Global liquidity injection has begun.
Recently, many people are concerned about the Fed's interest rate cuts, especially many influencers analyzing it extensively, yet still failing to clarify whether the Fed's rate cuts are a good or bad thing.
The reason is also straightforward; according to the Merrill Clock theory, there will still be a wave of recession in the future. The only uncertainty is when this wave will land.
The Fed's interest rate cut cycle has become quite clear. First, they cut by 50 basis points in September, and Powell subsequently mentioned that there would be two more cuts totaling another 50 basis points by the end of the year. In September, during the month when the Fed cut rates, global central banks conducted a total of 21 rate cuts, the highest number since the COVID-19 pandemic and the third highest since the financial crisis. Even the usually steady Chinese government couldn't sit still and announced the 924 new policy at the end of September, declaring to the world that we also want to inject liquidity! This led to a frenzy among retail investors in the A-shares, with them rushing into Hong Kong stocks during the National Day holiday when the A-shares market was closed.
Bitcoin may become the biggest winner.
Since the decoupling of the dollar from gold, every major liquidity injection has required a reservoir to absorb the released liquidity.
In the 1970s, the lack of suitable liquidity reservoirs led to a prolonged inflation rate of over 10%. It was an era of skyrocketing oil and gold prices, where prices increased about 20 times over a decade, which is the cost of lacking a liquidity reservoir.
After the 1980s, President Reagan realized the importance of liquidity reservoirs and began to absorb market liquidity through large-scale issuance of treasury bonds. The U.S. then embarked on a new wave of take-off, and after the 1980s, the returns from U.S. stocks and bonds surpassed those of gold and oil.
After the internet bubble burst, liquidity was absorbed through real estate. After the global financial crisis, liquidity was absorbed through U.S. stocks, while U.S. Treasuries were still being printed in large quantities.
Why are Chinese stocks soaring? It is because real estate has long served as a liquidity reservoir in China, and judging by the central government's stance on the 924 new policy, they may have chosen the stock market as the next reservoir. However, the U.S. is in a awkward position; after many years, it can be said that traditional reservoirs like real estate, U.S. stocks, and Treasuries are nearly full, or more precisely, their growth rate cannot keep up with the pace of money printing. Choosing the Chinese or Hong Kong stock markets as a reservoir is impossible, and at this point, a new reservoir is needed to absorb this liquidity. The reservoir that the U.S. has chosen this time is likely Bitcoin.
Why not other cryptocurrencies?
The reason is simple: BlackRock mainly holds Bitcoin and stocks of Bitcoin ecosystem-related assets like mining stocks, especially since Bitcoin holdings have entered BlackRock's top 20 holdings. Recently, former Chinese Deputy Finance Minister Zhu Guangyao made significant remarks about cryptocurrencies: https://www.youtube.com/watch?v=tJWYfbwqToM (original text).
Minister Zhu, as a senior official deeply involved in decision-making, spoke as if China's crackdown on cryptocurrencies was influenced by the U.S. He stated that this year, cryptocurrencies have become a core issue in the elections, and the approval of a spot ETF signifies that the U.S. government recognizes Bitcoin's legitimacy. However, the U.S. repeatedly tells China at the G20 that cryptocurrencies pose various risks!
This statement is worth pondering! In previous years, most of Bitcoin's hashing power was held by Chinese individuals, creating a significant risk for the U.S. to use Bitcoin as a liquidity reservoir. Now that China is cracking down on Bitcoin and mining, the U.S. may have the opportunity to use Bitcoin as a liquidity reservoir. Every liquidity injection cycle makes it challenging to find a suitable reservoir. One day, it may not be Bitcoin that is pegged to the dollar, but rather the dollar that has to be pegged to Bitcoin. From this perspective, the tech queen who has dominated U.S. stocks making a call for Bitcoin to reach 3.8 million dollars doesn't seem too exaggerated.
Surpassing gold, the Bitcoin ecosystem is indispensable.
If Bitcoin is truly to have an influence similar to gold, then through the development of the Bitcoin ecosystem, using Bitcoin to endorse various transactions on the blockchain may be an essential path. The establishment of the Bretton Woods system was accepted globally because the U.S. had over 70% of the world's gold reserves at that time. Consequently, many countries bought dollars as foreign exchange reserve assets. Therefore, it can be considered that after World War II, the U.S. pledged gold to print dollars. Subsequently, many countries pledged dollars to print their own currencies, which can also be viewed as the restaking of gold.
So how was the gold-backed staking ecosystem destroyed? The main reason was that the settlement nodes were unreliable and defaulted! The ability to exchange currency for gold or silver, precious metals, mainly depends on the creditworthiness of various countries. In fact, the credit of the government is often unreliable. After the U.S. announced the decoupling of the dollar from gold in 1972, it meant that the dollars obtained by staking gold could no longer be exchanged for gold. At that time, the U.S.'s gold reserves were insufficient to redeem the printed dollars, so it can be seen as a default by the U.S. government.
In fact, it's not just the U.S. government; governments worldwide have historically used precious metals as a basis for printing money, and not only have all governments defaulted at some time, but many have done so multiple times.
Is there a possibility for Bitcoin to succeed?
One strength of Bitcoin over gold is that it has a more reliable settlement network. Bitcoin staking certificates must be backed by corresponding Bitcoin in full, and all this data is traceable on-chain. Unless a 51% attack is initiated, a default is impossible. Specifically, users stake their Bitcoin to earn staking rewards; one could think of it as exchanging gold for dollars to buy U.S. bonds; restaking is akin to staking U.S. bonds to earn interest from other sovereign nations. However, the credit of sovereign nations is unreliable, hence the failure of gold as the anchor for global currencies. The consensus on gold hasn't disappeared, but the nodes for global settlement are unreliable.
How does the staking yield from Bitcoin come about?
Let me briefly introduce the POS mechanism. As we all know, Bitcoin operates on a POW mechanism, which essentially means that whoever has more hashing power gets to decide. Therefore, for the U.S. to control Bitcoin, it needs the capital backing of North American mines to expand rapidly. Although it's not necessary to possess an absolute majority of 51% of hashing power, at least it cannot allow other countries to easily initiate a 51% attack.
In the POS mechanism, taking Ethereum as an example, Ethereum's POS mechanism requires the voting of 'checking nodes.' Ethereum's transactions need to receive votes from more than 2/3 of the total staked amount to be approved. If someone cheats, they need to control at least 1/3 of the staked Ether to initiate an attack; if they fail, the staked Ether will be penalized. This penalty does not go to the Ethereum Foundation but is directly sent to a black hole address. Therefore, the cost of attacking and cheating is particularly high.
In comparison, if POW controls over 51% of the hashing power to initiate a 51% attack, the cost of failure is lower. Honest nodes will receive gas fees as rewards. Of course, various POS projects will have different mechanisms, but overall they are quite similar; the risks of POS staking are still significantly lower than the risks of default from various sovereign governments.
Speaking of Bitcoin's staking ecosystem, one project cannot be overlooked, and that is Babylon. The project's financing amount can be said to far exceed other project parties. One of the project's co-founders is David Tse, a professor at Stanford University, who has served as a member of the U.S. National Academy of Engineering since 2018. Most of the study materials in the field of communications in the U.S. are based on his textbooks.
Babylon's main job currently is to make Bitcoin stakeable. The principle is simple: users send their Bitcoin to a multi-signature address created by Babylon, and these Bitcoins can work like Ethereum staking, earning gas rewards as honest nodes. If someone cheats, they will be penalized and the funds sent to a black hole address. This way, Bitcoin can become stakeable like Ethereum, and Bitcoin assets can stake for all POS-based blockchain projects to earn validation rewards. It should be noted that the penalized coins do not become the attackers' proceeds; as the saying goes, there are trades made by those who turn around, but no one makes losing trades. Because the cost of initiating an attack is high, there are no profits from penalties, thus the security of earning through staking is quite high. However, we must still be cautious and not fall for shoddy projects; there are likely many projects using Bitcoin staking as a guise to scam people's Bitcoins.
Babylon essentially acts as an intermediary, relying on profit from the price difference for survival. The true source of profits comes from the node rewards of various POS projects, and by retaining a portion of these POS earnings for itself, Babylon generates its project revenue. There are many projects for Bitcoin staking; Babylon is just an example, and the principles are quite similar.
In traditional financial markets, payment transaction transfers fundamentally rely on the credit endorsement of centralized settlement institutions. For instance, RMB transfers rely on the credit endorsement of UnionPay. Dollar transactions rely on the Federal Reserve's endorsement. Bitcoin transactions depend on miners around the world for endorsement. Ethereum relies on the billions of staked Ether for endorsement. After Bitcoin supports staking, it may rely on staked Bitcoin for the trading of crypto assets.
In fact, Big Beauty is not particularly optimistic about Ethereum staking. For instance, Ethereum's price was 2300 dollars at the beginning of the year, but now, nearing the end of the year, the price is only 2400. The annualized yield from staking is only a few percentage points, and combined with the price increase, the yield from staking Ethereum since the beginning of the year should not exceed 10%, whereas Bitcoin's price has risen from over 40,000 to 60,000, with the price increase alone exceeding 50%. Therefore, while there is yield from staking and restaking, in the long term, it may not necessarily surpass the price increase of Bitcoin.
Therefore, to participate in staking or restaking, Big Beauty strongly recommends using Bitcoin as the underlying asset.
Introduction to Bitcoin Restaking
What is Bitcoin restaking?
If one only holds Bitcoin, they will only earn Bitcoin returns. Participating in staking, for example, will yield annualized staking returns and governance tokens obtained from staking. Participating in restaking will yield annualized restaking returns and governance tokens obtained from restaking. Bitcoin restaking means taking the certificate tokens of already staked Bitcoins to earn additional yields.
The principle behind Bitcoin's restaking is quite similar to that of Ethereum's ecosystem. EigenLayer, a leading player in Ethereum's restaking sector that just launched, is doing exactly that. EigenLayer has raised over 160 million, which is more than what Babylon has raised. Earlier this year, they raised 100 million from a16z alone, marking a16z's largest single investment in 2024. Now, EigenLayer has successfully landed on Binance, with a total market value of over 6 billion.
There are actually many projects available for Bitcoin staking, but there are not many options for Bitcoin restaking because Bitcoin staking projects have only flourished this year. The leader in Bitcoin restaking, according to Big Beauty, seems to be this Pell.
Why is it called Pell?
Looking at the timeline, Bitcoin's ecosystem has only seen a significant number of projects achieve liquid staking this year, with restaking projects only emerging this year. Lido, as one of the first Ethereum staking projects, went live on the mainnet at the end of 2020, whereas Eigenlayer just launched its mainnet this year. From this perspective, the speed of Bitcoin's ecosystem restaking is quite rapid.
The Pell project has also attracted investment from several well-known capital firms, with its recent pre-seed investors including Mirana Ventures and ArkStream Capital. Although this project was only established this year and is still in its early stages, it has already attracted nearly 400,000 users to participate in staking, with the staking amount nearing 300 million.
Currently, Pell has not only officially announced cooperation with Babylon, but has also announced partnerships with over ten public chains, including BNBChain, zkSync, Arbitrum, Mantle, Core, BOB, BitLayer, Aptos, Sui, etc., encompassing the most popular ecological networks from Bitcoin's second layer network to Ethereum's second layer network and the Move ecosystem.
It is worth mentioning that Pell is currently the only officially listed BTCFi restaking service provider on the BNBChain website.
From the perspective of industry progress, ecosystem recognition, staking amounts, and various other aspects, Pell can be considered the leader in Bitcoin's ecosystem restaking. The speed of project development looks very promising.
The leading project in Ethereum's restaking sector has a valuation of over 60 billion. How much can the leading project in Bitcoin's ecosystem restaking be valued at?
Airdrop opportunities
As an early project and a leader in a high-potential sector, there are still opportunities for airdrops when participating in Pell. Pell has activities in both the mainnet and testnet, providing opportunities for airdrop participation.
Wealthy friends can stake BTC on the Pell Dapp; the testnet also has completely free interactive airdrop opportunities, and interested friends can have a try.
Pell has also partnered with BNBChain, B Squared, Lorenzo, and other project parties to launch a 3-month 'Golden Miner' activity on BNBChain, which will draw 1 BNB weekly for participating users, and in the 12th week, it will even draw 1 BTCB as a reward.
Wishing everyone can make big money during the upcoming liquidity injection cycle, and don't forget to come back to tip me~