Written by: Luke, Mars Finance
The Choice at the Crossroads
The market is holding its breath, almost viewing the Federal Reserve's rate cut as the starting gun for a new round of asset euphoria. However, a warning from JPMorgan is like a boulder thrown into a calm lake: what if this time it's 'wrong type of easing'?
The answer to this question is crucial. It determines whether we are about to witness a joyful 'soft landing' comedy or a tragic 'stagflation' where economic growth stagnates and inflation remains high. For cryptocurrencies intertwined with macroeconomic fate, this is not just a directional choice, but a test of survival.
This article will delve into these two possibilities, attempting to outline how the future will unfold if the 'wrong type of easing' scenario comes true. We will see that this script will not only reshape the landscape of traditional assets but may also trigger a profound 'great differentiation' within the crypto world and conduct an unprecedented stress test on DeFi's infrastructure.
Script One: The Duality of Rate Cuts
How the script unfolds depends first on how we interpret history. Lowering interest rates is not a magic cure; its effects entirely depend on the economic environment in which it is released.
Positive Script: Soft Landing and Comprehensive Prosperity In this script, economic growth is robust, inflation is controlled, and the Federal Reserve cuts rates to add fuel to the economy. Historical data is a staunch supporter of this script. Research by Northern Trust indicates 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 heightened consumption and investment enthusiasm. For high-risk assets like cryptocurrencies, this means riding the wave and enjoying a liquidity feast.
Negative Script: Stagflation and Asset Disasters But what if the script turns to the other side? Economic growth is weak, but inflation stubbornly persists; the Federal Reserve is forced to cut rates to avoid a deeper recession. This is the 'wrong rate cut', synonymous with 'stagflation'. The U.S. in the 1970s was a rehearsal for this script, where the oil crisis and loose monetary policy jointly directed a disaster of economic stagnation and rampant inflation. According to data from the World Gold Council, the annualized real return of 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 up to 32.2%.
Goldman Sachs has recently raised the probability of a U.S. economic recession and predicts that the Federal Reserve may cut rates in 2025 due to economic slowdown. This warns us that the enactment of the negative script is not mere alarmism.
Script 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 course of the script, especially for the crypto world.
A repeatedly verified rule is that the Federal Reserve's easing is usually accompanied by a weakening dollar. This is the most direct benefit for Bitcoin. When the dollar depreciates, the price of Bitcoin, denominated in dollars, naturally rises.
However, the script of 'wrong type of easing' means much more than 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 property' against the continuous devaluation of fiat currencies, a Noah's Ark to escape the doomed traditional financial system. Hayes believes that America's massive debt leaves it no choice but to 'print money' to cover the fiscal deficit. A 'wrong rate cut' is the key step toward making this prophecy a reality, where capital will flood into hard assets like Bitcoin seeking refuge.
However, this script also conceals a huge risk. As the weakening dollar fulfills Bitcoin's king narrative, 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 driving Bitcoin up 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.
Script Three: Collision of Yields and the Evolution of DeFi
Interest rates are the baton of capital flow. When the script of 'wrong type of easing' takes the stage, the yields of traditional finance and decentralized finance (DeFi) will undergo an unprecedented collision.
U.S. Treasury bond yields are the global 'risk-free' benchmark. When they can provide a stable return of 4%-5%, the higher risk yields in DeFi protocols seem pale in comparison. This opportunity cost pressure directly limits the fresh capital flowing into DeFi.
To break the deadlock, the market has birthed 'tokenized U.S. Treasury bonds', attempting to bring the stable returns of traditional finance onto the blockchain. But this may be a 'Trojan Horse'. These safe Treasury bond assets are increasingly being used as collateral for high-risk derivative trading. Once a 'wrong rate cut' occurs, the yield on Treasury bonds will fall, and the value and attractiveness of tokenized Treasury bonds will likewise decline, potentially triggering capital outflows and a chain reaction 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, shifting from a closed speculative market to a system that can integrate more real-world assets (RWA) and provide sustainable real yields.
Script Four: Signals and Noise—The Great Differentiation in the Crypto Market
When the macro 'noise' drowns everything out, we need to listen more to the 'signals' from the blockchain. Data from institutions like a16z shows that regardless of market volatility, core data from developers and users continues to grow steadily. Construction has never stopped. Veteran investors like Pantera Capital also believe that as regulatory headwinds turn to tailwinds, the market is entering the 'second phase' of a bull market.
However, the script of 'wrong type of easing' may become a sharp knife, dividing the crypto market in two, forcing investors to make a choice: are you investing in macro hedging tools or tech growth stocks?
Under this script, Bitcoin's 'digital gold' attribute will be infinitely amplified, becoming the preferred choice for capital to hedge against inflation and fiat 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 flood into Bitcoin, causing a significant differentiation within the market. Only those protocols with strong fundamentals and real income will survive in this wave of 'flight to quality'.
Summary
The crypto market is being tugged by two enormous forces: one side is the macro gravity of 'stagflation-style easing', and the other is the endogenous drive of technology and application.
The future script will not be one-dimensional. A 'wrong rate cut' may simultaneously elevate Bitcoin while burying most altcoins. This complex environment is forcing the crypto industry to mature at an unprecedented speed, where the true value of protocols will be tested in a harsh economic climate.
For everyone involved, understanding the logic of different scripts and the complex tension between macro and micro will be key to navigating future cycles. This is no longer just a bet on technology, but a grand gamble on which script you choose to believe at critical junctures in global economic history.
