Global liquidity injection has begun.
Recently, many people are concerned about the Federal Reserve's interest rate cuts, especially many influential figures analyzing it extensively, but they still can't clarify whether the Federal Reserve's rate cuts are good or bad.
The reason is quite simple: according to the Merrill Clock theory, there will still be a wave of recession in the future. People just aren't sure when this wave of recession will hit.
The Federal Reserve's interest rate cut cycle is actually quite clear now. First, it cut by 50 basis points in September, and Powell later stated that there would be two more cuts of 50 basis points by the end of the year. In that one month of September, global central banks made a total of 21 interest rate cuts, the highest number of cuts since the COVID-19 pandemic, and the third highest since the financial crisis. Even the usually stable Chinese government couldn't sit still and introduced the 924 new policy at the end of September, declaring to the world that we are also going to inject liquidity! This drove stock investors across the country to rush into A-shares, and when the A-shares were closed during the National Day holiday, they surged into the Hong Kong stock market.
Bitcoin may become the biggest winner
Since the dollar decoupled from gold, every major liquidity injection requires a reservoir to absorb the released liquidity.
In the 1970s, the inability to find suitable liquidity reservoirs led to a long-term CPI inflation rate of over 10%. It was an era of skyrocketing oil and gold prices, with prices increasing about 20 times over a decade. This was the cost of lacking a liquidity reservoir.
After the 1980s, President Reagan recognized the importance of liquidity reservoirs and began absorbing market liquidity through large-scale issuance of government bonds. This initiated a new round of growth for the US, and from the 1980s onwards, the returns on US stocks and bonds began to surpass those of gold and oil.
After the burst of the internet bubble, liquidity was absorbed through real estate. After the global financial crisis, liquidity was absorbed through US stocks, while US Treasury bonds were still being printed on a large scale.
Why did Chinese stocks surge? It is because real estate has long served as the liquidity reservoir in China, and based on the central government's attitude towards the 924 new policy, they may have chosen the stock market as the next reservoir. However, the US is in an awkward situation. After so many years, it can be said that the traditional liquidity reservoirs of real estate/US stocks/US Treasury bonds are nearly full or, more precisely, that the increase in prices cannot keep up with the rate of money printing. Choosing the Chinese or Hong Kong stock market as a liquidity reservoir is impossible, and at this time, a new reservoir is needed to absorb this liquidity. The reservoir that the US has chosen this time is likely Bitcoin.
Why not other cryptocurrencies?
The reasoning is simple: BlackRock mainly holds Bitcoin and stocks in the Bitcoin ecosystem, such as mining and mining machine stocks, with Bitcoin holdings entering BlackRock's top 20. Additionally, former Chinese Deputy Finance Minister Zhu Guangyao's recent comments about cryptocurrencies were also particularly insightful: https://www.youtube.com/watch?v=tJWYfbwqToM (original).
Minister Zhu, as a high-ranking official involved in the decision-making front line, made statements that seemed to suggest that China's crackdown on cryptocurrencies has been misled by the United States. He said that cryptocurrencies have become a core issue in this year's elections, and the approval of spot ETFs signifies that the US government recognizes the legitimacy of Bitcoin. However, at the G20, the US repeatedly expressed to China that cryptocurrencies carry various risks!
This statement deserves careful consideration! A few years ago, most of Bitcoin's hash power was controlled by Chinese entities, and the risk of the US wanting to use Bitcoin as a liquidity reservoir was significant. Now that China is cracking down on Bitcoin and mining, the US may finally be able to consider Bitcoin as a liquidity reservoir. Each liquidity injection cycle, finding a suitable reservoir is not easy. Perhaps one day, it won't be Bitcoin that is pegged to the dollar, but the dollar that has to be pegged to Bitcoin. From this perspective, the tech queen dominating the US stock market, calling for Bitcoin to reach $3.8 million, doesn't seem too exaggerated.
Surpassing gold, the Bitcoin ecosystem is indispensable.
If Bitcoin is truly to have an impact like gold, then through the development of the Bitcoin ecosystem, using Bitcoin to endorse various transactions on the blockchain may be an inevitable path. The establishment of the Bretton Woods system was accepted globally because at that time, the US held over seventy percent of the world's gold reserves. Many countries then purchased dollars as foreign exchange reserve assets. Therefore, it can be said that after World War II, the US used gold to back the printing of dollars. Then, many countries around the world used dollars to back their own currencies, which can also be seen as the re-staking of gold.
How was the gold-backed staking ecosystem destroyed? The main reason is the unreliability of settlement nodes, leading to defaults! When exchanging currency for gold or silver, it mainly depends on each country's credit. Government credit is often unreliable. After the dollar decoupled from gold in 1972, it essentially meant that the dollars received for staking gold could no longer be exchanged for gold. At that time, America's gold reserves were insufficient to cover the printed dollars, essentially marking a default by the US government.
In fact, it's not just the US government; governments around the world have historically used precious metals as the anchor for printing currency. Not only have governments around the world defaulted, but they have also defaulted many times.
Is there a possibility for Bitcoin to succeed?
One of the strengths of Bitcoin over gold is that it has a more reliable settlement network. Bitcoin staking certificates require corresponding Bitcoin to be fully collateralized, and all this data is traceable on the blockchain. Unless a 51% attack is launched, default is nearly impossible. Specifically, users stake their Bitcoin to earn staking rewards; it can be viewed as exchanging gold for dollars to purchase US Treasury bonds; restaking is akin to using US Treasury bonds as collateral to earn interest from other sovereign nations. However, the reliability of sovereign nations’ credit is questionable, which is why gold failed as the global currency anchor. But the consensus on gold has not disappeared; it's just that the global settlement nodes are unreliable.
How does Bitcoin's staking yield come about?
Here, let me briefly introduce the POS mechanism. As we all know, Bitcoin operates on a POW mechanism, where the one with the most hash power has the final say. Therefore, to dominate Bitcoin, the US needs to expand rapidly with the capital of North American mining farms. While it's not necessary to control an absolute majority of over 51% of the hash power, at least they must prevent other countries from easily launching a 51% attack.
In the POS mechanism, taking Ethereum as an example, Ethereum's POS mechanism relies on the voting of 'validator nodes.' Ethereum transactions require more than two-thirds of the staked total to be approved. If someone cheats, they need to control at least one-third of the staked Ethereum to launch an attack. If they fail, the staked Ethereum 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 committing an attack is particularly high.
In comparison, if a 51% attack is initiated with over 51% of hash power, even if it fails, the cost is much lower. Honest nodes will earn gas fees as rewards. Of course, the mechanisms of various POS projects will differ, but overall, they are quite similar, and the risks of POS staking are still significantly lower than the risks of default by sovereign governments.
Speaking of staking in the Bitcoin ecosystem, one cannot overlook Babylon, which has significantly outpaced other projects in terms of fundraising. One of the founders of this project is David Tse, a professor at Stanford University, who has been an academician at the US National Academy of Engineering since 2018. Most studies in American communications are based on his textbooks.
Babylon's main job right now 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, allowing honest nodes to earn gas rewards. If they cheat, 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 be staked for all POS mechanism blockchain projects to earn validation rewards. It should be noted that the penalized coins do not become the profits of the attackers. As the cost of launching an attack is high, and the penalty brings no profit to anyone, the security of earning through staking is very high. However, we still need to be cautious and not fall for scams that masquerade as Bitcoin staking projects to defraud people's Bitcoins.
Babylon is essentially an intermediary that relies on earning the price difference for survival. The real source of profit comes from the node rewards of various POS projects, and retaining a portion of the POS earnings from these projects is Babylon's project profit. There are many projects for Bitcoin staking; Babylon is just one example, and the principles are quite similar.
In traditional financial markets, payment transactions essentially rely on the credit endorsement of centralized settlement institutions. For instance, Renminbi transfers rely on the credit of UnionPay. Dollar transactions depend on the Federal Reserve's endorsement. Bitcoin transactions rely on miners around the world for endorsement. Ethereum, on the other hand, relies on the hundreds of billions of staked Ether for endorsement. Once Bitcoin supports staking, it may rely on staked Bitcoin to endorse the trading of crypto assets.
In fact, I'm not particularly optimistic about Ethereum staking. For example, at the beginning of this year, Ethereum's price was $2,300, and now, as we approach the end of the year, the price is only $2,400. The annualized yield from staking is only a few percent, and considering the price increase, the yield from staking Ethereum since the beginning of the year should not exceed 10%, while Bitcoin rose from over $40,000 to around $60,000, with a price increase of over 50%. Therefore, although staking and restaking have yields, in the long term, they may not exceed the price increase of Bitcoin.
Therefore, to participate in staking or restaking, it's strongly recommended to use Bitcoin as the underlying asset.
Introduction to Bitcoin Restaking Track
What is Bitcoin restaking?
If you only hold Bitcoin, you will only have Bitcoin earnings. If you participate in staking, for example, you will have annualized staking yields and governance tokens obtained from staking. Participating in restaking will provide annualized restaking yields and governance tokens obtained from restaking. Bitcoin restaking means using the proof tokens of already staked Bitcoin to earn additional yields.
The implementation principle of Bitcoin's restaking is very similar to that of Ethereum's ecosystem. The newly listed Ethereum restaking leader EigenLayer does just that. EigenLayer has raised over $160 million, more than Babylon's fundraising. At the beginning of this year, it raised $100 million from a16z, marking a16z's largest single investment in 2024. EigenLayer has also 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, as Bitcoin staking projects only began to flourish this year, and the leader in Bitcoin restaking seems to be this Pell.
Why is it Pell?
Because, looking at the timeline, the Bitcoin ecosystem only has a relatively large number of projects implementing liquid staking this year, with restaking projects only emerging this year. Initially, Lido was one of the first Ethereum staking projects, launching on the mainnet at the end of 2020, while Eigenlayer only launched on the mainnet this year. From this perspective, the speed of Bitcoin ecosystem restaking is quite rapid.
The Pell project has also received investments from several well-known capital firms, with its recently acquired pre-seed round 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 staking amounts close to $300 million.
Currently, Pell not only has an official collaboration with Babylon but has also announced partnerships with over ten public chains, including BNBChain, zkSync, Arbitrum, Mantle, Core, BOB, BitLayer, Aptos, Sui, and others. This encompasses the most popular ecological networks from Bitcoin Layer 2 to Ethereum Layer 2 and the Move ecosystem.
It is worth mentioning that Pell is currently the only official BTCFi restaking service provider listed on the BNBChain's official website.
From the perspective of industry progress, ecological recognition, staking amounts, and other factors, Pell can indeed be considered the leader in Bitcoin ecosystem restaking. The speed of project development is very rapid.
The leading restaking project in Ethereum is valued at over $6 billion. So how much can the leading restaking project in the Bitcoin ecosystem be valued?
Airdrop opportunity
As an early-stage project and a leader in a high-potential track, there is still an opportunity to participate in Pell and grab some airdrops. Pell has activities in both the mainnet and testnet, providing chances for airdrop participation.
Wealthy partners can stake BTC in Pell Dapp; the testnet also has completely free interactive airdrop opportunities for those interested.
Pell has also partnered with BNBChain, B Squared, Lorenzo, and others to launch a three-month 'Gold Miner' event on BNBChain, where one BNB is drawn weekly for participating users, and in the 12th week, one BTCB is drawn as a reward.
Wishing everyone great profits during the upcoming liquidity injection cycle, and don't forget to come back and reward me~