"Creators Say" is a dialogue column launched by Foresight News. We will ask outstanding creators selected every month about hot market topics and organize the collected results into articles to gather opinions and discover more in-depth thinking.
Written by: Foresight News Outstanding Content Creators and Special Guests of September 2024
Organized by: Foresight News
On September 19, the Federal Reserve started an easing cycle by cutting interest rates by 50 basis points. This was the first interest rate cut by the Federal Reserve in four years. U.S. stocks and Bitcoin rose upon hearing the news, and the market of various crypto sectors also ushered in a long-awaited rebound. Under the stimulation of macroeconomic policies, can the crypto market end the "long" period of volatility and rise again?
The theme of this issue of "Creators Say" is "The Fed cuts interest rates, will the crypto bull market restart?" We have invited IOSG Ventures, BeWater, NingNing, BTC_Chopsticks, JiaYi and DetectiveTON, who were on the Foresight News Outstanding Creators List in September 2024, to join the discussion in this issue.
Regarding the topic of "Fed's rate cut", we raised six questions: "What is the best investment strategy at present?", "What do you think of the 'Memecoin super cycle' theory?", "What is the difference between this round of rate cuts and the last one?", "Which crypto market segment do you think will be the most promising after the rate cuts?", "What do you think of subsequent policies and crypto market trends?", and "Who is more optimistic about cryptocurrencies or A-shares in the coming year?" The following are the answers we collected:
1. The Federal Reserve has entered a cycle of interest rate cuts, and the crypto market has seen a long-awaited 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 is no catalyst before the election. The overall market may have a clear direction after the interest rate cut in November and the election. Beta assets mainly depend on the election; there is no obvious improvement in the liquidity of the altcoin market, and the structural problems of the altcoins have not been solved; the core promoters of Memecoin are also facing some problems. Compared with the previous high-quality opportunities, there may be fewer breakthroughs, and subsequent economic data and elections are needed.
BeWater: The best investment strategy at present is the "barbell strategy". One thing that needs to be made clear is that liquidity transmission is a process, and the funds brought by the interest rate cut will not enter the crypto market on a large scale at the first time. On the one hand, compared with the traditional financial market, the scale of the crypto market is still relatively small, the capital capacity is limited, and it is more risky. The interest rate cut needs time to play a role, and after it plays a role, it will spill over into the larger market, and finally leave the crypto market.
In this case, if BTC cannot achieve a breakthrough, Alts will be even less optimistic. Therefore, despite the continued rise of BTC.D, the BTC-based strategy still has configuration significance. On this basis, investing small-scale funds in some hot tracks (such as Meme) is a better combination.
NingNing: My strategy in the past two years is to borrow Dalio's all-weather investment strategy, holding assets with specific performance in different cycles in a balanced manner, and rebalancing at the right time. At present, I hold four major types of assets: stablecoins, BTC, blue-chip tokens, and growth tokens. Recently, I have increased my position in the chain abstract sector.
BTC_Chopsticks: The increased market liquidity brought about by the interest rate cut has made investors tend to riskier assets, especially cryptocurrencies. Currently, Bitcoin (BTC) and Ethereum (ETH) are showing a large inflow of funds, especially after the recent interest rate cut, with the inflow of funds into Bitcoin products reaching as high as $284 million. In order to cope with market volatility, the best strategy should be:
Diversified investments: Mainstream cryptocurrencies such as Bitcoin and Ethereum are still good choices.
Risk control: Allocate part of the funds to stablecoins (such as USDC, USDT) to cope with market fluctuations.
JiaYi: Hold on to your chips.
The long-term interest rate cut process will gradually bring liquidity back to the risky market. The best investment strategy should be to remain rational and calm and avoid over-selling valuable assets.
For me, as the founder of Geekcartel, I will pay special attention to primary investment opportunities. I must be bold in grabbing chips and investing in potential targets in the primary market.
DetectiveTON: You can start looking at various Alt-coin opportunities, such as TON. As a responsible self-media, I will not make any calls here.
2. Memecoin is on the verge of exploding again. What do you think of the "Memecoin super cycle" theory?
IOSG Ventures: Memecoin is a very interesting asset form that has appeared a long time ago. It has also ushered in an explosion today when the infrastructure is mature and the roles of participants in each link of the market are clearly divided. Compared with copycats, its advantages are low startup costs, fast iteration speed, and strong dissemination capabilities, but due to these characteristics, it always has the bad habit of coming to the fore. Objectively speaking, the narrative dominated by Memecoin makes it difficult for the industry to break through in the long run, so we regard it as a wave of innovation similar to NFT Summer. Memecoin will bring us new asset paradigms, social models, and on-chain gameplay. For primary funds, we are also happy to support infrastructure that can help the new paradigm of Memecoin grow and develop.
BeWater: I don’t think there is a so-called “Memecoin super cycle theory”. There are two most important factors for the current good performance of Memecoin. First, the market liquidity is still limited and is not enough to support targets with too large a market value. The scale of targets that can form a wealth effect has been shrinking, shrinking to targets such as “Meme” with a market value of several million to tens of millions. On the other hand, the poor performance of VC coins and unfair chip rules forced users to choose Meme.
But this does not mean that Memecoin has achieved market dominance. On the one hand, 3) According to Newton Einstein's research on Pump.fun, as of August 10, Pump.fun has launched a total of about 1.7 million tokens, and only 15 tokens can maintain a market value of more than 10 million US dollars for many weeks (0.001%), so in a sense, Meme's success is a survivor effect. Most Memecoins are under the guise of Memecoin, but in fact they are doing more harm to users and the market. Second, if the so-called "Memecoin super cycle" exists, then Memecoin should occupy more than 20% of the market value ranking, just like the previous public chain and DeFi, but we don't see this.
NingNing: I personally divide Memecoin into on-chain Memes and exchange-listed Memes according to different stages of its life cycle. What is exploding at this stage is on-chain Memes. On-chain Memes are alternative assets with low winning rates, high odds, and high frequencies. They are essentially a new type of lottery. In the current market environment of stock game, there is fertile soil. Memecoin has now become a major consumer of L1&L2 block space and is of systemic importance to the entire Web3 ecosystem. But its negative externalities are also obvious, which will shorten the user life cycle and quickly exit the market. In short, I hope that Memecoin can neutralize more positive externalities, such as making charitable donations, or play the role of social hot spot prediction market to become a new design space for DApp.
BTC_Chopsticks: The memecoin supercycle has once again become the focus of attention, especially in recent tokens such as PEPE and Shiba Inu (SHIB). Although these currencies show extremely high short-term growth potential, they are extremely volatile and have higher risks. The popularity of memecoin is often driven by the community and market sentiment, so participants need to pay close attention to social media and community dynamics.
JiaYi: Crypto is originally a huge meme market, isn’t it?
The uncertainty of the rapid rotation of narratives is itself one of the sexiest points of Web3. Memecoin, as the most Crypto Native type, may explode at any given time. To put it bluntly, it is the best carrier of a social movement for crypto wealth redistribution. All it takes is making money.
DetectiveTON: First of all, I don’t know much about Meme, and I haven’t participated in many Meme-level activities. The most intuitive thing is that the resurgence of Memecoin reflects the market’s pursuit of high-risk, high-return assets. If the interest rate cut exceeds expectations and liquidity overflows from major asset classes, the next cycle of Meme still has an objective support basis.
3. Many people believe that this round of interest rate cuts, like the massive money injection during the COVID-19 pandemic, will drive a major explosion in the crypto market. What do you think is the difference between this round of interest rate cuts and the last one?
IOSG Ventures: The market's interpretation of this round of interest rate cuts is not as straightforward as during the epidemic, but overall, for US dollar liquid assets, it has solved some of the liquidity tightening problems caused by the previous balance sheet reduction, and has also brought about a wave of market conditions since September. However, the sustainability of this round of interest rate cuts has the risk of turning around when the current economic data is still good. The interest rate cuts are not currently due to an economic recession, so the possibility of continuous and substantial interest rate cuts is not high, and we need to pay attention to subsequent data. The special economic situation in the last round is not that meaningful as a reference alone, but overall, being in a rate cut cycle is a good thing for the market.
BeWater: There are significant differences between this round of interest rate cuts and those during the COVID-19 pandemic. From an external perspective, the interest rate cut caused by the COVID-19 epidemic stems from external shocks, so the short-term impact of not being priced in is very obvious. Moreover, the macroeconomic and geopolitical conditions at that time were much better than they are now, especially as the Chinese market is still at the end of its boom period, and currently Not only is the global macro-economy more uncertain, there are also risk factors such as the Russia-Ukraine conflict and the Palestine-Israel conflict. The external environment will be much worse than the new coronavirus. From an internal perspective, waterproofing is only one of the factors behind the explosion of the crypto market. The downturn in primary market financing in 2019-2020, the substantial increase in the adoption rate of mainstream institutions, 312’s complete liquidation of all leverage, and large-scale native innovation in the DeFi track All have helped the crypto market explode, but now relying solely on the interest rate cut cycle is not enough to support the new bull market logic.
NingNing: There are two differences between this round of interest rate cuts and the last one: 1. The interest rate cut date is delayed by one year compared to the last round; 2. The time of the inversion between long-term and short-term interest rates is a record high. There is no large-scale money release now, it is just a turning point in global liquidity. The big explosion of the crypto market still needs to wait for time, and we need to wait for the emergence of an industry paradigm revolution like DeFi Summer.
BTC_Chopsticks: This round of interest rate cuts is somewhat different from the money release during the epidemic. The money release during the epidemic caused the crypto market, such as Bitcoin, to rise from $7,000 to $28,000 (2020). Although this round of interest rate cuts also brought about a market rebound, the main driving force came from increased liquidity rather than a new round of large-scale capital injection. In the current economic environment, although capital liquidity has increased, the market is still facing inflationary pressure and uncertainty in the global economy.
JiaYi: Last time it was an emergency firefighting, this time it is more like preventive maintenance. The economic data looks okay, and a soft landing is more likely.
DetectiveTON: There are some obvious differences between this round of rate cuts and the large-scale easing policies during the COVID-19 pandemic:
Different policy background: The interest rate cuts during the epidemic were accompanied by unprecedented quantitative easing, aimed at responding to the global economic crisis during the COVID period. The current interest rate cuts may be more of an adjustment to expectations of inflationary pressure and economic growth slowdown, with different policy strengths and directions.
Difference in market expectations: The last rate cut exceeded market expectations, triggering a large influx of funds into risky assets. This round of rate cuts is completely within expectations, and the stimulus effect on the market may be relatively limited.
Changes in the liquidity environment: The monetary easing during the epidemic has led to extremely loose global liquidity, and central banks around the world are currently more cautious in their monetary policies, with a mainstream mentality of seeking "stability".
Therefore, the impact of this round of interest rate cuts on the crypto market may not be as significant as the last one.
4. What is the most promising crypto market segment after the interest rate cut? What impact will the interest rate cut have on DeFi and RWA?
IOSG Ventures: If more liquidity can be injected into the market, then some high-quality infra assets (yes, VC coin track) whose prices are significantly lower than the expectations of industry promoters, AI and DePIN projects with excellent fundamentals and growth potential, and some ecosystems ready to go, such as Base, ZKsync, etc., are all very worthy of attention. The interest rate cut itself will bring more capital attention to Ethereum and the staking ecosystem with interest-bearing properties, among which assets such as Etherfi and Eigen are all good targets. For RWA, the largest private credit market at present, due to the decline in financing costs and the increase in demand for high-yield products, it is also likely to drive the dual growth of supply and demand, bringing about further expansion of the market size of RWA.
BeWater: The impact of interest rate cuts on DeFi is limited. Due to the existence of risk premiums and arbitrage thresholds, the "approximate risk-free interest rate" on the chain is not closely related to the money market. The interest rate cut has more of an overall impact on the industry. Some RWA projects may be impacted, but it is very limited. For example, about 40% of SKY (MakerDAO)'s collateral is used for RWA arbitrage. According to the calculation of the 4% basic APY reduced to 2%, SKY's overall protocol revenue will be reduced by about 20%, and the impact is relatively controllable; it may also have an impact on some stablecoins, such as affecting the spread of futures and spot contracts in a longer period of time, thereby affecting Ethena, affecting the opportunity cost of funds and thus affecting the supply of USDC/USDT, but overall these impacts are limited.
The most promising one is PayFi. One thing that is very conscious is that if a project or a track hopes for "sufficient buying brought by the bull market" or "sufficient liquidity brought by interest rate cuts", then it is very likely that its business itself is not established or worthless, and PayFi is a track that focuses on the real market and real needs.
NingNing: The interest rate cut will have a certain negative impact on RWA and DeFi projects whose main business is the tokenization of US debt. However, since the Federal Reserve currently defines the interest rate cut as a preventive rate cut, the rate cut will be relatively mild, so the negative impact will not be particularly severe.
The interest rate cut will improve the overall liquidity of the market and the risk appetite of market participants, which is beneficial to the industry, but will have limited impact on the sub-sectors.
BTC_Chopsticks: In the interest rate cut cycle, DeFi (decentralized finance) and RWA (real asset on-chain) are the most noteworthy tracks. According to analysis reports, protocols such as Aave and Uniswap will benefit from the interest rate cut, especially the stablecoin lending market of DeFi platforms, whose annualized yield is stable at 3.7%-3.9%. At the same time, RWA provides investors with higher transparency and liquidity by putting traditional financial assets on the chain.
JiaYi: The most promising track must be DeAI. As a new type of production relationship, Web3 is naturally adapted to AI, which represents new productivity. This is also a simultaneous advancement of technology and production relationship capabilities. After the interest rate cut, the liquidity of the traditional financial market will increase, and it will naturally flow to the intersection of this top narrative.
I also believe that everyone 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 breaks the unequal distribution of resources and opportunities in the traditional AI field, so that key AI elements including computing power, models and data are no longer monopolized by centralized giants, so that everyone has the opportunity to find their own role in AI to benefit. This is equivalent to attracting a large number of potential AI developers and incremental users in the traditional field, and relying on Web3&AI to realize greater narrative possibilities of AI.
DetectiveTON: All Alt-coins may finally, probably, have reached the moment of “unwinding”. Retail investors who have been troubled by various high FDV models in the past year can consider reducing their positions when the market is high. Less loss is better than more gain.
5. What do you think about the subsequent Federal Reserve policies and crypto market trends?
IOSG Ventures: In the short term, we can look at the data from Polymarket. The market generally believes that the rate cuts will continue at a pace of 25bp in November and December. However, the unemployment rate and other data are actually improving. Such contradictions may be reflected in the subsequent rate cut decisions, causing some shocks to the market. In the long term, it is more necessary to answer the question of what the economic situation is to judge the trend of risky assets including crypto assets.
BeWater: Although there are great differences and variables in the Fed's policy on the extent and pace of interest rate cuts, the path of interest rate cuts is relatively clear in general, and interest rates will be cut slowly over a long period of time until the policy goals are achieved. In addition, in addition to monetary policy, the crypto market has more problems of its own to solve, so I am more inclined to believe that the trend of the crypto market will gradually decouple from the Fed's policies.
NingNing: BTC determines the crypto market, but the Fed does not determine BTC. Long-term data backtesting shows that the correlation between BTC and US stocks is not high. As the BlackRock report said, BTC has special value due to its de-correlation with other major asset classes. Looking back at previous historical data, BTC's super bull market needs to wait until the US economy enters an overheating cycle and copper futures go bullish.
BTC_Chopsticks: The Fed's future policies may continue to be cautious, and interest rate cuts may push up the crypto market in the short term, especially riskier assets such as Bitcoin and Ethereum, 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 remain cautious.
JiaYi: All I can say is that interest rate cuts usually increase market liquidity, which is a positive signal for the crypto market. However, the market's expectations for interest rate cuts may have been reflected in current prices, so the actual interest rate cut decision may have limited short-term impact on the market.
DetectiveTON: The liquidity released by the interest rate cut may not have spread to the chain yet. However, even if we put aside factors such as the Fed’s interest rate cut and the US election, we can still expect BTC to have a better performance in the fourth quarter.
1) According to historical data, October is usually a month with better performance in the cryptocurrency market. European and American users have nicknamed October "Uptober".
2) The effect of the Fed’s rate cut has not yet emerged
The interest rate cuts started by the US Federal Reserve last month are likely to bring more capital inflows to the cryptocurrency market. Analysts at JPMorgan Chase pointed out that the potential impact of the Fed's interest rate cuts has not yet been shown, and the correlation between the overall market value of the cryptocurrency market and the US federal benchmark interest rate is still weak, at 0.46.
3) In mid-September, the SEC approved BlackRock to list and trade options for the Bitcoin spot ETF on the Nasdaq. Through options trading, investors can now participate in the ETF in a more flexible way, thereby indirectly increasing the liquidity of BTC.
As for the pace of subsequent interest rate cuts, I personally think it is still related to the non-farm unemployment rate in the US market. The current non-farm unemployment rate is deeply coupled to inflation, geopolitics, etc. (For example, the recent conflict in the Middle East has led to price fluctuations in logistics and some bulk commodities, which indirectly affected US inflation and indirectly affected the recruitment rhythm of US companies). Personally, I suggest not to bet on the extent of the Fed's interest rate cut.
6. A-shares have seen a big rise recently. Are you involved or planning to participate? Are you more optimistic about cryptocurrencies or A-shares in the coming year?
IOSG Ventures: We have no plans to participate for the time being, but we will continue to pay attention, because the A-share market will have an observable impact on the crypto market. A-shares are indeed a good choice for funds at the moment, but for crypto, we can also think that there are structural opportunities at present, and in such opportunities, it is actually very man-made. In the coming year, we will continue to focus on finding and supporting things that improve the fundamentals of crypto in the primary market and do what we should do.
BeWater: In the short term, we are more optimistic about A-shares (within 6 months), and in the medium and long term (more than 6 months), we are more optimistic about cryptocurrencies. Currently, A-shares have already experienced a deep correction, with clear policies to be fulfilled and sentiment support. It is expected that this round of correction (3300) will not be the midpoint of the market. There are still many problems in the crypto market, such as the VC coin listing dam, irrational investment in the primary market in the past, and some not-so-good signals in the Meme track. There is still a certain possibility of market clearing in the short term, but in the longer term, the favorable factors in the crypto market will gradually be reflected and act on prices.
NingNing: I will not participate. Don’t forget our original intention of decentralization and stick to the dojo of our young people. In the next year, cryptocurrencies will easily outperform A-shares.
BTC_Chopsticks: Both A-shares and cryptocurrencies have their advantages, but the high-risk and high-return characteristics of cryptocurrencies are more suitable for investors who are willing to bear volatility. In particular, as interest rate cuts drive increased liquidity, investors may be more inclined to crypto assets such as Bitcoin, while A-shares are suitable for investors with lower risk appetite.
JiaYi: If I quit the circle, I will definitely invest in A-shares. I will stay where my reputation lies.
DetectiveTON: Definitely not. The purpose of raising the price is to distribute chips, which is to give you the opportunity to sell, not to increase your position and leverage. So it’s better to play Crypto, at least it is transparent on the chain.
