The choice at the crossroads
The market is holding its breath, almost viewing the Federal Reserve's interest rate cuts as the starting gun for a new round of asset frenzy. However, a warning from JPMorgan 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 determines whether what unfolds next is a happy 'soft landing' comedy or a tragic 'stagflation' scenario marked by stagnant economic growth and high inflation. For cryptocurrencies intertwined with macroeconomic fates, this is not just a matter of direction but a test of survival.
This article will delve into these two possibilities, attempting to outline how the future might unfold if the 'wrong type of 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 and subject DeFi infrastructure to an unprecedented stress test.
Scenario One: The Dual Nature of Interest Rate Cuts
How the scenario unfolds primarily depends on how we interpret history. Interest rate cuts are not a panacea; their effectiveness entirely depends on the economic environment in which they are released.
Positive Scenario: Soft Landing and Comprehensive Prosperity In this scenario, economic growth is robust, inflation is under control, and the Federal Reserve cuts interest rates to stoke the economy further. Historical data is a loyal supporter of this scenario. Research by Northern Trust shows that since 1980, in the 12 months following the initiation of such 'correct rate cut' cycles, U.S. stocks have averaged a return of 14.1%. The logic is simple: lower capital costs lead to increased consumption and investment enthusiasm. For high-risk assets like cryptocurrencies, this means catching a favorable wind and enjoying a liquidity feast.
Negative Scenario: Stagflation and Asset Catastrophe But what if the script takes a different turn? Economic growth is sluggish, while inflation stubbornly persists; the Federal Reserve is forced to cut interest rates to avoid a deeper recession. This is the 'wrong type of easing,' synonymous with 'stagflation.' The United States in the 1970s was a prelude to this scenario, where the oil crisis and loose monetary policy jointly directed a disaster where economic stagnation coexisted with rampant inflation. According to the World Gold Council, during that era, the annualized real return rate of U.S. stocks was a dismal -11.6%. In this play where almost all traditional assets suffered, only gold shone, achieving an annualized return of as much as 32.2%.
Goldman Sachs recently raised the probability of a U.S. economic recession and predicted that the Federal Reserve might cut interest rates in 2025 due to economic slowdown. This warns us that the negative scenario is not just alarmist.
Scenario Two: The Fate of the Dollar and the Rise of Bitcoin
In the macro drama, the dollar is undoubtedly the protagonist, and its fate will directly influence the direction of the script, especially for the crypto world.
A repeatedly verified rule is that the Federal Reserve's easing usually accompanies a weakening dollar. This is the most direct boon for Bitcoin. When the dollar depreciates, the price of Bitcoin, measured in dollars, naturally rises.
However, the 'wrong type of easing' scenario has implications that go far beyond this. It will become the ultimate test of the theories of two macro prophets in the crypto world—Michael Saylor and Arthur Hayes. Saylor views Bitcoin as a 'digital asset' against the continuous devaluation of fiat currency, a Noah's Ark for escaping the doomed traditional financial system. Hayes believes that the immense U.S. debt leaves it no choice but to resort to 'printing money' to cover the fiscal deficit. A 'wrong type of easing' is a crucial step towards the realization of this prophecy, at which point capital will flood into hard assets like Bitcoin seeking refuge.
However, this scenario also harbors a huge risk. As the dollar weakens, establishing Bitcoin's narrative as king, the cornerstone of the crypto world—stablecoins—are facing erosion. Stablecoins with a market cap exceeding $160 billion are almost entirely backed by dollar assets. This presents a significant paradox: the macro forces driving Bitcoin's rise may be hollowing out the actual value and credibility of the financial instruments used for trading Bitcoin. If global investors lose confidence in dollar assets, stablecoins will face a severe trust crisis.
Scenario Three: Collision of Yields and Evolution of DeFi
Interest rates are the baton for capital flow. When the 'wrong type of easing' scenario unfolds, there will be an unprecedented collision of yields between traditional finance and decentralized finance (DeFi).
U.S. Treasury yields serve as the global 'risk-free' benchmark. When they can provide stable returns of 4%-5%, the higher-risk yields in DeFi protocols appear comparatively lackluster. This opportunity cost pressure directly restricts the inflow of fresh capital into DeFi.
To break the deadlock, the market has spawned 'tokenized U.S. Treasury bonds,' attempting to bring the stable returns of traditional finance on-chain. But this could be a 'Trojan horse.' These safe Treasury bond assets are increasingly being used as collateral for high-risk derivative trading. Once the 'wrong type of easing' occurs, and Treasury yields fall, the value and appeal of tokenized Treasuries will decline, potentially triggering capital outflows and a chain of liquidations, accurately transmitting the macro risks of traditional finance to the heart 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 evolve rapidly, transforming from a closed speculative market into a system that can integrate more real-world assets (RWA) and provide sustainable real returns.
Scenario Four: Signals and Noise—The Great Differentiation in the Crypto Market
When macro 'noise' drowns everything out, we need to listen more closely to the 'signals' coming from the blockchain. Data from institutions like a16z shows that regardless of market fluctuations, the core data of developers and users is still steadily growing. Construction has never stopped. Veteran investors like Pantera Capital also believe that as regulatory headwinds turn into tailwinds, the market is entering the 'second phase' of a bull market.
However, the 'wrong type of easing' scenario may become a sharp knife, splitting the crypto market in two and forcing investors to make a choice: Are you investing in a macro hedging tool or in tech growth stocks?
Under this scenario, Bitcoin's 'digital gold' property will be infinitely magnified, becoming the preferred hedge against inflation and currency devaluation. Meanwhile, 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 flow into Bitcoin, causing significant differentiation within the market. Only protocols with strong fundamentals and real income can survive this wave of 'flight to quality.'
Summary
The crypto market is being pulled by two enormous forces: on one side, the macro gravitational pull of 'stagflation-style easing,' and on the other, the endogenous power driven by technology and application.
Future scenarios will not be single-threaded. A 'wrong type of easing' could simultaneously establish Bitcoin and bury most altcoins. This complex environment is forcing the crypto industry to mature at an unprecedented pace, 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 tension between macro and micro will be key to navigating future cycles. This is no longer just a gamble on technology; it is a grand gamble about which scenario you choose to believe at critical junctures in global economic history.
