The structure of the next round of Crypto Assets cycle

Author: arndxt; Source: X, @arndxt_xo; Compiled by: Shaw Jinse Finance

The biggest structural insight is that cryptocurrencies will not decouple from the macro.

The timing and scale of liquidity rotation, the direction of the Federal Reserve's interest rates, and the pattern of institutional adoption will determine how this cycle evolves.

Unlike 2021, the upcoming altcoin season (if it really happens) will be slower, more selective, and more focused on institutions.

If the Federal Reserve provides liquidity through interest rate cuts and bond issuance, while institutional adoption continues to rise, then 2026 could become the most significant risk cycle since 1999-2000, with cryptocurrencies benefiting from it, although in a more stable manner and without being so explosive.

1. Federal Reserve Policy Divergence and Market Liquidity

In 1999, the Federal Reserve raised interest rates by 175 basis points, yet the stock market surged to its peak in 2000. Today, the forward market expects a significant reduction in rates: a decrease of 150 basis points by the end of 2026. If realized, this would signify an environment of increased liquidity rather than liquidity consumption.

The market environment in 2026 may resemble the risk appetite pattern of 1999/2000, but the trend of interest rates will be the opposite. If this is the case, then 2026 could be an "upgraded version of 1999/2000."

2. The New Context of the Cryptocurrency Market (Compared to 2021)

Compare the current market cycle with the previous one:

• Stricter Capital Discipline: Higher interest rates and persistent inflation force investors to adopt more selective risk-taking measures.
• The liquidity surge during the COVID-19 pandemic will not be repeated: Without an increase in M2, adoption and distribution must become the driving force for growth.
• Market size expands tenfold: A larger market cap base means deeper liquidity, but the likelihood of achieving 50-100 times excess returns is lower.
• Institutional Liquidity: With the consolidation of mainstream and institutional adoption, the capital flow is smoother, conducive to the slow rotation and integration of assets, rather than the violent rotation between assets.

3. The lag and liquidity transmission of Bitcoin

The relative liquidity situation of Bitcoin is lagging because new liquidity is being absorbed by upstream short-term government bonds and money markets. Cryptocurrencies are at the far end of the risk curve and can only benefit once liquidity flows downstream.

Catalysts for outstanding cryptocurrency performance:

• Bank loan expansion (ISM index > 50).
• After the interest rate cut, there is a capital outflow from money market funds.
• The US Treasury issues long-term bonds to lower long-term interest rates.
• The weakening of the dollar eases global financing pressures.

When these factors are unlocked, cryptocurrencies typically rise later in the economic cycle, after stocks and gold.

4. Risks Faced in the Baseline Scenario

Despite this optimistic liquidity framework, there are still some potential risks:

• Long-term interest rates rise (due to geopolitical pressures).
• The strengthening of the dollar has led to a tightening of global liquidity.
• Bank lending is weak or credit conditions are tightening.
• Liquidity is stagnant in money market funds rather than shifting to risk assets.

The next cycle will be more defined by the structural integration of cryptocurrencies in the global capital markets, rather than speculative liquidity shocks.

As institutional capital inflows, prudent risk-taking, and policy-driven liquidity shifts converge, 2026 may mark the transition of cryptocurrencies from a boom to bust cycle into systemic correlation.