of the United States leaves it no choice but to "print money" to cover the fiscal deficit. A "mistaken interest rate cut" could be the crucial step for these prophecies to come true, at which point capital may flood into hard assets like Bitcoin seeking refuge.

However, this situation also hides enormous risks. When the dollar weakens and drives up Bitcoin, the cornerstone of the crypto world—stablecoins—may face erosion. Stablecoins, with a market value exceeding $160 billion, have their reserves almost entirely composed of dollar assets. This is a paradox: the macro forces that drive up Bitcoin may be undermining the actual value and credibility foundation of the financial instruments used to trade Bitcoin. If global investors lose confidence in dollar assets, stablecoins will face a severe trust crisis.

Yield Rate Collision and DeFi Evolution

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

The yield on U.S. Treasury bonds is the global "risk-free" standard. When it can provide a stable return of 4%-5%, the similarly higher yields in DeFi protocols become less attractive. This opportunity cost pressure directly limits the funds flowing into DeFi.

To meet this challenge, the market has given rise to "tokenized U.S. Treasury bonds," attempting to bring the stable returns of traditional finance into the blockchain. However, this could be a double-edged sword. These safe Treasury bond assets are increasingly being used as collateral for high-risk derivatives trading. Once a "wrong interest rate cut" occurs, and Treasury yields fall, the value and appeal of tokenized Treasury bonds will decline, potentially triggering capital outflows and a chain of liquidations, precisely transmitting the macro risks of traditional finance to the core of DeFi.

At the same time, economic stagnation will weaken the demand for speculative borrowing, which is the source of high yields for many DeFi protocols. Faced with internal and external challenges, DeFi protocols will be forced 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.

Signals and Noise: The Great Differentiation in the Crypto Market

When macro "noise" overwhelms everything, we need to listen more to the "signals" from the blockchain. Data shows that regardless of market fluctuations, the core metrics of developers and users continue to grow steadily. The construction has never stopped. Some seasoned investors believe that with the improvement of the regulatory environment, the market is entering the "second phase" of a bull market.

However, "error-type easing" may become a sharp blade, splitting the crypto market in two and forcing investors to make a choice: are you investing in macro hedging tools or tech growth stocks?

In this case, Bitcoin's "digital gold" attribute will be infinitely amplified, becoming the preferred choice for capital to hedge against inflation and the devaluation of fiat currency. The situation for many other cryptocurrencies may become precarious. Their valuation logic is similar to that of growth tech stocks, but in a stagflation environment, growth stocks often perform the worst. Therefore, capital may massively withdraw from these coins and flow into Bitcoin, causing a huge divergence within the market. Only those projects with strong fundamentals and real revenue can survive this wave of "flight to quality."

Conclusion

The crypto market is being pulled by two enormous forces: on one side is the macro pull of "stagflationary easing," and on the other side is the endogenous power driven by technology and application.

The future will not be a single development path. A "wrong interest rate cut" could simultaneously boost Bitcoin and eliminate most other encryption currencies. This complex environment is forcing the crypto industry to mature at an unprecedented pace, and the true value of projects will be tested in a harsh economic climate.

For every participant, understanding the logic of different scenarios and grasping the complex relationship between macro and micro will be key to navigating future cycles. This is not just a bet on technology, but a grand gamble on which future to believe in at critical junctures of the global economy.