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

For crypto investors who experienced the bull market of 2020-2021, the current market environment is confusing and torturous. The carnival era ignited by the massive easing policies of global central banks has passed, and now we face a delicate balance: on one hand, the strong performance of the US economy, and on the other hand, the hawkish stance upheld by the Federal Reserve. The historically high interest rate environment weighs down on risk assets like a mountain.

This paradigm shift dominated by the macro environment has made this round of the crypto cycle particularly difficult for retail investors. The previous model, which relied on Liquidity-driven and purely emotional speculation, has become ineffective, replaced by a market that focuses more on intrinsic value, driven by clear narratives and fundamentals.

However, within difficulties lie opportunities. When the bubble bursts, true value investors will usher in their golden era. It is in such an environment that the entry of compliant institutions, the deflationary effects of technology, and applications that integrate with the real economy can highlight their true value that transcends cycles.

Fundamental Changes in the Macroeconomic Environment

The difficulties of this cycle stem from the reversal of macro monetary policy. Compared to the extremely loose environment of the previous bull market, the current market is facing the most severe macro headwinds in decades. The Federal Reserve has initiated an unprecedented tightening cycle to curb the worst inflation in forty years, which has created dual pressure on the crypto market and completely ended the old model of easy profits.

Macro Data Maze

The key to breaking the current market dilemma lies in understanding the reasons why the Federal Reserve has been slow to lower interest rates. Recent economic data appears to be good, yet it has become "bad news" for investors expecting accommodative policies.

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

At the same time, the U.S. labor market continues to show remarkable resilience. In May, the number of new jobs reached 139,000, better than market expectations, while the unemployment rate remained low at 4.2%. A strong job market means consumer spending is supported, which in turn puts upward pressure on inflation, making the Federal Reserve more hesitant about cutting interest rates.

The impact of high interest rates

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

1. Liquidity exhaustion: High interest rates lead to a decrease in "hot money" in the market. For the crypto market, which is highly dependent on new funds entering, especially altcoins, tightening liquidity is a fatal blow. The former "everything rises" has been replaced by a structural market characterized by "sector rotation" and even "a few hotspots."

2. Opportunity cost skyrockets: When investors can easily obtain more than 5% risk-free returns from government bonds, the opportunity cost of holding non-cash-flowing, highly volatile crypto assets sharply increases. This causes a significant outflow of funds seeking stable returns from the crypto market, further intensifying the "blood loss" effect in the market.

For retail investors who are accustomed to chasing hot trends in a flood of liquidity, this change in environment is brutal. The lack of in-depth research and a strategy that merely follows the hype can easily suffer heavy losses in this cycle, which is the core of the "difficulty" in the current cycle.

Emergence of New Opportunities

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

Institutional Year

In early 2024, the U.S. Securities and Exchange Commission approved the listing of a spot Bitcoin ETF. This is not just a product launch, but a revolution in the encryption world. It opens a compliant and convenient investment doorway for trillions of dollars in traditional finance to invest in Bitcoin.

As of the second quarter of 2025, the total assets under management of just two major ETFs have surpassed hundreds of billions of dollars, with a continuous daily net inflow providing 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 global asset management company referred to 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 top institution has greatly boosted market confidence and provided retail investors with a clear signal to follow institutional footsteps and engage in long-term value investments.

Halving Effect

The fourth "halving" of Bitcoin in April 2024 will reduce its daily new supply from 900 coins to 450 coins. This code-defined, predictable supply deflation is the unique charm that distinguishes Bitcoin from all traditional financial assets. Against the backdrop of stable or even growing demand, the reduction in supply provides a solid, mathematically grounded support for Bitcoin's price.

Historical data shows that in the 12-18 months following the last three halvings, the price of Bitcoin reached new all-time highs. For value investors, this is not a short-term speculative hype, but a trustworthy, cyclical long-term logic.

Emerging Narratives

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

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

2. Tokenization of Real World Assets (RWA): Bringing real-world assets such as real estate, bonds, and artworks on-chain, releasing their Liquidity, and bridging the gap between traditional finance and digital finance.

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

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

The Survival Path of the New Cycle

We are at a crossroads of an era. The Federal Reserve's "hawkish finale" is unfolding, and the prelude to easing has yet to be played. For retail investors, understanding and adapting to the new rules of the game is key to navigating cycles and seizing golden opportunities.

The shift in investment paradigm

1. From chasing hotspots to value investing: abandon the illusion of finding the "next mooning coin" and shift towards researching the fundamentals of projects, understanding their technology, team, economic model, and the competitive landscape they are in.

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

3. 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 with both value storage and production material attributes; while high-growth altcoins should be the "rocket boosters" based on in-depth research and small position allocations, focusing on cutting-edge tracks with real potential such as AI and DePIN.

Stay patient and plan ahead.

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

This "running ahead" market trend may also appear in the crypto market. While the market's attention generally focuses on the short-term game of "when to cut interest rates," the true wise ones have already begun to consider 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 easing policy finally arrives.

Conclusion

This round of the crypto market cycle is undoubtedly a severe test of retail investors' awareness and mindset. The era of "quick money," where one could easily profit through courage and luck, has come to an end, and a value investment era that requires in-depth research, independent thinking, and long-term patience has arrived. This is precisely its "difficulty."

However, it is also in this era that institutional funds have flowed in at an unprecedented scale, providing a solid bottom for the market; the value logic of core assets has become increasingly clear; and truly valuable applications are beginning to take root. For retail investors who are willing to learn, embrace change, and view investment as a journey of cognitive monetization, this is undoubtedly a "golden age" where they can compete with top investors and share in the long-term growth dividends of the industry.

History does not repeat itself simply, but it is always astonishingly similar. Between the final chapter and the prelude, patience and vision will be the only path to success.