The Crossroads of the Crypto Market: Challenges and Opportunities in the Macroeconomic Environment

The market is holding its breath, anticipating that the Federal Reserve's rate cut will mark the beginning of a new round of asset frenzy. However, a warning from a well-known financial institution is like a boulder thrown into a calm lake: what if this is "the wrong type of easing"?

The answer to this question is crucial. It will determine whether the next phase is a "soft landing" comedy that brings joy to all, or a "stagflation" tragedy characterized by stagnant economic growth and high inflation. For cryptocurrencies closely tied to macroeconomic fate, this is not just about choosing a direction, but also a test of survival.

Let us delve into these two possibilities and try to outline how the future will unfold if the "error-type easing" scenario comes true. We will see that this scenario will not only reshape the landscape of traditional assets but may also trigger a profound "great differentiation" within the crypto world, conducting an unprecedented stress test on the infrastructure of decentralized finance (DeFi).

The Dual Nature of Interest Rate Cuts

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

In the positive scenario, economic growth is robust, inflation is controlled, and the Federal Reserve cuts interest rates to further stimulate the economy. Historical data supports this view. Research by a financial institution shows that since 1980, in the 12 months following the start of such 'correct interest rate cut' cycles, the U.S. stock market has averaged a 14.1% return. The logic is simple: lower cost of capital boosts consumption and investment enthusiasm. For high-risk assets like cryptocurrencies, this means being able to catch a ride on the tailwind and enjoy a liquidity feast.

However, in the negative scenario, economic growth is weak while inflation remains high, forcing the Federal Reserve to cut interest rates to avoid a deeper recession. This is known as "wrong interest rate cuts" and is synonymous with "stagflation." The United States experienced such a situation in the 1970s, where the oil crisis and loose monetary policy together led to a scenario of economic stagnation and rampant inflation. According to data, the annualized real return on U.S. stocks during that era was a dismal -11.6%. In this scenario where almost all traditional assets suffered, only gold stood out with an annualized return of as high as 32.2%.

Recently, a well-known investment bank has raised the probability of an economic recession in the United States and predicts that the Federal Reserve may lower interest rates in 2025 due to the economic slowdown. This warns us that the emergence of a negative scenario is not alarmist.

The Fate of the Dollar and the Rise of Bitcoin

In the grand play of the macro world, the US dollar is undoubtedly the leading actor, and its fate will directly influence the direction of the script, especially concerning the crypto market.

A repeatedly verified rule is that the Federal Reserve's easing is usually accompanied by a weakening of the dollar. This is the most direct benefit for Bitcoin. When the dollar depreciates, the price of Bitcoin, priced in dollars, naturally rises.

However, the script of "error-type easing" means far more than this. It will become the ultimate test of the theories of two macro prophets in the crypto world. One believes that Bitcoin is a "digital property" against the continuous devaluation of fiat currency, a Noah's Ark to escape the traditional financial system destined to collapse. The other believes that America's massive debt leaves it no choice but to "print money" to cover the fiscal deficit. An "erroneous interest rate cut" is the crucial step towards making this prophecy a reality, at which point capital will flood into hard assets like Bitcoin seeking refuge.

However, this script also hides a huge risk. As the weakening of the dollar enhances the narrative of Bitcoin as the king, the cornerstone of the crypto world—stablecoins—are facing erosion. Stablecoins with a market cap of over $160 billion are almost entirely backed by dollar assets. This is a huge paradox: the macro forces that drive up Bitcoin may be hollowing out 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 trust crisis.

The Collision of Yield Rates and the Evolution of DeFi

Interest rates are the guiding force of capital flow. When the script of "erroneous easing" unfolds, the yields of traditional finance and decentralized finance (DeFi) will experience an unprecedented collision.

The yield on U.S. Treasury bonds is the global "risk-free" benchmark. When it can offer a stable return of 4%-5%, the similar yields in DeFi protocols, which carry higher risks, appear insignificant in comparison. This pressure of opportunity cost directly limits the funds flowing into DeFi.

In order to break the deadlock, the market has spawned "tokenized U.S. Treasury bonds," attempting to bring the stable returns of traditional finance onto the chain. But this could be a double-edged sword. These secure Treasury assets are increasingly being used as collateral for high-risk derivatives trading. Once a "misguided rate cut" occurs, Treasury yields will fall, leading to a decrease in the value and attractiveness of tokenized Treasury bonds, which may trigger capital outflows and a chain liquidation, 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 (RWA) and provide sustainable real returns.

Signals and Noise: The Great Divergence in the Crypto Market

When the macro "noise" drowns everything, we need to pay more attention to the "signals" coming from the blockchain. Data from multiple institutions show that regardless of market fluctuations, the core data of developers and users continues to grow steadily. Construction has never ceased. 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 script of "error-type easing" may become a sharp knife, dividing the crypto market into two and forcing investors to make a choice: are you investing in macro hedge instruments or technology growth stocks?

Under this scenario, Bitcoin's "digital gold" attribute will be magnified infinitely, becoming the preferred choice for capital to hedge against inflation and the depreciation of fiat currency. The situation for many altcoins will 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 altcoins and flood into Bitcoin, causing a significant differentiation within the market. Only those protocols with strong fundamentals and real revenue will survive this "flight to quality" wave.

Conclusion

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

The future script will not be singular. A "wrong rate cut" could simultaneously benefit Bitcoin while eliminating most altcoins. This complex environment is forcing the encryption industry to mature at an unprecedented speed, and the true value of protocols will be tested in a harsh economic climate.

For everyone involved, 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 no longer just a bet on technology, but a grand game about which scenario you choose to believe at critical junctures in global economic history.