From Liquidity Feast to Value-Driven: The New Normal of the crypto market

The current environment in the crypto market is challenging for many investors. Compared to the frenzy driven by global liquidity during 2020-2021, the market landscape has undergone a fundamental shift. We are at a delicate balance point: on one hand, there is the continued strength of U.S. economic data, while on the other hand, the Fed maintains a hawkish stance. The historically high interest rate environment looms like a mountain over all risk assets.

The shift in this macro environment has made this round of the crypto cycle a highly challenging period for investors. The previous model that purely relied on liquidity and emotional speculation has become ineffective, replaced by a market that places greater emphasis on intrinsic value, driven by clear narratives and fundamentals.

However, challenges and opportunities coexist. When the bubble bursts, true value investors will usher in their golden age. Because it is in such an environment that institutional compliance participation, the deflationary characteristics of technology, and the practical applications in conjunction with the real economy can truly demonstrate their long-term value.

Fundamental Reversal of the Macroeconomic Environment

The difficulties of this cycle stem from a complete shift in monetary policy. Compared to the extremely loose environment during the last bull market, the current market faces the most severe macro headwinds in decades. The tightening cycle initiated by the Federal Reserve to curb severe inflation has brought dual pressure to the crypto market, completely ending the old model of easy profits.

The Dilemma of Macroeconomic Data

The key to understanding the current market predicament lies in why the Federal Reserve has been slow to relent at the end of interest rate hikes. The answer can be found in recent economic data—these seemingly "good" numbers have become "bad news" for investors hoping for easing.

Despite inflation having fallen from its peak, its stickiness is far greater than expected. The latest data shows that while the year-on-year CPI in the U.S. for May was slightly below expectations, the core inflation rate remains high at 2.8%, significantly diverging from the Federal Reserve's target of 2%. This is directly reflected in the Fed's latest economic forecasts and the closely watched "dot plot". After the June meeting, Federal Reserve officials drastically lowered their interest rate cut expectations, reducing the median number of cuts for the year from three to just one.

The U.S. labor market continues to show remarkable resilience. The non-farm payroll report for May indicates that 139,000 new jobs were created, better than market expectations, while the unemployment rate remains low at 4.2%. A strong job market means that consumer spending is supported, which in turn will put upward pressure on inflation, making the Federal Reserve more cautious regarding interest rate cuts.

The impact of high interest rates

This macro background has directly led to the difficult situation in the crypto market:

Liquidity depletion: High interest rates mean a reduction of "hot money" in the market. For the crypto market, which heavily relies on new funds to drive prices up, especially small tokens, the tightening of liquidity is a fatal blow. The once prosperous situation of "everything rising together" has been replaced in this cycle by a structural market characterized by "sector rotation" or even "only a few hotspots."

Opportunity cost surges: When investors can easily obtain over 5% risk-free returns from government bonds, the opportunity cost of holding assets like Bitcoin, which do not generate cash flow and have extreme price volatility, sharply increases. This has resulted in a significant outflow of funds seeking stable returns from the crypto market, further exacerbating the market's "bleeding" effect.

For investors who are used to chasing trends in a flood of liquidity, the change in this environment is brutal. The lack of in-depth research and the strategy of purely following the hype can easily suffer heavy losses in this cycle, which is the core of the "difficulty" in this cycle.

Emergence of New Opportunities

However, the other side of the crisis is an opportunity. The macro headwinds are like a stress test, squeezing out the market bubbles and filtering out the core assets and narratives that truly have long-term value, thus opening an unprecedented opportunity period for prepared investors. The resilience of this cycle is precisely driven by several strong endogenous forces that are independent of macro monetary policy.

Institutional funds entering the market

At the beginning of 2024, the U.S. Securities and Exchange Commission historically approved the listing of a spot Bitcoin ETF. This is not just a product launch, but a revolution in the crypto world. It opens a compliant and convenient gateway for trillions of dollars in traditional finance to invest in Bitcoin.

As of the second quarter of 2025, only two major ETFs have seen their total assets under management exceed hundreds of billions of dollars, and the ongoing daily net inflow has provided strong purchasing power to the market. This "new vitality" from Wall Street has largely offset the liquidity tightening caused by high interest rates.

The CEO of a top global asset management company described the success of the Bitcoin ETF as "a revolution in the capital markets" and stated that this is just the "first step in asset tokenization." This endorsement from a leading institution has greatly boosted market confidence and provided investors with a clear signal to follow institutional footsteps and engage in long-term value investing.

The intrinsic driving force of technology

In April 2024, Bitcoin will undergo its fourth "halving," reducing its daily new supply from 900 coins to 450 coins. This code-defined, predictable supply deflation is the unique appeal of Bitcoin that sets it apart from all traditional financial assets. Against the backdrop of stable or even increasing demand (, especially from ETFs, the halving of supply provides a solid, mathematically-based underpinning for Bitcoin's price.

) New Narrative of Value Creation

Macroeconomic headwinds force market participants to shift from mere speculation to exploring the intrinsic value of projects. The core hotspots of this cycle are no longer baseless speculative assets, but rather innovative narratives that attempt to solve real-world problems:

• Artificial Intelligence ### AI ( + encryption: Combining the computational power of AI with the incentive mechanisms and data ownership of blockchain to create entirely new decentralized intelligent applications.

• Tokenization of Real World Assets ) RWA (: Bringing real-world assets such as real estate, bonds, and artworks onto the blockchain to release their Liquidity and bridge the gap between traditional finance and digital finance.

• Decentralized Physical Infrastructure Network ) DePIN (: Utilizing token incentives to enable global users to collaboratively build and operate physical world infrastructure networks, such as 5G base stations, sensor networks, etc.

The rise of these narratives marks a fundamental shift in the crypto industry from "speculation" to "investment value". For investors, this means that the opportunities to discover value through in-depth research have greatly increased, and knowledge and understanding have become more important in this market than mere courage and luck.

Survival Rules of the New Cycle

We are at a crossroads of an era. Hawkish policies are playing out their final chapter, while the overture of easing has yet to be played. For investors, understanding and adapting to the new rules of the game is key to navigating the cycle and seizing opportunities.

) Shift in Investment Paradigm

• From chasing hot trends to value investing: abandon the illusion of finding "the next hundredfold coin" and shift towards researching the project's fundamentals, understanding its technology, team, economic model, and the competitive landscape it operates in.

• From short-term speculation to long-term holding: In a "value-driven" market, true returns belong to those investors who can identify core assets and hold them for the long term, navigating through volatility, rather than to frequent traders.

• Build a differentiated investment portfolio: In the new cycle, the roles of different assets will become more distinct. Bitcoin, recognized by institutions as "digital gold", serves as the "ballast" of the portfolio; Ethereum, with its strong ecosystem and ETF expectations, is a core asset that combines value storage and production material attributes; while high-growth small tokens should constitute the "high-risk, high-reward" portion based on in-depth research and small position allocations, focusing on frontier tracks with real potential such as AI and DePIN.

Stay patient, plan ahead.

Research shows that in the last 12 months of the terms of the past three Federal Reserve chairs, even with interest rates remaining high, the S&P 500 index averaged a rise of 16%. This suggests that once the market is convinced that the tightening cycle has ended, risk appetite may warm up in advance, even if rate cuts have not yet occurred.

This "front-running" trend may also occur in the crypto market. While the market's attention is generally focused on the short-term game of "when will interest rates be cut", the true wise ones have already begun to think about which assets and which sectors will occupy the most advantageous positions in this future feast driven by the resonance of macro tailwinds and industrial cycles when the prelude to easing finally plays out.

Conclusion

This round of the crypto cycle is undoubtedly a severe test of investors' cognition and mindset. The era of the "liquidity feast" where one could easily profit by sheer luck has come to an end, and a "value-driven" era that requires in-depth research, independent thinking, and long-term patience has arrived.

However, it is also in this era that institutional funds have poured in at an unprecedented scale, providing a solid bottom for the market; the value logic of core assets has become increasingly clear; and applications that can truly create value are beginning to take root. For those investors who are willing to learn, embrace change, and view investment as a journey of cognitive realization, this is undoubtedly an opportunity to share in the long-term growth dividends of the industry. History does not simply repeat itself, but is always strikingly similar. Between the final chapter and the prologue, patience and vision will be the only path to success.

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