From Carnival to Rationality: The Transformation Path of the Crypto Market

For crypto investors who experienced the bull market of 2020-2021, the current market is undoubtedly confusing and agonizing. Once upon a time, there was an abundance of liquidity, and prices of various assets rose together, as if buying anything would yield rich returns. However, such a prosperous scene is now a thing of the past. Today, the global financial market is at a delicate balance: on one hand, there are better-than-expected economic data from the United States, and on the other hand, the Federal Reserve's stubborn hawkish stance. The historically high interest rate environment weighs down on various risk assets like a giant boulder.

This paradigm shift driven by the macro environment has made this round of the crypto cycle the most challenging period for retail investors. The previous model, which relied on liquidity-driven, purely emotional speculation, has become ineffective. In its place is a market more focused on intrinsic value, driven by clear narratives and fundamentals.

However, the other side of the challenge is opportunity. When the bubble bursts, true value investors will usher in their golden age. Because in such an environment, compliance entry, technological deflation, and applications that integrate with the real economy can highlight their true, cyclical value. This article aims to deeply analyze this profound transformation and clarify why this era, which feels difficult for speculators, precisely paves the way for prepared investors.

1. The Most Challenging Era: The Impact of Liquidity Withdrawal

The difficulties in this cycle stem from a fundamental 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. To curb the most serious inflation in forty years, the Federal Reserve has initiated an unprecedented tightening cycle, which has brought dual pressure to the crypto market and completely ended the old model of easy profits.

1. The Macroeconomic Data Dilemma: The Reasons for the Prolonged Delay in Interest Rate Cuts

The key to understanding the current market predicament lies in grasping why the Federal Reserve has been reluctant to signal an end to interest rate hikes. The answer is hidden in the recent macroeconomic data—these seemingly "good" numbers have instead become "bad news" for investors hoping for easing.

Although inflation has retreated from its peak, its stickiness is far greater than expected. The latest data shows that while the U.S. CPI year-on-year rate in May was slightly below expectations, the core inflation rate stubbornly remains at a high of 2.8%. This still represents a significant gap from the Federal Reserve's target of 2%. This stubbornness is directly reflected in the Federal Reserve's latest economic forecast and the closely watched "dot plot". After the June policy meeting, Federal Reserve officials significantly lowered their interest rate cut expectations, reducing the median number of cuts for the year from three to just one. This hawkish shift has heavily impacted market sentiment.

At the same time, the U.S. labor market continues to show remarkable resilience. The non-farm payroll report for May indicated that new jobs increased by 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 rate cuts.

2. The "attraction" of high interest rates: the "bleeding" effect of encryption assets

This macro backdrop has directly led to the difficult situation in the crypto market:

Liquidity Drying Up: High interest rates mean a reduction in "hot money" in the market. For the crypto market, especially small digital currencies that heavily rely on new capital inflows to drive price increases, the tightening of liquidity is the most fatal blow. The once prevalent situation of "everything rising together" has been replaced in this cycle by a structural market of "sector rotation" or even "only a few hotspots."

Opportunity cost skyrockets: When investors can easily obtain over 5% risk-free returns from U.S. Treasury bonds, the opportunity cost of holding assets like Bitcoin, which do not generate cash flow and have extreme price volatility, sharply increases. This causes a large outflow of funds seeking stable returns from the crypto market, further exacerbating the market's "blood loss" effect.

For retail investors who are used to chasing hot trends in a flood of liquidity, this change in the environment is brutal. The lack of in-depth research and the strategy of merely following the hype can easily lead to severe losses in this cycle, which is the core reason for the "difficulty" of this cycle.

II. The Era of Best Opportunities: From Speculation to Value, the Emergence of New Opportunities

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

1. Institutional Year One: Spot ETFs Open a New Chapter

In early 2024, the U.S. Securities and Exchange Commission (SEC) historically approved the listing of a spot Bitcoin ETF. This is not just a product launch, but a revolution in the crypto world. It opens a "golden gate" for trillions of dollars in traditional finance to invest in Bitcoin in a compliant and convenient manner.

By the second quarter of 2025, only two major ETFs had surpassed hundreds of billions in total managed assets, with sustained daily net inflows providing strong purchasing power to the market. This "new vitality" from mainstream financial institutions largely hedged against the liquidity tightening caused by high interest rates.

The CEO of a globally largest 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 of asset tokenization." This endorsement from top financial institutions has greatly boosted market confidence and provided retail investors with a clear signal to follow the footsteps of institutions and engage in long-term value investing.

2. The Faith in Code: Hardcore Support under the Halving Mechanism

The fourth "halving" of Bitcoin in April 2024 will reduce its daily new supply from 900 coins to 450 coins. This code-defined and predictable supply deflation is the unique charm that distinguishes Bitcoin from all traditional financial assets. Against a backdrop of stable or even increasing demand (especially from ETFs), the halving of supply provides a solid mathematical underpinning for Bitcoin's price. Historical data shows that in the 12-18 months following the first three halvings, Bitcoin's price reached all-time highs. For value investors, this is not a short-term speculative gimmick, but a reliable, cycle-crossing long-term logic.

3. The Narrative Revolution: Web3 Begins to Solve Real Problems

Macroeconomic headwinds force market participants to shift from mere speculation to exploring the intrinsic value of projects. The core focus of this cycle is no longer baseless speculative tokens, but rather innovative narratives that aim to solve real-world problems:

• Artificial Intelligence (AI) + encryption technology: Combining the computational power of AI with the incentive mechanisms and data ownership of blockchain to create entirely new decentralized intelligent applications.
• Tokenization of Real World Assets (RWA): Bringing real-world assets such as real estate, bonds, and artworks on-chain to release their liquidity and bridge the gap between traditional finance and digital finance.
• Decentralized Physical Infrastructure Network (DePIN): Utilizing token incentives to enable global users to collaboratively build and operate the infrastructure network of 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 "creating value." For retail investors, this means that the opportunities to discover value through deep research have significantly increased, and knowledge and awareness have become more important than mere audacity and luck in this market for the first time.

3. New Cycle Survival Rules: Patiently Layout in Transformation

We are at a crossroads of an era. The Federal Reserve's tightening policy continues, 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 the cycle and seizing golden opportunities.

1. Fundamental Shift in Investment Paradigms

• From chasing hot trends to value investing: abandon the fantasy of finding the "next hundredfold coin" and shift towards researching the fundamentals of projects, understanding their technology, team, economic model, and the competitive landscape they are in.
• From short-term speculation to long-term holding: In a "value bull" market, the true returns belong to those investors who can identify core assets and hold them long-term, riding through volatility, rather than to frequent traders.
• 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 that combines value storage and productive attributes; while high-growth emerging projects should be the "rocket boosters" based on in-depth research and small position allocations, focusing on frontier tracks with real potential such as AI and DePIN.

2. Be patient and plan ahead.

Market research reveals an interesting phenomenon: in the last 12 months of the terms of the past three Federal Reserve chairmen, the S&P 500 index averaged a 16% increase even when interest rates remained high. This indicates that once the market is convinced that the tightening cycle has ended, even before rate cuts occur, risk appetite may begin to warm up in advance.

This "running ahead" market trend may also appear in the crypto market. While the market's attention is generally focused on the short-term game of "when will interest rates be cut," the true wise ones have already begun to think about which assets and sectors will occupy the most favorable positions in the future feast driven by the resonance of macro tailwinds and industrial cycles when easing policies finally arrive.

Conclusion

This round of the crypto market cycle is undoubtedly a severe test of investors' cognition and mentality. The era where one could easily profit by luck has come to an end; an era that requires in-depth research, independent thinking, and long-term patience has arrived. This is precisely its "challenge."

However, it is precisely in this era that institutional funds have poured in at an unprecedented scale, providing a solid bottom for the market; the value logic of core assets is becoming increasingly clear; and applications that can truly create value are beginning to take root. For those investors who are willing to learn, embrace change, and view investment as a journey of cognitive realization, this is undoubtedly a "golden era" where they can compete with top minds and share in the long-term growth dividends of the industry. History does not simply repeat itself, but is always remarkably similar. In times of transformation and opportunity, patience and vision will be the only path to success.