The future trend of the crypto market from the perspective of the global macroeconomy

Introduction: In the long run, many countries will actively get rid of the existing financial system that they are overly dependent on, and some of them will adopt trusted neutral technology, and some will work to create alternative systems. But the whole process will take several years. During this time, the role played by encryption will play a major role.

1: What is the relationship between the crypto industry and the macroeconomy?

The last few months have been a trough for the crypto market, and some technical people at companies that own tech stocks and cryptocurrencies have almost gone bankrupt because of the market in the last few months. There have been a lot of different issues in the last three months, and some investors have believed that the crypto industry has entered a period of stagflation or something. But now it is becoming increasingly clear that the way stocks have rebounded from their lows, even if interest rates are raised, they cannot solve inflation, and a lot of this has to do with the structure of our economy. You may have seen a sell-off in bonds, probably because long-term interest rates have risen. People have also been very pessimistic about tech stocks, but there has not been a sell-off like bonds. Because technology is about future value, which is inherently long-term. If you discount it now, then obviously the future value will be reduced. The value of bonds and cash is being lost, and investors realize that they have to capture the growth of wealth and cannot rely on fiat currency or bonds, etc.

We have seen that bonds that should be safe are no longer safe in a negative interest rate environment, and they have even fallen more than stocks. For some other stocks, you need to know more to ensure their value. In the long run, people hold a certain proportion of crypto assets, and this proportion will continue to increase as investors become more and more familiar with the crypto industry.

2: Does the final outcome in the crypto industry depend entirely on macro factors?

We have entered a crypto-league phase. People are thinking about what to invest in and what will hurt their portfolios. According to the characteristics of deflation, it will not have a particularly big impact on the crypto market itself. Because it is still very early in the deflation, these forces are not enough to affect the TVL of crypto assets.

Beyond these macro factors, what we’ve seen over the past few weeks with Russia and Ukraine is that no matter what people have said about cryptocurrencies before, whether it’s frivolous, speculative, subversive, or dangerous, absolutely no one is saying it’s frivolous or speculative. People are only arguing about how subversive it is, or the benefits it creates.

This can be interpreted from two completely different perspectives. One is that cryptocurrencies are definitely beneficial because Ukraine uses them to make funds liquid, they can receive donations and convert them into materials. Russians can also flee with crypto assets that are not physically affected. So the benefits of cryptocurrencies make sense here.

Second, we are in an unprecedented era, an era where ordinary people have their own opinions on what is happening in the world right now, whether it should or should not happen. This is actually a strange phenomenon. Some discussions are obviously unnecessary, such as whether something should happen or not. People waste a lot of time on this. I think the more interesting question is what will happen next and what the next reaction will be.

From this perspective, the adoption of cryptocurrencies is a natural outcome. Both Ukraine and Russia are currently working on cryptocurrencies, whether it is mining in Russia or Bitcoin energy payments, or Ukraine issuing NFTs. In addition, the development of cryptocurrencies in the Middle East is also very interesting. They also expressed the desire to establish another parallel financial system, including Western governments.

The idea of ​​a credible neutral system is popular because we believe that in a multi-level world order, a country cannot sanction an individual, and people in this world are more willing to contribute because they cannot recognize a world order.

3: The West has frozen a number of Russian assets for sanctions. Will this intensify discussions against cryptocurrencies?

Cryptocurrency can be used as a means of sanctions, and it is often assumed that if something is useful to people, it can be useful to criminals. Criminals are also human beings, using the same phones, computers, and internet as we do, so there is no technology that is only suitable for non-criminal people. Technologies such as cryptocurrency are in their infancy, and it is a fluid topic as many countries have not yet developed regulatory rules. They may want to restrict cryptocurrency very much because of sanctions, or should we give cryptocurrency some space like we do with everything else on the Internet.

These are very difficult questions. But social groups will give different answers based on these questions, and these answers may also depend on their priorities. For example, Indians are skeptical about US sanctions because of their close oil and other transactions with Russia.

In the short term, the war in Ukraine may end with the victory of the West and Ukraine reaching a friendly agreement with Russia. But in the long term, many countries will actively get rid of their over-reliance on the existing financial system, and some of them will adopt trusted neutral technology, and some will work to create alternative systems. But the whole process will take years. So the role of encryption will play a major role in it.

On the one hand you're going to see the West continue to adopt cryptocurrencies as an expression of liberal values ​​and as an expression of free speech and monetary freedom. On the other hand you're going to see governments continue to adopt cryptocurrencies. For some non-Western forward-looking players, cryptocurrencies are a reliable neutral currency, a reliable neutral platform that can be used to trade. Cryptocurrencies will essentially become everything.

Cryptocurrency, and more broadly, peer-to-peer encryption, is a huge political force. This means that we cannot reason about it from the perspective of whether it should be banned, because it cannot be banned. It's like the aristocracy at the time couldn't believe the possibility of change, and change did happen because of the huge political power of technology. This also changed the nature of capital accordingly. The opposite is peer-to-peer encryption on the Internet. In the 90s, cryptographers invented peer-to-peer encryption technology, and the US military regarded it as a weapon-grade technology, indicating that it should be banned. But cryptographers said it was just code, text. In the end, it was indeed so.

One of the predictions that the sovereign individual makes is that as we move into the information society, the work that people do will be primarily on the internet, digitally. When that happens, the places where they live will have lower and lower incomes, and their monopoly on violence will become weaker and weaker. It's not that they don't have a monopoly on violence, but they can extract less and less from their monopoly. In summary, the sovereign individual predicts that as people move into the digital world, the places where they live will require less and less of their productivity. Of course, this will also break down the control that local governments have over their residents, which is a blow to large governments, and good for those that have different management models and don't rely on this.

4: Can the macro-economy open up a new landscape for the crypto market?

According to a new report published by CryptoCompare, the cryptocurrency market data provider said that continued inflation, tighter monetary policy, or a reversal to lower inflation leading central banks to keep interest rates low are all possible scenarios that could have an impact on the cryptocurrency market.

The report details CryptoCompare’s macroeconomic scenario: Inflation will continue , making it likely that cryptocurrencies will outperform other asset classes. This is likely to happen “as Bitcoin assumes its position as an anti-inflation store of value,” the report states.

Looking back at 2021, the crypto market has made rapid progress driven by macroeconomic factors: Bitcoin and Ethereum have set all-time highs together, and the total market value of the crypto market has approached the US$3 trillion mark (the highest value is US$2.9753 trillion).

As the core components of the Metaverse concept, GameFi and NFT have successively become popular sectors leading the industry, widely favored by capital and attracting a large number of leading technology companies to invest. As the industry's infrastructure and the underlying network that carries the Metaverse and Web3.0, the public chain has made exciting progress in the past year. The launch of ETH2.0 and the emergence of the Layer2 sector are also worth looking forward to.

In 2022, the market trend is as follows: Bitcoin first continued the downward trend that began in November last year, falling all the way to around $33,000, a new low in the second half of the year, and then turned from weak to strong in late January and re-reached the $40,000 mark. The market sentiment that had previously fallen into extreme panic has been greatly relieved.

Globalization has built tracks for the free movement of people, as well as the free movement of labor and capital. How this generation uses this freedom to shape their lives is a very open question. Because now it is not just software developers and information workers who enjoy freedom, anyone can participate in the Internet. According to a survey in the 1990s, people no longer want to work in the place where they were born, and now it is even more true for people in certain countries. Therefore, globalization is very good for the crypto industry. It abstracts the idea that you have to save your own country's legal currency, and at the same time pushes you to allocate assets, such as Bitcoin, with a group of like-minded people.