"Creator's Perspective" is a dialogue column launched by Foresight News, where we will ask questions on hot market topics to the outstanding content creators selected each month and compile the collected results into articles, gathering diverse opinions and uncovering deeper insights.
Written by: Outstanding Content Creators and Special Guests of Foresight News in September 2024
Compiled by: Foresight News
On September 19, the Federal Reserve initiated a loosening cycle by cutting rates by 50 basis points, the first rate cut in 4 years. US stocks and Bitcoin rose on the news, and various crypto sectors also saw a rare rebound. Under the stimulus of macroeconomic policies, can the crypto market end the "prolonged" period of volatility and rise again?
The theme of this issue of "Creator's Perspective" is "Fed Rate Cut, Crypto Bull Market Restart?" We invited the listed creators from the Foresight News Outstanding Content Creators Ranking in September 2024, including IOSG Ventures, BeWater, NingNing, BTC_Chopsticks, JiaYi, and DetectiveTON to join the discussion.
Regarding the topic of "Fed Rate Cut", we raised the following six questions: "What is the best investment strategy at the moment?", "How do you view the 'Memecoin Super Cycle' theory?", "How is this rate cut different from the previous one?", "Which crypto sub-sector are you most optimistic about after the rate cut?", "How do you view the subsequent policies and the trend of the crypto market?", and "Are you more optimistic about cryptocurrencies or A-shares in the next year?"
1. The Federal Reserve has entered a rate cut cycle, and the crypto market has seen a rare rebound. What do you think is the best investment strategy at the moment? What are your main investment operations?
IOSG Ventures: The short-term strategy is relatively conservative. There are no clear catalysts before the election, so the overall market may have a clear direction after the November rate cut and the election. Beta assets are mainly focused on the election; the on-chain liquidity of altcoins has not shown a clear improvement trend, and the structural problems of altcoins have not been solved; Memecoins are currently facing some issues with their core drivers, so the quality opportunities may be fewer than before, and it will require subsequent economic data and the election to bring some breakthroughs.
BeWater: The best investment strategy at the moment is the "barbell strategy". One key point to clarify is that the transmission of liquidity has a process, and the funds brought by the rate cut will not enter the crypto market in large scale immediately. On the one hand, compared to the traditional financial market, the scale of the crypto market is still relatively small, with limited capacity, and is more risky. The rate cut needs time to take effect, and after taking effect, it will spill over into a larger market, and ultimately remain in the crypto market.
In this case, if BTC cannot achieve a breakthrough, Alts will be even less optimistic. So although BTC.D continues to rise, a strategy focused on BTC still has allocation significance. On this basis, a small amount of capital invested in some hot sectors (such as Meme) is a relatively good combination.
NingNing: My strategy in the past two years has been to borrow Dalio's all-weather investment strategy, holding a balanced portfolio of assets that perform differently in different cycles, and rebalancing them in a timely manner. Currently, I hold stablecoins, BTC, blue-chip tokens, and growth tokens. I have recently increased my position in the chain abstraction sector.
BTC_Chopsticks: The increased market liquidity brought by the rate cut makes investors tend to favor riskier assets, especially cryptocurrencies. Currently, Bitcoin (BTC) and Ethereum (ETH) are showing large inflows of capital, especially after the recent rate cut, with Bitcoin products seeing inflows of up to $284 million. To cope with market volatility, the best strategy should be:
- Diversified investment: Major cryptocurrencies like Bitcoin and Ethereum are still good choices.
- Risk control: Allocate a portion of funds to stablecoins (such as USDC, USDT) to cope with market fluctuations.
JiaYi: Hold your chips firmly.
The long-term rate cut process will gradually bring liquidity back to the risk market, and the best investment strategy should be to maintain rationality and determination, and avoid excessive selling of valuable assets.
For me, as the founder of Geekcartel, I will pay special attention to primary market investment opportunities, dare to grab chips, and dare to invest in potential targets in the primary market.
DetectiveTON: You can start looking at opportunities in various Alt-coins. For example, TON. As a responsible self-media, I won't shill here.
2. Memecoins are showing signs of another outbreak. How do you view the "Memecoin Super Cycle" theory?
IOSG Ventures: Memecoins are an interesting asset form that has long existed, and they are now seeing an outbreak in the context of mature infrastructure and clear division of roles for each participant in the market. Compared to altcoins, their advantages lie in low startup costs, fast iteration, and strong dissemination capabilities, but they are also constrained by these characteristics, and their inherent flaws make it difficult for the industry to break through in the long run. Objectively speaking, the narrative dominated by Memecoins is unlikely to lead the industry to a long-term upward breakthrough, so we tend to view them as a wave of innovation similar to the NFT Summer, where Memecoins will bring us new asset paradigms, social models, and on-chain gameplay. As a primary fund, we are also happy to support the infrastructure that can help the development and growth of this new paradigm represented by Memecoins.
BeWater: I don't believe there is a so-called "Memecoin Super Cycle Theory". The current good performance of Memecoins has two most important factors: one is that market liquidity is still limited and cannot support the scale of targets with too large a market cap, and the scale of targets that can form a wealth effect has been constantly collapsing, collapsing to the scale of "Meme" targets with market caps of hundreds of millions to thousands of millions. The other is that the poor performance of VC coins and the unfair token distribution rules have forced users to choose Meme.
But this does not mean that Memecoins have already dominated the market. On the one hand, according to Newton Einstein's research on Pump.fun, as of August 10, Pump.fun had launched about 1.7 million tokens, but only 15 tokens were able to maintain a market cap of over $10 million for multiple weeks (0.001%), so in a sense the success of Meme is a survivor effect, and most Memecoins are doing more harm to users and the market under the guise of Memecoins. Secondly, if the so-called "Memecoin Super Cycle" exists, Memecoins should occupy more than 20% of the market cap ranking, like the public chains and DeFi in the past, but we have not seen this.
NingNing: Personally, I divide Memecoins into on-chain memes and exchange-listed Memes according to their different life cycle stages. The current outbreak is the on-chain memes. On-chain memes are low-probability, high-payoff, high-frequency alternative assets, essentially a new form of lottery. In the current environment of stock competition, they have fertile soil. Memecoins have already become major consumers of L1&L2 blockchain space, with systemic importance to the entire Web3 ecosystem. But their negative externalities are also very obvious, leading to a shortened user life cycle and rapid exit from the market. In the end, I hope Memecoins can generate more positive externalities to offset this, such as engaging in charitable donations, or playing the role of a social hot spot prediction market and becoming a new design space for DApps.
BTC_Chopsticks: The super cycle of Memecoins has once again become a focus of attention, especially with the recent performance of tokens like PEPE and Shiba Inu (SHIB). While these tokens have shown extremely high short-term growth potential, their volatility is also extremely high, with high risk. The popularity of Memecoins is usually driven by community sentiment and market sentiment, so participants need to closely monitor social media and community dynamics.
JiaYi: Crypto is already a huge Meme market, isn't it?
The uncertainty of the rapid rotation of narratives is one of the most sexy points of Web3, and Memecoin, as a category with the most Crypto Native attributes, may explode at any given time, which is simply the best carrier for a social movement of cryptocurrency wealth redistribution, just make money.
DetectiveTON: First of all, I don't understand Meme very well and haven't participated in many Meme's primary markets. To put it bluntly, the re-explosion of Memecoin reflects the market's pursuit of high-risk, high-return assets. If the extent of the rate cut exceeds expectations, and liquidity spills out of major asset classes, the next cycle of Meme still has an objective supporting basis.
3. Many people believe that this round of rate cuts and the massive liquidity injection during the COVID-19 pandemic will drive a big explosion in the cryptocurrency market. In your opinion, what are the differences between this round of rate cuts and the previous one?
IOSG Ventures: The market's interpretation of this round of rate cuts is not as straightforward as during the pandemic, but overall, whether for dollar liquidity assets, it has solved some of the liquidity tightening problems caused by previous balance sheet reductions, and has also brought about a wave of market performance since September. However, the sustainability of this round of rate cuts is at risk of reversal given the still decent economic data, and the rate cuts are currently not due to economic recession, so the possibility of consecutive large-scale rate cuts is not high, and subsequent data needs to be monitored. The special economic situation of the previous round has limited reference value when taken alone, but overall, being in a rate cut cycle is a good thing for the market.
BeWater: This round of rate cuts and the rate cuts during the COVID-19 pandemic have significant differences. From the external perspective, the rate cuts during the COVID-19 pandemic were due to external shocks, so the unpriced short-term shocks were very obvious, and the macroeconomic and geopolitical situation at the time was much better than now, especially the Chinese market was still in the late stage of prosperity, while now not only the global macroeconomic situation is more uncertain, but also superimposed with the Russia-Ukraine conflict, the Israel-Palestine conflict and other risk factors, the external environment will be much worse than the COVID-19. From the internal perspective, liquidity is only one of the factors for the crypto market to explode, the low ebb of primary market financing, the significant increase in the adoption rate of mainstream institutions, the complete liquidation of all leverage on 312, and the large-scale native innovation in the DeFi track all helped the crypto market to explode, while now relying solely on the rate cut cycle is not enough to support the new bull market logic.
NingNing: This round of rate cuts and the previous one have two differences: 1. The rate cut date is delayed by 1 year compared to the previous round; 2. The inversion of long and short-term interest rates has set a historical record. There is no large-scale liquidity injection now, just a turning point in global liquidity. The crypto market's big explosion will need to wait for time, and wait for the emergence of industry paradigm revolutions similar to the DeFi Summer.
BTC_Chopsticks: This round of rate cuts is different from the liquidity injection during the pandemic. The liquidity injection during the pandemic led to the rise of the crypto market, such as Bitcoin, from $7,000 to $28,000 (in 2020), while this round of rate cuts has also brought about a market rebound, but the main driving force comes from the increase in liquidity, rather than a new round of large-scale capital injection. In the current economic environment, although liquidity has increased, the market still faces inflationary pressure and global economic uncertainty.
JiaYi: The last time was an emergency fire-fighting, this time it's more like preventive maintenance, the economic data still looks good, and the possibility of a soft landing is greater.
DetectiveTON: This round of rate cuts has some obvious differences from the massive easing policies during the COVID-19 pandemic:
- Different policy backgrounds: The rate cuts during the pandemic were accompanied by unprecedented quantitative easing, aimed at addressing the global economic crisis during the COVID period. The current rate cuts may be more about adjusting to inflationary pressures and slowing economic growth expectations, with different policy strength and direction.
- Differences in market expectations: The last rate cut exceeded market expectations and triggered a large influx of capital into risky assets. This round of rate cuts is fully within expectations, and the stimulative effect on the market may be relatively limited.
- Changes in liquidity environment: The liquidity injection during the pandemic led to extremely loose global liquidity, while currently central banks are more cautious in monetary policy, with a dominant focus on "stability".
Therefore, this round of rate cuts may not have as significant an impact on the crypto market as the last one.
4. What crypto sub-sector are you most optimistic about after the rate cut? What impact will the rate cut have on DeFi and RWA?
IOSG Ventures: If more liquidity can be injected into the on-chain market, some quality infra assets (yes, the VC coin track) that are clearly priced below the industry's expectations, AI and DePIN projects with excellent fundamentals and growth potential, as well as some ecosystems that are poised to take off, such as Base and ZKsync, are all worth paying attention to. The rate cut itself will bring more capital attention to the Ethereum and staking ecosystem with yield-bearing properties, with assets like Etherfi and Eigen being good targets. For RWA, the current largest private credit market, due to the decline in financing costs and the increased demand for high-yield products, the supply and demand may both increase, leading to a further expansion of the RWA market scale.
BeWater: The rate cut has limited impact on DeFi, as the risk premium and arbitrage threshold exist, the "near-risk-free rate" on-chain and the money market are not closely related, and the rate cut has more of an overall impact on the industry. Some RWA projects may be impacted, but very limited, for example, SKY (MakerDAO) has about 40% of its collateral used for RWA arbitrage, and based on a 4% basic APY dropping to 2%, the overall revenue of the SKY protocol will decrease by about 20%, the impact is relatively controllable; for some stablecoins, there may also be an impact, such as affecting the spot-futures spread in the longer term, thereby affecting Ethena, and affecting the opportunity cost of capital, thereby affecting the supply of USDC/USDT, but overall these impacts are limited.
The most optimistic is PayFi. One very conscious thing is that if a project or a track is hoping for "sufficient buying power from the bull market" or "sufficient liquidity from rate cuts", then it is very likely that its business itself is unsustainable or worthless, while PayFi is a track that focuses on real market and real demand.
NingNing: Rate cuts will have a certain negative impact on RWA and DeFi projects whose main business is the tokenization of US Treasuries. But since the Fed currently defines the rate cut as a preventive rate cut, the rate cut will be relatively mild, so the negative impact will not be particularly severe.
Rate cuts will increase the overall market liquidity and the risk appetite of market participants, which is beneficial to the industry, but the impact on sub-sectors is limited.
BTC_Chopsticks: In the rate cut cycle, DeFi (Decentralized Finance) and RWA (Real World Assets) are the most worth watching tracks. According to the analysis report, protocols like Aave and Uniswap will benefit from the rate cuts, especially the stablecoin lending market of DeFi platforms, with annualized yields stabilizing at 3.7%-3.9%. At the same time, RWA brings traditional financial assets on-chain, providing investors with higher transparency and liquidity.
JiaYi: The most optimistic must be the DeAI track, Web3 as a new form of production relations, is naturally suitable for AI representing the new productive forces, which is also the simultaneous progress of technology and production relations capabilities. After the rate cut, the increased liquidity in the traditional financial market will naturally flow to this intersection of top narratives.
I also believe that people will gradually realize that DeAI, by adopting the "token economy + AI asset traceability and permission management" infrastructure of Web3, is not limited to Web3, but has broken the unequal distribution of resources and opportunities in the traditional AI field, allowing the key elements of AI such as computing power, models and data to no longer be monopolized by centralized giants, so that everyone has the opportunity to find their role in AI to benefit, which is equivalent to attracting the massive potential AI developers and incremental users in the traditional field into Web3&AI, and realizing the greater narrative possibilities of AI through Web3&AI.
DetectiveTON: Various Alt-coins may, perhaps, finally be able to "break out" of their current situation. Retail investors have had a hard time dealing with the various high FDV models over the past year, and they can consider reducing their positions at higher prices. Less loss is a win.
5. How do you view the Fed's future policy and the trend of the crypto market?
IOSG Ventures: In the short term, we can look at the data from Polymarket, which generally believes that the rate cuts in November and December will continue at a pace of 25bp. But the improving unemployment data actually shows some contradictions, which may be reflected in the subsequent rate cut decisions and cause some market volatility. In the long run, we need to answer the question of the overall economic situation to judge the trend of risk assets, including the crypto assets.
BeWater: Although there is a lot of uncertainty and variability in the Fed's policy on the magnitude and pace of rate cuts, the overall path of rate cuts is relatively clear, with a gradual pace of rate cuts over a relatively long time period until the policy goals are achieved. In addition to monetary policy, the crypto market also has more of its own problems to solve, so I tend to think that the crypto market trend will gradually decouple from the Fed's policy.
NingNing: BTC determines the crypto market, but the Fed does not determine BTC. Long-term data backtesting shows that BTC has a low correlation with the US stock market. As the BlackRock report said, BTC has special value due to its low correlation with other major asset classes. Looking back at historical data, BTC's super bull runs have typically required the US economy to enter an overheating cycle and copper futures to rise.
BTC_Chopsticks: The Fed's future policy may continue to be cautious, and rate cuts may boost the crypto market in the short term, especially for higher-risk assets like BTC and ETH, but the market may experience high volatility. In the long run, the crypto market will still be affected by the global economic environment and market sentiment, so investors need to be cautious.
JiaYi: All I can say is that rate cuts usually increase market liquidity, which is a positive signal for the crypto market, but the market's expectations for rate cuts may already be reflected in the current prices, so the actual rate cut decision may have limited short-term impact on the market.
DetectiveTON: The liquidity released by the rate cuts may not have yet spread to the on-chain. But even setting aside factors like Fed rate cuts and the US election, we can still expect BTC to perform relatively well in the fourth quarter.
1) From historical data, October is usually a good performing month for the crypto market, with European and American users nicknaming it "Uptober".
2) The Fed's rate cut effect has not yet materialized
The Federal Reserve's rate cut path opened last month, and it is more likely to bring more capital inflows to the crypto market. JPMorgan analysts pointed out that the potential impact of the Fed's rate cuts has not yet been shown, and the overall market capitalization of the crypto market is still relatively weakly correlated with the US federal benchmark interest rate, at 0.46.
3) In mid-September, the SEC approved BlackRock's listing and trading of a BTC spot ETF on Nasdaq, and through options trading, investors can now participate in the ETF in a more flexible way, indirectly increasing the liquidity of BTC.
As for the pace of future rate cuts, I personally think it is still related to the US non-farm unemployment rate. Currently, the non-farm unemployment rate is to some extent deeply coupled with inflation, geopolitics and other factors (such as the recent conflicts in the Middle East causing volatility in logistics and some commodity prices, indirectly affecting US inflation and the hiring pace of US companies). I would suggest not betting on the magnitude of the Fed's rate cuts.
6. The A-share market has recently seen a big rally, have you participated or plan to participate? Which are you more optimistic about for the next year, crypto or A-shares?
IOSG Ventures: I don't have any plans to participate for now, but I will continue to pay attention, because the A-share market is a market that can have observable capital impacts on the crypto market. The A-share market is indeed a good choice for capital at the moment, but for crypto, we can also see that there are structural opportunities, and these opportunities are actually very human-made. In the coming year, I will continue to focus my attention on the primary market, looking for and supporting things that improve the fundamentals of crypto.
BeWater: I'm more optimistic about A-shares in the short term (within 6 months), and more optimistic about crypto in the medium to long term (over 6 months). The A-share market has already seen a relatively deep correction, with clear policies and sentiment support, and I expect this round of correction (3300) will not be the midpoint of the market, while the crypto market still has many issues, such as the backlog of VC coins, and some not-so-good signals in the meme track, so there is still a certain possibility of market clearing in the short term, but in the longer term, the favorable factors of the crypto market will gradually manifest and affect the price.
NingNing: I won't participate. Let's not forget our decentralized roots, and uphold the arena of the young. Crypto will easily outperform A-shares in the coming year.
BTC_Chopsticks: A-shares and crypto both have their advantages, but the high-risk, high-return nature of crypto is more suitable for investors willing to bear the volatility. Especially as rate cuts drive increased liquidity, investors may be more inclined towards crypto assets like BTC, while A-shares are more suitable for investors with lower risk appetites.
JiaYi: If I were to withdraw from the circle, I would definitely play the A-share market, because that's where my knowledge and position are.
DetectiveTON: Definitely not. The purpose of the rally is to distribute the chips, it's an opportunity for you to sell out, not to leverage up. So it's still better to play Crypto, at least it's transparent on-chain.
