Faded glory and dreams, liquidity, market sentiment and cycles

1⃣Faded glory and dreams

A lot of things happened in 2008. The United States in the Western Hemisphere triggered a global financial crisis, subprime mortgage crisis, bank bankruptcy, and all walks of life were trembling. The crisis also spread to the Eastern Hemisphere. At that time, I was working in a university and my job was relatively stable, but my classmates were greatly affected, especially those engaged in foreign trade, finance, and export industries. Many companies closed down and went bankrupt, and there was a lot of wailing! On October 30 of the same year, Satoshi Nakamoto released the BTC white paper that would later affect the world, but many people did not realize his greatness. It was not until 7 years later, in 2016, when I was a PM in a Fortune 500 company, that I accidentally saw the introduction of BTC, and then browsed all the information about Bitcoin. I was very shocked. This thing is really awesome! Then I sorted out all the information on the Internet, which was very concise and interesting. I even read the white paper 5 times!

A few years later, many people have begun to emerge in the blockchain industry, including not only OGs like Adam, but also a group of technology geeks and firm believers.

At that time, all tracks were flourishing. CZ was still a little immature. Vitalik was called V God, but now he has been downgraded to V Brother. Li Lin and Xu Mingxing could drink shirtless 🍺. At that time, people's eyes were bright, and the shouts of overthrowing Nasdaq resounded through the sky!

A, soon the ICO of 2017 ushered in a violent bull market! During the epidemic, the United States led the global money release. At the end of 2020, the big DEFI and NFT brought huge liquidity to the circle, and many innovations emerged. At the same time, 2021 is also the happiest time for VC! VC achieved a good exit that year and obtained huge returns. At the same time, it also spawned many projects. However, it also laid the groundwork for the subsequent downturn, because the VC of the project at that time needed to realize in the next cycle. It will consume more liquidity.

Of course, people from all circles heard the news and took action, forming the very special aggregate of the cryptocurrency circle.

B. The institutional drive in this round of market is slightly different from the previous two rounds. Under the heavy blow of policy supervision, along with the interest rate hike of the Federal Reserve, from the collapse of Luna, FTX, and Three Arrows Capital in 2022, institutions have dominated the bear market of the industry. The approval of BTC ETF is also driven by institutions, and it also drives the activity of brc20, runes, and various memes on the chain. ETF has absorbed a lot of funds into the BTC ecosystem. It seems to be very good news, but it suppresses the innovation of other public chains and projects. Even Ethereum's L2 is rarely used, as crazy as before.

C. In 2024, the Federal Reserve's 50bp interest rate cut in September and the People's Bank of China's big move of cutting the reserve requirement ratio by 50BP and mortgage interest rates have released huge liquidity, so that hedge fund tycoon David Tepper is frantically long, and the A-share market has risen significantly, but we still need to observe whether funds will continue to flow into the financial market. The current increase brought by liquidity still needs the support of project fundamentals!

From our contact with many people in the industry and many OGs, we have observed that everyone feels strongly that liquidity is drying up and projects are not innovative enough. Investors, project owners, and retail investors are working very hard. The previous narratives don’t seem to work. Attracting new users, growth, and billions of TVL at every turn. The seemingly active TG and Dscord groups have not actually leveraged the second round of takeoff. Behind the lack of liquidity, many projects are also struggling on the brink of life and death. We have seen that AI has developed rapidly in recent years, but where is the real killer application of web3? Is the project really valuable? Are there any applications and profit closed loops that can be truly realized?

Not long ago, Token2049 did not seem to have as many innovative projects as before. Everyone was on Social, looking for trends and breakthroughs. Even the big A could suck blood from the cryptocurrency circle. The cryptocurrency circle seemed to have ushered in an unprecedented confusion that was different from the previous cycle. However, there was still no shortage of builders with firm beliefs, even though it seemed that the dream had faded.

2. Cryptocurrency user profile

A comprehensive description of cryptocurrency users by 2024 might include the following aspects, but please note that this is a dynamic field and user characteristics may change over time and with technological developments:

A. Age distribution: Although cryptocurrency was initially considered a young person’s game, people of all ages are now participating in it. However, the younger generation (especially millennials and Generation Z) is still the main user group because they are more familiar with the Internet and digital technology.

B. Educational background: Generally speaking, cryptocurrency users have a high level of education. They often have a college degree or higher, because understanding cryptocurrency, blockchain technology, and related investment strategies requires certain technical and economic knowledge.

C. Occupation: Tech industry practitioners, financial analysts, investors, and entrepreneurs are active participants in the cryptocurrency field. In addition, freelancers and digital natives (such as content creators, bloggers, etc.) also tend to use cryptocurrencies because of their pursuit of freedom and decentralization.

D. Economic status: Users range from high-income earners to the middle class seeking wealth appreciation. Cryptocurrency is seen as an investment tool, and participants hope to gain high returns by investing in mainstream currencies such as Bitcoin and Ethereum, or by participating in early ICOs (initial coin offerings).

5. Geographical distribution: The global nature of cryptocurrency means that users are spread all over the world. However, some regions or countries are more accepting of cryptocurrency due to policies, economic conditions or culture, such as Nordic countries, some Asian countries (especially South Korea and Japan), the United States, Canada, etc.

And many users regard cryptocurrency as an investment tool, hoping to profit from price fluctuations. A small number of users use cryptocurrency as a means of payment, especially in some industries (such as games, technology product sales, etc.) or countries (such as EL Salvador, etc.). Some users are attracted by the anonymity and decentralization of cryptocurrency and hope to avoid the supervision of the traditional financial system. Some users support the concept of decentralization and free economy and believe that cryptocurrency is the prototype of the future financial system.

The Web3 industry is special and interesting enough. Can you say it is a financial industry? There are indeed many stories that Wall Street loves to hear, and there are many investors behind it, but there are few real product value outputs or self-consistent business closed-loop models. Do you say it is an Internet industry? It is true that the product architecture is extremely similar to the traditional Internet, but most products do not have a profitable closed loop, and most products may rely on issuing coins and VC transfusions. Do you say it is purely a marketing industry? No, although there are traces of Ponzi CX now, and it even attracts people in the circle, it also needs a lot of marketing and promotion. In order to catch the hot spots, traffic is also used to the utmost! However, it is not 100% to find a buyer. Many ecosystems have their own endogenous driving forces.

In a word, this industry is actually a mixture of Internet + finance + marketing, so everyone sees many phenomena, some high-end, some pragmatic, some idealistic, and some chaotic, and they can all find their own position!

Liquidity, market sentiment and cycles

Preface

In the complex landscape of global finance, capital flows like a river, with liquidity and market sentiment acting as silent architects of market cycles. We explore how these often misunderstood and underestimated forces influence economic trajectories, with a particular focus on recent shifts in China’s economic policies and their knock-on effects on the financial sector, including the cryptocurrency market.

1⃣The rise of liquidity in the East

Liquidity is the lifeblood of financial markets, and there has been a major shift from the East recently. The unexpected Politburo meeting in September 2024 marked a pivotal moment, signaling that China has taken a proactive stance on economic revitalization, and that this was not just another policy adjustment, but a coordinated intervention, presided over by Xi Jinping himself, to inject vitality into the Chinese economy by:

Monetary policy adjustments: A sharp reduction of 50 basis points in the reserve requirement ratio and other monetary easing measures have been implemented to inject more than RMB 1 trillion into the financial system, demonstrating the central bank's commitment to liquidity.

Fiscal policy focus: Emphasis on countercyclical fiscal policy to support necessary spending, hinting at upcoming fiscal measures.

Capital market support: Direct intervention measures such as stock purchases are taken to stabilize the market, demonstrating the intention to enhance investor confidence.

The increase in liquidity comes at a time when the Chinese market is severely undervalued compared to the U.S. market, laying the foundation for potential capital recovery and reallocation.

2. Market Sentiment and China Trade

Despite strong growth in some domestic sectors, China has long been viewed with suspicion and labeled as “not worth investing in.” However, the Politburo’s actions have dramatically changed that assessment. Market sentiment is usually driven by fear or greed, and these policy changes provide a new catalyst for it, leading to:

Global Repositioning: Western markets interpreted these moves as a green light for policy easing, sparking a surge in investment interest in China.

Contrarian Returns: As the market corrects direction, investors who move against the prevailing negative sentiment begin to reap rewards.

3. Impact on the cryptocurrency market

Cryptocurrencies are often viewed as independent entities, but are increasingly connected to traditional financial markets. The current cycle shows that:

Shift in capital flows: Unlike previous cycles dominated by retail frenzy, this cycle has seen greater institutional participation and stronger appeal for traditional finance. This shift is reflected in the CME futures price surpassing the Binance futures price, as well as the upcoming spot products.

4⃣ Macro liquidity effect:

As the United States and China enter an easing cycle, global liquidity is rising. Coupled with geopolitical events such as the US election, it may spread to risky assets such as cryptocurrencies.

Investor Behavior: The wealth effect from tech/AI stocks and the appeal of zero-day options have somewhat dampened the appeal of cryptocurrencies in the retail sector. However, as liquidity eases, cryptocurrencies may regain interest, especially if key players endorse cryptocurrencies as portfolio assets.

Looking ahead

The future depends on several key factors:

Chinese savers: With a savings rate of 34%, how and where this capital is reallocated will have a significant impact on global markets. Further observation is needed.

Economic targets: Whether China achieves its 5% GDP growth target will affect investor confidence and capital rotation.

Global policy coordination: Coordinated easing policies among major economies could trigger a broader risk appetite, which could benefit riskier assets such as cryptocurrencies.

We need to observe the upcoming Double 11 in mainland China, and whether the changes in consumer sentiment can support a fundamental shift in market sentiment, the continued inflow of funds into financial markets, and the changes and continuity of the US presidential policies after November 5!

in conclusion

Liquidity and market sentiment are not just economic phenomena, they are the pulse of the market cycle. As seen in recent events in China and their impact on global finance, understanding these dynamics is essential to navigating an increasingly interconnected financial world. Whether in traditional markets or in the burgeoning cryptocurrency space, the flow of liquidity and changes in sentiment will continue to determine the rhythm of the economic cycle.

No matter what, we still have ideals and dreams for the industry, and we still respect Satoshi Nakamoto's reform of reshaping production relations. Even if it is like a quagmire now, everyone is confused and doubtful, even if the world's macro-pattern and political divisions are becoming increasingly severe, even if the future looks unclear, and the original intention and dream seem to fade, but all this is only temporary. He is like a star, a spark can start a prairie fire.