The Most Challenging Era: When the Tide of "Flooding" Recedes

For cryptocurrency investors who experienced the epic bull market of 2020-2021, the current market is undoubtedly confusing and agonizing. That was an era ignited by the global central banks' "flood of liquidity," where everything seemed to rise in value and any project could yield astonishing returns with eyes closed. However, those days are gone forever. Now, the global financial market is hanging on a delicate balance: on one side, there are surprisingly strong U.S. economic data, and on the other, the Federal Reserve's unwavering hawkish stance. The historically high-interest-rate environment is like a mountain pressing down on all risky assets.

This paradigm shift, driven by the macroeconomic environment, has made the current crypto cycle the "most challenging era" for retail investors. The old model of "flooding bulls," which relied on liquidity-driven and purely speculative hype, has become ineffective. Instead, we are now in a "value bull" market that emphasizes intrinsic value, driven by clear narratives and fundamentals.

However, the flip side of this difficulty is opportunity. As the tide recedes, true value investors will enter their "golden age." It is precisely in such an environment that the real, cyclical value of institutional compliance, technological deflation, and real-world applications becomes evident. This article aims to deconstruct this profound transformation and explain why this era, which is so challenging for speculators, is actually a golden path laid out for prepared investors.

The Most Challenging Era: When the Tide of "Flooding" Recedes

The difficulty of this cycle stems from the fundamental reversal of macroeconomic monetary policy. Compared to the extremely favorable environment of the last bull market, which featured "zero interest rates + unlimited quantitative easing," the current market is facing the most severe macroeconomic headwinds in decades. The Federal Reserve, in its effort to curb the worst inflation in forty years, has launched an unprecedented tightening cycle, which has doubly suppressed the crypto market and completely ended the old model of easy profits.

The Macro Data Puzzle: Why Interest Rate Cuts Are Far from Sight

The key to unlocking the current market dilemma lies in understanding why the Federal Reserve is reluctant to ease up at the end of its rate-hiking cycle. The answer is hidden in the recent macroeconomic data—data that, while seemingly "good," has become "bad news" for investors expecting easing.

Stubborn Inflation and Hawkish Dots: Although inflation has declined from its peak, its persistence is far beyond expectations. The latest data shows that while the U.S. CPI annual rate in May was slightly lower than expected, the core inflation rate remains stubbornly high at 2.8%. This is still a significant gap from the Federal Reserve's 2% target. This stickiness is directly reflected in the Fed's latest economic projections (SEP) and the closely watched "dots." After the June interest rate meeting, Fed officials significantly reduced their expectations for rate cuts, cutting the median number of rate cuts for the year from three to just one. This hawkish shift has severely dampened market optimism. As Powell said at the post-meeting press conference, "We need to see more good data to strengthen our confidence that inflation is moving steadily toward 2%." In other words, the Fed's threshold for rate cuts has become very high.

Strong Labor Market: Meanwhile, the U.S. labor market continues to show remarkable resilience. The May non-farm payroll report showed that 139,000 new jobs were added, better than market expectations, while the unemployment rate remained at a low level of 4.2%. A strong labor market means that consumer spending is supported, which in turn puts upward pressure on inflation, making the Fed more hesitant about rate cuts.

The "Historical Script" of Powell: As Nicholas Colas, co-founder of DataTrek Research, pointed out, the current Fed Chair Powell is following the script of his predecessors, adopting a hawkish tone in the final stage of his term to consolidate his historical legacy of successfully curbing inflation. This consideration of personal and institutional reputation means that unless economic data shows a cliff-like decline, policy shifts will be extremely cautious and slow.

The High-Interest Rate "Gravity": The "Bleeding" Effect on Crypto Assets

This macroeconomic backdrop has directly led to the difficult situation of the crypto market:

Liquidity Drought: High interest rates mean a reduction in "hot money" in the market. For the crypto market, which is highly dependent on new capital inflows to drive price increases, especially for altcoins, the tightening of liquidity is its most fatal blow. The once-thriving "everything rises" situation has been replaced by a structural market with "sector rotation" and "only a few hot spots" in this cycle.

Soaring Opportunity Costs: When investors can easily obtain a risk-free return of over 5% from U.S. Treasury bonds, the opportunity cost of holding assets like Bitcoin, which do not generate cash flow and have volatile prices, increases sharply. This has led to a large amount of capital seeking stable returns flowing out of the crypto market, further exacerbating the market's "bleeding" effect.

For retail investors accustomed to chasing hot spots in a flood of liquidity, this change in the environment is brutal. Strategies that lack in-depth research and simply follow the trend are highly vulnerable to heavy losses in this cycle, which is the core of the "difficulty" in this cycle.

The Golden Era: From Hype to Value, the Emergence of New Opportunities

However, the other side of the crisis is the turning point. The macroeconomic headwind is like a stress test, squeezing out market bubbles and filtering out core assets and narratives with real long-term value, thus opening up an unprecedented golden age for prepared investors. The resilience of this cycle is precisely driven by several powerful endogenous forces independent of macroeconomic monetary policy.

The Golden Bridge: Spot ETFs Kick Off the Institutionalization Era

In early 2024, the U.S. Securities and Exchange Commission (SEC) historically approved the listing of spot Bitcoin ETFs. This is not just a product launch but a revolution in the crypto world. It has opened a "golden gate" for trillions of dollars in traditional finance to invest in Bitcoin in a compliant and convenient way.

A Continuous Flow of Fresh Water: As of the second quarter of 2025, the total assets under management of just two ETFs, BlackRock's IBIT and Fidelity's FBTC, have exceeded tens of billions of dollars. The continuous daily net inflows have provided strong purchasing power for the market. This "new fresh water" from Wall Street has largely offset the liquidity contraction caused by high interest rates.

The Confidence Anchor: BlackRock CEO Larry Fink called the success of the Bitcoin ETF "a revolution in capital markets" and said it is just the "first step in asset tokenization." This endorsement from the world's largest asset management company has greatly boosted market confidence and provided retail investors with a clear signal to follow institutional steps and engage in long-term value investing.

The Faith in Code: The Solid Support Under the Halving Narrative

The fourth Bitcoin "halving" in April 2024 reduced its daily new supply from 900 to 450. This predictable supply deflation, written in code, is the unique charm of Bitcoin compared to all traditional financial assets. Against the backdrop of stable or even growing demand (especially from ETFs), the halving of supply provides a solid, mathematical underpinning for Bitcoin's price. Historical data shows that within 12-18 months after the previous three halvings, Bitcoin's price reached new all-time highs. For value investors, this is not a short-term hype but a reliable, cyclical long-term logic.

The Narrative Revolution: When Web3 Starts Solving Real Problems

The macroeconomic headwind has forced market participants to shift from pure speculation to exploring the intrinsic value of projects. The core hotspots of this cycle are no longer baseless "dogecoin"-like assets but innovative narratives that attempt to solve real-world problems:

AI + Crypto: Combining AI's computing power with blockchain's incentive mechanism and data ownership to create new decentralized intelligent applications.

Real-World Asset (RWA) Tokenization: Tokenizing real-world assets such as real estate, bonds, and artworks to release their liquidity and break down the barriers between traditional finance and digital finance.

Decentralized Physical Infrastructure Network (DePIN): Using token incentives to enable global users to jointly build and operate physical infrastructure networks, such as 5G base stations and sensor networks.

The rise of these narratives marks a fundamental shift in the crypto industry from "hype" to "value investment." The crypto venture capital giant a16z Crypto emphasized in its annual report the potential of "AI + Crypto" as the core engine for the next round of innovation. For retail investors, this means that the opportunity to discover value through in-depth research has greatly increased. Knowledge and cognition have become more important than mere courage and luck in this market for the first time.

Survival Rules in the New Cycle: Patient Layout Between the Finale and the Overture

We are at the intersection of an era. The Federal Reserve's "hawkish finale" is underway, and the easing overture has yet to begin. For retail investors, understanding and adapting to the new rules of the game is the key to navigating the cycle and seizing golden opportunities.

A Fundamental Shift in Investment Paradigm

From chasing hot spots to value investing: Abandon the illusion of finding the "next hundred-fold coin" and turn to researching the fundamentals of projects, understanding their technology, team, economic model, and the competitive landscape of their industry.

From short-term speculation to long-term holding: In a "value bull" market, the real returns belong to those who can identify core assets and hold them long-term through market volatility, rather than short-term traders.

Building a diversified investment portfolio: In the new cycle, different assets will play more distinct roles. Bitcoin (BTC), as the "digital gold" recognized by institutions, is the "anchor" of the investment portfolio; Ethereum (ETH), with its strong ecosystem and ETF expectations, is a core asset with both value storage and productive attributes; and high-growth altcoins should be based on in-depth research and small-position layouts as "rocket boosters," focusing on cutting-edge tracks with real potential such as AI and DePIN.

Maintaining Patience and Early Layout

Research by DataTrek revealed an interesting phenomenon: in the last 12 months of the terms of the past three Federal Reserve Chairs, even with high interest rates maintained, the S&P 500 Index still rose by an average of 16%. This indicates that once the market is convinced that the tightening cycle has ended, even if interest rate cuts have not yet occurred, risk appetite may warm up in advance.

This "front-running" trend may also appear in the crypto market. When the market's focus is generally on the short-term game of "when to cut rates," the true wise men have already begun to think about which assets and tracks will occupy the most favorable positions in the future feast driven by the resonance of macroeconomic tailwinds and industrial cycles when the easing overture finally sounds.

Conclusion

This crypto cycle is undoubtedly an ultimate test of retail investors' cognition and mindset. The era of "flooding bulls," where profits could be easily made with courage and luck, has come to an end. A "value bull" era that requires in-depth research, independent thinking, and long-term patience has arrived. This is precisely its "difficulty."

However, it is also in this era that institutional capital is pouring into the market on an unprecedented scale, providing a solid bottom; the value logic of core assets is becoming clearer; and applications that truly create value are beginning to take root. For retail investors who are willing to learn, embrace change, and view investment as a journey of cognitive transformation, this is undoubtedly a "golden age" where they can compete with the best minds and share in the long-term growth benefits of the industry. History does not simply repeat itself, but it is always strikingly similar. Between the finale and the overture, patience and foresight are the only paths to success.