Market liquidity remains dry, when will the "rising tide" come?

Original Title: 《When Will Liquidity Flood The Market?》

Author: @DistilledCrypto

Compiled by: Deep Tide Tech Flow

When Will Liquidity Flood The Market?

Thanks to liquidity, more money entering usually means higher cryptocurrency prices.

However, the current market remains dry, with no sign of the "rising tide" from 2021.

I examined the insights of macro expert CG ( @pakpakchicken) to seek some clues.

Policy Influence

@pakpakchicken spends hours each day tracking policy changes, stating, "Policy drives liquidity, liquidity drives assets, assets drive GDP… and so on."

His conclusion is that the biggest risks come from the upside.

@CryptoHayes and @RaoulGM also agree with this.

An Overlooked Insight

@pakpakchicken points out that few people discuss the expectation that the dollar may weaken.

He predicts that there will be a coordinated effort to devalue the dollar in the future, which could increase liquidity.

As a Backdrop, Let's Review Events from 1985

The policy context around 1985 will help understand the mindset of policymakers:

→ Tight monetary policy

→ High long-term interest rates

→ Strong dollar (exploring the "milkshake theory")

→ High deficits

Unprecedented Volatility

As the season of volatility approaches, @pakpakchicken predicts extreme turbulence.

This will be driven by the need for the U.S. to repay $35 trillion in debt.

Why Volatility is a Good Thing

@pakpakchicken believes that volatility is not a flaw, but an ideal characteristic for profit.

A lot of money is made in short-term bursts.

Sideways movements will shake out ordinary investors, while the market will rise when you give up.

The Impact of Debt on Cryptocurrency

To manage its massive debt, the U.S. may increase liquidity to devalue the currency.

This will ensure that debt rollovers are manageable; without these adjustments, yields could spiral out of control.

Larry Fink's Perspective

BlackRock CEO Larry Fink mentioned regarding national debt:

No matter how much the U.S. increases taxes or cuts debt, these measures are insufficient to solve the national debt problem. Therefore, he emphasizes the importance of building new infrastructure. He believes that by constructing new infrastructure, not only can economic growth be stimulated, but a foundation for future development can also be laid.

CG (@pakpakchicken) believes that as long as the dollar retains its value, institutions will tokenize all assets.

CG's Macro Update (Late Q2)

By the end of Q2, U.S. weekly liquidity support reached up to $2 billion per operation, with QT reduced from $6 billion to $2.5 billion per month.

U.S. policies are increasing the issuance of short-term notes, while the Chinese yuan may face devaluation.

The liquidity growth of trillions of yuan in China could benefit cryptocurrency, as deflation in the value of goods, services, and assets looms, indicating potential bullishness in the second half of the year.

U.S. Treasury Buybacks

Since May 29, the U.S. Treasury buybacks have seen weekly liquidity support buybacks surge to $2 billion, and this liquidity injection could amplify cryptocurrency prices during the chaotic election season.

CG (@pakpakchicken) believes that an upward momentum may emerge in the second half of 2024.

Exponential Summer

@pakpakchicken is committed to positioning cryptocurrency as a leading asset class. However, he emphasizes, "The market can remain irrational longer than you can remain solvent." The future of global liquidity surge is on the way…

Narrative Fatigue

CG (@pakpakchicken) emphasizes that understanding narratives is key.

Narratives drive the market until their value is exhausted.

The CPI/inflation narrative is weakening; recent reports lack impact.

The Next Mainstream Focus

As bank reserves waver, employment becomes the focus, with interest rate cuts arriving sooner than expected.

TLDR: "Stay long-term."

The Most Painful Market Moves

As macro forces converge, CG expects the emergence of the “most painful market moves” according to market laws.

PS: The “most painful market moves” is a concept in financial markets, literally translated as "maximum pain," referring to the price movement path taken by the market during a specific period that typically causes the most pain and distress for the majority of investors.

The logic behind this concept is that the market often chooses price movements that amplify losses for most investors, driven by market manipulation, strategies of institutional investors, and the inherent supply-demand dynamics of the market.

Signs Before Approaching the “Most Painful Market Moves”

• Retail is not yet prepared for a rise

• Many influential figures claim the market has peaked

• Market makers are shorting

• Overwhelming bearish positions

The ultimate result is likely to be a significant rise.

Betting on $ETH

CG (@pakpakchicken) believes that $ETH will stand out in the upward cycle.

As Larry Fink pointed out, debt is unsustainable in the long run.

While the dollar holds value, everything will transition and be tokenized.

Only one L1 has stood the test of time and has the highest adoption rate so far—namely, $ETH.

Respect the Odds

While CG (@pakpakchicken) leans towards an upward trend, further declines are not impossible. Macro expert @fejau_inc views economic slowdown as a fundamental issue, believing that there are significant downside risks unseen since 2019.