Over the last two editions, we explored bull and bear markets, and the black swan events that can accelerate the worst downturns. There is still one layer of context missing — the bigger stage on which all of that drama plays out. Crypto does not exist in isolation. It is part of a global financial ecosystem, and the money that flows into it also flows into stocks, bonds, commodities, and other assets. Understanding how and why that capital moves is one of the most practical things you can learn as someone who participates in this space.

Think of the world's investment capital as a large body of water. At any point in time, money is flowing somewhere: into government bonds in stable countries, into stocks of growing companies, into real estate, into gold, into emerging markets, and yes, into crypto. The direction of that flow is not random. It follows a simple, recurring logic that financial professionals call risk-on and risk-off.

These two terms describe the mood of investors as a whole. When the world feels relatively stable, borrowing is cheap, and economic growth looks positive, investors become more adventurous. They move money toward higher-returning assets, even if those assets are riskier. This is risk-on. When the opposite is true — when uncertainty spikes, borrowing gets more expensive, or a major shock hits — investors retreat to the relative safety of cash, government bonds, and gold. This is risk-off.

Crypto sits near the far end of the risk spectrum. It is one of the last destinations capital reaches when the mood is adventurous, and one of the first places it exits when the mood turns cautious. That is why crypto bull runs have so often coincided with periods of easy money and cheap borrowing, while the worst bear markets have lined up with periods of fear, tightening, and global uncertainty.

A risk-on environment typically begins when central banks — like the US Federal Reserve or the European Central Bank — cut interest rates or hold them low to stimulate the economy. When borrowing costs are low, banks lend more freely, businesses invest more, and investors reach for growth. A savings account earning 0.5% a year does not look very attractive. So capital starts moving: first into stocks, then into higher-growth sectors like technology, then further out the risk curve into smaller companies, emerging markets, and eventually crypto.

This is the environment that creates what participants call "alt season." Once Bitcoin and Ethereum establish a rising trend and confidence grows, money fans out into higher-risk segments: low- and mid-cap tokens, DeFi protocols, newer projects. The logic is that risk appetite has expanded enough for investors to move beyond the major coins and explore the market further. You also see crypto-linked stocks — exchanges, miners, infrastructure providers — rising strongly in these periods, because traditional investors are buying exposure to crypto through shares rather than directly.

The post-COVID period of 2020 to early 2022 is one of the clearest examples. Interest rates were at historic lows, governments had injected massive amounts of stimulus into their economies, and liquidity was abundant. Bitcoin reached its all-time high, thousands of new projects launched, NFTs attracted mainstream attention, and DeFi grew from a niche experiment into a multi-hundred-billion-dollar ecosystem. The bull market was real — but it was partly powered by an extraordinary amount of cheap money searching for a return.

The reverse is equally instructive. When central banks raise interest rates to fight inflation, or when geopolitical tensions spike or economic data turns alarming, the same logic runs in reverse. Suddenly, a government bond paying 5% a year looks reasonable compared to volatile assets with unpredictable returns. Institutional investors reduce their exposure to equities and crypto to rebalance toward safer positions. Retail investors follow, sometimes driven by fear rather than calculation.

The 2022 bear market illustrated this pattern with unusual clarity. The US Federal Reserve began its fastest interest-rate hiking cycle in decades to fight post-pandemic inflation. As rates rose, the mood across financial markets turned cautious. Tech stocks sold off heavily, and crypto — which had been trading with a strong connection to growth stocks — followed. The total crypto market cap fell more than 66% from its peak. The rate hikes did not cause the Terra and FTX collapses directly, but they created the tight, fearful environment in which those failures had maximum impact. When money is expensive and sentiment is already fragile, bad news hits harder.
The chart above illustrates how Bitcoin price cycles have historically aligned with shifts in interest rate expectations. When rates were low or expected to fall, Bitcoin tended to benefit. When rates rose sharply, Bitcoin faced sustained pressure. The relationship is not perfectly mechanical — many other factors are always in play — but the general alignment is one of the most consistent patterns in the data.

One of the most common misconceptions about Bitcoin is that it should always move independently of traditional markets — a "digital gold" that holds its value when stocks fall. The reality has been more complicated.

Before 2020, Bitcoin's correlation with the S&P 500 was very low, typically between -0.2 and 0.2, meaning the two markets moved largely independently. During the March 2020 COVID crash, that changed. As global investors sold everything to raise cash, Bitcoin and stocks fell together. The 60-day correlation between Bitcoin and the S&P 500 reached an all-time high at the time of approximately 0.65 during the early March crash, compared to a ten-year average before that point of only around 0.09. Researchers describe this as a turning point: crypto had become large enough and institutional enough that it now moved with other risk assets during periods of stress.

Over the years 2020 to 2024, the average annual correlation between Bitcoin and the S&P 500 settled in the range of 0.5 to 0.65, reflecting Bitcoin's transformation from an obscure, independent asset into a recognized (if volatile) part of the global risk-on universe. This has important practical implications. When a major central bank makes a hawkish announcement, or when a geopolitical crisis triggers a risk-off move in equities, crypto participants should not be surprised to see their portfolios react in kind. The two worlds are now connected.

This does not mean the relationship is permanent or fixed. Periods of divergence happen regularly. In mid-2024, for example, the correlation dropped to near 0, as Bitcoin moved sideways while US stocks kept rising, driven by factors specific to each market. The overall trend, though, is toward more integration — not less.

The risk-on / risk-off dynamic describes how capital moves in open, stable financial systems. But there is a second, separate force worth understanding: what happens when a country's financial system becomes unreliable or inaccessible to its own citizens.

In countries facing severe inflation, currency collapse, capital controls, or international sanctions, local populations sometimes turn to crypto not as a speculative investment, but as a practical tool to preserve and move value. Research published by the IMF describes crypto as a potential "marketplace for capital flight" in these scenarios — a channel that allows money to cross borders when official banking channels are restricted or collapsed. Local crypto prices in these situations often trade at a premium compared to global exchange rates, because domestic demand to exit the local currency is intense.

This gives crypto a dual role in the global financial picture. In stable, open economies, it behaves primarily as a high-beta risk asset — rising and falling with the global appetite for growth. In economies under stress, it can act more like a financial escape valve, driven by necessity rather than opportunity. Neither role is more "correct" than the other; they reflect the genuinely different circumstances of the people using it.

The implication for everyday participants is that crypto's price is shaped by forces far beyond any single country or community. A rate decision in Washington, a geopolitical event in Asia, or a currency crisis in a developing economy can all influence the flows of capital into and out of digital assets. Being aware of that broader context helps readers understand why the market sometimes behaves in ways that seem disconnected from anything happening inside the crypto ecosystem itself.

Stepping back, the story of TradFi-to-crypto capital rotation is ultimately a story of crypto growing up. In the early years, it was too small and too obscure to be part of the global financial conversation. As it grew, institutional players arrived, regulated products like ETFs appeared, and crypto became a recognized asset class — which also means it became subject to the same macro forces that govern all asset classes. More institutional integration means more liquidity and more legitimacy, but it also means that when global markets sneeze, crypto no longer stays perfectly healthy.

That is not a reason for pessimism. The same integration that links crypto to global sell-offs also links it to global recoveries. When central banks eventually ease, when confidence returns, when the next cycle of innovation captures attention — the capital that left tends to come back, often with more participants and more infrastructure than before. Understanding the cycle does not guarantee outcomes. But it does mean that a sudden drop in crypto is not always a verdict on the technology or the ecosystem. Sometimes, it is just the tide going out — and the same tide that goes out eventually comes back in.

In the final edition of this mini-series, we bring everything together: cycles, black swans, and macro flows — and what all of it means for how you can approach this space with calm, curiosity, and a long-term perspective.

Over the last two editions, we explored bull and bear markets, and the black swan events that can accelerate the worst downturns. There is still one layer of context missing — the bigger stage on which all of that drama plays out. Crypto does not exist in isolation. It is part of a global financial ecosystem, and the money that flows into it also flows into stocks, bonds, commodities, and other assets. Understanding how and why that capital moves is one of the most practical things you can learn as someone who participates in this space.

Think of the world's investment capital as a large body of water. At any point in time, money is flowing somewhere: into government bonds in stable countries, into stocks of growing companies, into real estate, into gold, into emerging markets, and yes, into crypto. The direction of that flow is not random. It follows a simple, recurring logic that financial professionals call risk-on and risk-off.

These two terms describe the mood of investors as a whole. When the world feels relatively stable, borrowing is cheap, and economic growth looks positive, investors become more adventurous. They move money toward higher-returning assets, even if those assets are riskier. This is risk-on. When the opposite is true — when uncertainty spikes, borrowing gets more expensive, or a major shock hits — investors retreat to the relative safety of cash, government bonds, and gold. This is risk-off.

Crypto sits near the far end of the risk spectrum. It is one of the last destinations capital reaches when the mood is adventurous, and one of the first places it exits when the mood turns cautious. That is why crypto bull runs have so often coincided with periods of easy money and cheap borrowing, while the worst bear markets have lined up with periods of fear, tightening, and global uncertainty.

A risk-on environment typically begins when central banks — like the US Federal Reserve or the European Central Bank — cut interest rates or hold them low to stimulate the economy. When borrowing costs are low, banks lend more freely, businesses invest more, and investors reach for growth. A savings account earning 0.5% a year does not look very attractive. So capital starts moving: first into stocks, then into higher-growth sectors like technology, then further out the risk curve into smaller companies, emerging markets, and eventually crypto.

This is the environment that creates what participants call "alt season." Once Bitcoin and Ethereum establish a rising trend and confidence grows, money fans out into higher-risk segments: low- and mid-cap tokens, DeFi protocols, newer projects. The logic is that risk appetite has expanded enough for investors to move beyond the major coins and explore the market further. You also see crypto-linked stocks — exchanges, miners, infrastructure providers — rising strongly in these periods, because traditional investors are buying exposure to crypto through shares rather than directly.

The post-COVID period of 2020 to early 2022 is one of the clearest examples. Interest rates were at historic lows, governments had injected massive amounts of stimulus into their economies, and liquidity was abundant. Bitcoin reached its all-time high, thousands of new projects launched, NFTs attracted mainstream attention, and DeFi grew from a niche experiment into a multi-hundred-billion-dollar ecosystem. The bull market was real — but it was partly powered by an extraordinary amount of cheap money searching for a return.

The reverse is equally instructive. When central banks raise interest rates to fight inflation, or when geopolitical tensions spike or economic data turns alarming, the same logic runs in reverse. Suddenly, a government bond paying 5% a year looks reasonable compared to volatile assets with unpredictable returns. Institutional investors reduce their exposure to equities and crypto to rebalance toward safer positions. Retail investors follow, sometimes driven by fear rather than calculation.

The 2022 bear market illustrated this pattern with unusual clarity. The US Federal Reserve began its fastest interest-rate hiking cycle in decades to fight post-pandemic inflation. As rates rose, the mood across financial markets turned cautious. Tech stocks sold off heavily, and crypto — which had been trading with a strong connection to growth stocks — followed. The total crypto market cap fell more than 66% from its peak. The rate hikes did not cause the Terra and FTX collapses directly, but they created the tight, fearful environment in which those failures had maximum impact. When money is expensive and sentiment is already fragile, bad news hits harder.
The chart above illustrates how Bitcoin price cycles have historically aligned with shifts in interest rate expectations. When rates were low or expected to fall, Bitcoin tended to benefit. When rates rose sharply, Bitcoin faced sustained pressure. The relationship is not perfectly mechanical — many other factors are always in play — but the general alignment is one of the most consistent patterns in the data.

One of the most common misconceptions about Bitcoin is that it should always move independently of traditional markets — a "digital gold" that holds its value when stocks fall. The reality has been more complicated.

Before 2020, Bitcoin's correlation with the S&P 500 was very low, typically between -0.2 and 0.2, meaning the two markets moved largely independently. During the March 2020 COVID crash, that changed. As global investors sold everything to raise cash, Bitcoin and stocks fell together. The 60-day correlation between Bitcoin and the S&P 500 reached an all-time high at the time of approximately 0.65 during the early March crash, compared to a ten-year average before that point of only around 0.09. Researchers describe this as a turning point: crypto had become large enough and institutional enough that it now moved with other risk assets during periods of stress.

Over the years 2020 to 2024, the average annual correlation between Bitcoin and the S&P 500 settled in the range of 0.5 to 0.65, reflecting Bitcoin's transformation from an obscure, independent asset into a recognized (if volatile) part of the global risk-on universe. This has important practical implications. When a major central bank makes a hawkish announcement, or when a geopolitical crisis triggers a risk-off move in equities, crypto participants should not be surprised to see their portfolios react in kind. The two worlds are now connected.

This does not mean the relationship is permanent or fixed. Periods of divergence happen regularly. In mid-2024, for example, the correlation dropped to near 0, as Bitcoin moved sideways while US stocks kept rising, driven by factors specific to each market. The overall trend, though, is toward more integration — not less.

The risk-on / risk-off dynamic describes how capital moves in open, stable financial systems. But there is a second, separate force worth understanding: what happens when a country's financial system becomes unreliable or inaccessible to its own citizens.

In countries facing severe inflation, currency collapse, capital controls, or international sanctions, local populations sometimes turn to crypto not as a speculative investment, but as a practical tool to preserve and move value. Research published by the IMF describes crypto as a potential "marketplace for capital flight" in these scenarios — a channel that allows money to cross borders when official banking channels are restricted or collapsed. Local crypto prices in these situations often trade at a premium compared to global exchange rates, because domestic demand to exit the local currency is intense.

This gives crypto a dual role in the global financial picture. In stable, open economies, it behaves primarily as a high-beta risk asset — rising and falling with the global appetite for growth. In economies under stress, it can act more like a financial escape valve, driven by necessity rather than opportunity. Neither role is more "correct" than the other; they reflect the genuinely different circumstances of the people using it.

The implication for everyday participants is that crypto's price is shaped by forces far beyond any single country or community. A rate decision in Washington, a geopolitical event in Asia, or a currency crisis in a developing economy can all influence the flows of capital into and out of digital assets. Being aware of that broader context helps readers understand why the market sometimes behaves in ways that seem disconnected from anything happening inside the crypto ecosystem itself.

Stepping back, the story of TradFi-to-crypto capital rotation is ultimately a story of crypto growing up. In the early years, it was too small and too obscure to be part of the global financial conversation. As it grew, institutional players arrived, regulated products like ETFs appeared, and crypto became a recognized asset class — which also means it became subject to the same macro forces that govern all asset classes. More institutional integration means more liquidity and more legitimacy, but it also means that when global markets sneeze, crypto no longer stays perfectly healthy.

That is not a reason for pessimism. The same integration that links crypto to global sell-offs also links it to global recoveries. When central banks eventually ease, when confidence returns, when the next cycle of innovation captures attention — the capital that left tends to come back, often with more participants and more infrastructure than before. Understanding the cycle does not guarantee outcomes. But it does mean that a sudden drop in crypto is not always a verdict on the technology or the ecosystem. Sometimes, it is just the tide going out — and the same tide that goes out eventually comes back in.

In the final edition of this mini-series, we bring everything together: cycles, black swans, and macro flows — and what all of it means for how you can approach this space with calm, curiosity, and a long-term perspective.