Crypto’s True Position in the Risk Asset Hierarchy

KEYTAKEAWAYS

TABLE OF CONTENTS

• KEY TAKEAWAYS
• POSITING DIFFERENCES
• ACTUAL FUND PRIORITY
• STAGE JUDGMENT
• DISCLAIMER
• WRITER’S INTRO

CONTENT

Why crypto lags after rate cuts: asset positioning, capital flow priority, and why crypto ranks last in risk-on cycles—before delivering the highest convex returns.

Last time we talked about why interest rates were cut.≠ Immediate easing of liquidity

The key point is the three layers of logic present within it.

Policy layer – Intermediary layer – Market layer

The current situation is that policies have begun to loosen monetary policy, but the middle class, whether in traditional financial markets or the crypto market, is still facing obstacles.

As for the market level, I gave a rather radical view in the last issue.

—Among traditional capital investment options, crypto is only slightly better than leftovers.

Today we’ll focus on this: where does investing in crypto rank during a period of risky asset growth?

POSITING DIFFERENCES

In conjunction with what I said earlier in Global Asset Rotation: Why Liquidity Drives Crypto Cycles-1 mentioned in that issue

I basically followedThe roles assets play in different cycles categorize global mainstream assets into defensive assets like gold, interest rate-generating bonds, risky assets like stocks, and alternative assets like cryptocurrencies.

I won’t go into the differences between cryptocurrencies and gold or government bonds; nobody ever confuses them. At most, they can be used as contrarian terms.

However, we all know that crypto assets and US stocks, especially tech stocks, have a strong tendency to follow each other.

Furthermore, many people categorize both as risky assets, which is a misconception in detail.

From a price perspective, crypto resembles risky assets because it exhibits high volatility, high beats, and even volatility far exceeding that of stocks.

However, from an asset perspective, cryptocurrencies don’t offer stable dividends like stocks, nor do they have a clear market expectation PE ratio.

Its (BTC) price increases are entirely due to a fixed supply, relying on continuously increasing demand to drive up the price.

The key point here is:

• When risk appetite is nice, it outperforms stocks.

• When risk appetite decreases, he dies even faster than stocks.

This is why it needs to be classified as an alternative asset.

Stocks offer stable dividends, while commodities like copper, oil, and gold have real industrial demand (gold also has financial attributes).

Currently, encryption relies more on liquidity and narrative (its financial attributes are still being developed and accepted by various countries).

Although after several years of development, we can see that the blockchain world has seen a surge in real business demand.

A daughter working in the US used stablecoins to send money back to her hometown in Africa, leveraging the global settlement system for stablecoins based on blockchain technology.

A college student in Detroit started using RWA for real estate investment.

However, having genuine demand does not change the asset role of cryptocurrencies. We need to distinguish between two facts:

1. Use value ≠ Asset pricing power

• Usage of the US dollar ≠ US Dollar Index

• Crude oil consumption ≠ crude oil price

• The number of BTC transactions ≠ the price driver of BTC

Prices are determined by “marginal capital,” not “basic usage.”

2.Crypto’s real need is more like a “foundation” than an “engine”.

Real-world usage demands mean that Crypto will not go to zero.

Liquidity and narrative will determine how high crypto will go.

Therefore, even with the emergence of real business needs such as cross-border transfers, stablecoin payments, and RWA on-chain implementation, their biggest role is to raise the floor while becoming part of the narrative, thereby igniting the ceiling.

ACTUAL FUND PRIORITY

Let’s take a look at the flow of funds from a global perspective after interest rate cuts began.

Whether buying stocks or cryptocurrencies, like most people who have been stuck at the peak for years…

After your dad gloriously became the gatekeeper of the Shanghai Composite Index at 6124 points on October 16, 2007.

If things eventually break even, I believe most people will choose to cash out as soon as possible.

Even if others are still celebrating, even if the market may continue to rise.

But your dad, whose skills have been tormented for half his life, may have developed a fear of heights and all he can think about is staying away from this market—preserving his capital first!

The same applies to professional institutions; one of the assumptions of economics is that money is rational.

But this is just an assumption. If investors are all rational, there will be no market cycles, bubbles, or crashes.

This isThe “collective behavior” of professional investors stems from the fact that institutions also face drawdown limits, ranking pressures, peer comparisons, and volatility tolerance.

The priority of funds here refers to psychological order, not logical order.

Let me break down the actual flow of funds that occurs immediately after an interest rate cut begins.

① Cash / Short-term debt

The psychology isn’t greed, it’s about “stopping the bleeding.” The market has just experienced uncertainty, and nobody wants to be the first to rush out.

Even if the returns are low, certainty is essential, just like the mindset I mentioned earlier about being on the defensive during peak periods.

Real-world evidence shows that in the initial stages of an interest rate cut, the size of money market funds often continues to rise.

② Interest rate assets

This timeThe mindset then shifts to treating this as a math problem, not a bet, because duration returns are calculable, which is very simple for institutions.

There’s no need to predict whether the economy will “improve,” only whether “interest rates will fall.”

This step doesn’t require confidence, it just requires building a model. Wall Street has no shortage of Chinese people who are good at math.

③ Overall Market / Leading Stocks

At this stage, we need to start rationally limiting supply, as this will largely determine our performance this year.

I can buy them, but I have an “explanation”—so why buy them?

Because these companies have stable profits, strong competitive advantages, and high market consensus.

This step is the safest offensive move for professional investors.

④ High Beta Assets

The signs of this step are: small-cap stocks start to outperform, high-yield bond spreads narrow, and it’s somewhat similar to altcoins starting to outperform mainstream coins.

This phase is when things get crazy. We’re no longer afraid of short-term fluctuations; drawdowns won’t trigger risk controls. Our net asset value already has a cushion, and I can accept volatility in exchange for better returns.

⑤ Crypto / Extreme Assets

Okay, finally, at the very end, this encrypted dish was served. It’s not that I didn’t want to eat it, it’s just that I wanted to “eat it well, eat it slowly, and eat it gradually.”

The most important point is not “I think BTC is great”, but “Even if BTC drops by 30%, I will not be held accountable”.

This is why, in traditional investment strategies, cryptocurrency bull markets often start later, but once they begin, they exhibit the greatest elasticity.

The key point is this: for traditional funds, whether or not to invest in crypto assets depends on how much of their capital is no longer risk-averse.

This refers to:

• Mainstream assets have already experienced a round of price increases.

• The drawdown will not affect my life / Institutional performance evaluation

• Risk is not the primary constraint

• The goal has shifted from “stable” to “non-linear returns”.

This kind of money is used to buy crypto.

STAGE JUDGMENT

So, what stage are we at now?

I answered this question in a previous article, specifically in the context of this article, which is roughly stage 2-3.

Furthermore, this article takes a macro perspective on global assets, which makes it seem like crypto is at the very end of the list.

Observing the data also reveals that although there are now BTC spot ETFs, the total holdings are only 117.2 billion, while the market capitalization of stablecoins is 270 billion.

Moreover, ETFs experience constant inflows and outflows of funds, while the value of stablecoins continues to rise.

This illustrates that the former uses a configuration perspective, takes a global view, and belongs to nomadic civilizations.

The latter uses an investment perspective, on-chain audio, and an agricultural civilization theme.

To put it bluntly, no one denies the long-term upward trend of the crypto market; not even Jesus could change that.

But Jesus lives forever; He can wait, but we cannot.

Tick-tock, tick-tock, that’s every moment. Yes, how many moments are there in a lifetime?

The above viewpoints are referenced from @Web3___Ace