Article source: Words Beyond Words
At the current market stage, it seems that people are only focusing on the macroeconomic situation. Although the supply of stablecoins continues to grow according to on-chain data, the market sentiment appears more cautious due to the many existing uncertainties.
I remember in an article last month (March 26th), we discussed market uncertainties and opportunities from an investment perspective. Next, we will continue to discuss this topic from a macro perspective.
From a historical perspective:
Starting from 1971, President Nixon ended the Bretton Woods system, changing from massively exporting dollars to the world to withdrawing dollars from other countries, thus entering the era of floating exchange rates.
Subsequently, the United States began creating export opportunities for other countries (Japan, Germany, China, etc.) through trade deficits, largely because the US dollar had already become the dominant global currency.
This is why other countries are very afraid of trade deficits, while the United States is just the opposite, as the US only needs to continuously print money (dollars) and create export demand for other countries.
Here's a simple example: a Japanese merchant exports seafood to the US, and the US buys it with printed dollars. After earning dollars, Japan can continue to invest in US Treasury bonds and other assets, so the dollars return to the US government, which then continues to buy from other countries.
The result is that other countries only need to work hard, produce goods, and sell them to the US, while the US does not fear trade deficits at all, but this premise is definitely based on dollar transactions (dollar hegemony). If any country dares to trade privately outside the dollar or tries to establish an alternative settlement system, disrupting the US's good business, the result might be like Iraq.
It can be said that the US is the only country in human history that will not collapse due to deficits, and not only will it not collapse, but the US has become even stronger because dollar hegemony makes the whole world pay the bill. (The British Empire, Roman Empire, and Spanish Empire ultimately collapsed due to deficits)
In essence, what the US fears most now is losing the dollar's monopoly status. Anyone trying to change the existing dollar-dominated international payment system would be tantamount to killing the US (undermining its foundation).
However, with the development of history, the US has gradually felt a crisis in recent years because a certain Eastern power is trying to establish a new international payment system to replace the dollar. Although this is just a sign (not yet having an actual impact), from the US perspective, this is absolutely unacceptable, and the US must find a way to strangle this trend in its cradle.
So what will the US do?
In fact, we have seen some of the US actions in recent years, such as: economic warfare (like restrictions on Huawei and other Chinese companies in recent years), war threats (Taiwan issue, disrupting countries around China), etc.
They even want to completely Americanize and firmly control cryptocurrencies that might threaten the dollar (which has basically been achieved).
In short, any attempt to replace dollar hegemony will be seen by the US as the most hostile act, either strangling it in the cradle or directly co-opting it, even at the cost of losing eight hundred to kill a thousand. This is what the US truly wants. The current series of targeted actions, including current tariff policies, seem to be aimed at achieving this ultimate core purpose.
Without exaggeration, a new round of "war" between global countries has seemingly begun, especially direct competition between major powers. We can describe this war as a "dollar war," "digital war," or "new cold war." As for hot wars, they will only occur in specific countries or regions, and the probability of a large-scale global war like World War I or II seems low.
Of course, as a Chinese person, I naturally hope that we can ultimately win and that the renminbi replaces the dollar as the new global currency, but this path seems long and arduous. As ordinary people, we just need to take care of our own wallets now.
From Trump's perspective:
Logically, Trump's tariff policies have indeed affected global trade leverage and triggered a new round of economic slowdown (with some even shouting about an economic crisis), but we maintain our previous view: Trump probably only wants a controllable economic slowdown (as a bargaining chip) rather than causing a truly uncontrollable economic crisis.
For example, through tariff measures, global trade can be tightened, causing a certain degree of economic slowdown (artificially controllable), while also solving some government tax collection issues and protecting the US manufacturing industry. If Trump can use these artificial economic issues to promote a series of new monetary easing (forcing the Federal Reserve to cut rates is just an indirect consequence of tariff policies, not the only goal) and achieve some actual trade benefits (from the US government's perspective, such as partial manufacturing returning and addressing trade deficit issues), then the current crisis can be resolved while also accomplishing another important goal: government debt refinancing.
However, the main problem now is that Trump's appetite seems a bit large, belonging to the type who wants everything. It depends on how he continues to negotiate internally and externally and find a new balance point.
But crises often breed new opportunities. In the short term, risks seem to be everywhere. In the long term, as long as current risks can be eliminated or there are plans to address them in the future, they will transform into new opportunities.
From the Federal Reserve's perspective:
Because the Federal Reserve does not seem eager to cut rates yet, but wants to observe further or proceed with slow rate cuts.
Although Trump claims to understand rates better than Powell, Powell seems unwilling to give Trump face. Now there are two possibilities:
One is that Trump finds a way to make Powell leave quickly.
Two is that Trump uses other methods to force the Federal Reserve to cut rates (implement easing policies).
Based on past experience, the Federal Reserve's rate cuts (starting a new easing cycle) are mainly based on economic data, such as continuously rising unemployment, inflation stable below 3% (the Fed's long-term inflation target is 2%), economic slowdown, sustained severe financial market fluctuations...
According to the latest observed data, the Fed's first rate cut might (just a possibility) occur in June or July this year, as shown in the following image. Of course, some analysts believe that rate cuts might happen in September and December, which we may need to continue monitoring data changes to judge and speculate.
But regardless of when the rate cut occurs, we can say that the Federal Reserve's rate cut will definitely happen; it's just a matter of timing now.
However, we also need to remind you that it is not simply assumed that the market will continue to rise just because the Federal Reserve cuts interest rates. The relationship between interest rate cuts and market growth is not as straightforward as we might imagine. For example, once the market clearly anticipates interest rate cuts, there is a high probability of a market rally even before the cuts are officially implemented. Additionally, when interest rate cuts are formally introduced, although the policy is easing, the market may still experience a new round of decline or a rise followed by a pullback in the early stages of the cuts.
In short, interest rate cuts are definitely beneficial to the market, but do not directly equate interest rate cuts with price increases, as the market is always dynamic and volatile.
From a trader's perspective:
Currently, the two most critical dominoes that seem to be able to turn the market around are Trump's policies (mainly focused on the US-China tariff war) and the Federal Reserve's interest rate cuts.
Once Trump's tariff policy's impact basically ends (a complete reversal seems almost impossible, but Trump might adjust and implement relaxation measures for some goods or areas), and the Federal Reserve simultaneously begins to take some positive actions, then, theoretically, an improvement in the situation + low US dollar interest rates would encourage more liquidity to return to the market (not just the US stock market, but also the crypto market), and we would likely usher in a new phase of market opportunities.
If we stand from a future result-oriented perspective and look back at the current or upcoming market, we might discover that we are currently facing various relatively cheap assets, and it depends on whether you can continue to pick up treasures.
Of course, "cheap" here is relative, and cheap does not necessarily mean low-priced. If you still want to precisely buy at the lowest price, it will depend entirely on your personal judgment, and we cannot provide any advice on this point.
In summary, the current macroeconomic environment looks quite poor, but we seem to have experienced similar scripts before. Although through recent series of articles, everyone can see that we maintain a long-term optimistic attitude, we have also prepared for the potentially worst short-term scenarios.
Market cycles are actually repeated cycles, sometimes bubbles will repeatedly grow and shrink, and sometimes bubbles will directly burst and then be reinflated... Although each cycle will have different aspects (such as different time lengths, different policy influences, different narratives), as long as we understand the basic relationship between markets and liquidity, such as understanding the relationship between policies, inflation, and money printing, we can always find some similarities in the market, which is what we can amplify and utilize.
If you continue to be in the crypto field, then for you, this might be the "worst of times", but also the "best of times". The market has opportunities precisely because of various uncertainties, and only those who can withstand various uncertainties have the possibility of ultimately winning.
At the end of the article, let's leave a question:
Most people are now bearish, but some are optimistic that there will be a bull market opportunity in the second half of the year. Different perspectives are merely a matter of different probabilities. So, will we experience a larger economic recession starting this summer? Or will we welcome a new round of staged growth starting this summer? Which view are you more inclined towards? What are the corresponding reasons supporting your view? Have you prepared for both possibilities?
Article source: https://mp.weixin.qq.com/s/fJnnReZHRGSpRzMpF_Sw6w
