The Relationship Between Federal Reserve Rate Cuts and Bull Markets | Q&A

Some thoughts on leaving questions:

I have increasingly responded less to questions about specific tokens or projects in the current Q&A.

One main reason is that most of these tokens and projects have been asked by readers before, and I have already answered them. Moreover, there haven't been any new highlights or developments in these projects, so readers can find my previous answers by looking through my earlier articles. My views on them have not changed since then.

Additionally, I have noticed that some readers have begun to think for themselves and have started to move beyond specific projects and tokens, developing their own ideas and observations on investment logic and strategies. If this change is a result of reading my articles, it would be a tremendous encouragement and motivation for me.

Because that is the ultimate purpose of my writing.

There are many articles online that discuss price fluctuations today, which projects might surge tomorrow, and what tokens XX is preparing to launch the day after.

Indeed, these are topics that most investors are highly concerned about and interested in.

However, I rarely write about these in my articles. One important reason is that I am not accustomed to this trend-following, hit-and-run approach.

The approach I prefer is to find a reliable investment framework that not only allows me to earn safe and reliable profits from the "ballast" but also enables me to quickly identify suitable fields and excel in them when a new blue ocean emerges.

And when such a blue ocean does not appear, I let myself relax completely, read, and learn, especially classic books and the experiences of predecessors.

When this blue ocean gradually turns into a red ocean, I will also reduce my focus and gradually lose interest in new projects that emerge in the red ocean—because most of these so-called new projects seem to me to lack innovation.

Now, let's continue with the Q&A.

1. I am still curious about valuation issues, the differences between crypto and company stock profits, how to define and estimate overvaluation and undervaluation?

This is a question I have been exploring for a long time.

Recently, AAVE, which I believe has top-tier innovation capabilities in the DeFi ecosystem, launched a series of reforms, the most important of which, in my view, is linking token empowerment to project profitability.

I took this opportunity to calculate AAVE's financial status after the reforms using traditional stock market profit estimation methods (such as P/E, ROE, etc.).

However, the results can only be described as dismal. If such a "company" were measured in the stock market, it would be considered a junk stock; AAVE's current "stock price" is a bubble within a bubble.

Therefore, at least for now, using traditional stock market methods to measure crypto projects may not work. However, I firmly believe that for projects with clear profit models, moving towards traditional stock market evaluation standards is a major trend. But the specific standards used to measure crypto project profitability may differ significantly from those in the traditional stock market.

But this direction is becoming increasingly clear. We cannot say that tokens have no profit empowerment and can maintain their current prices solely based on governance functions, can we?

In addition, the situations described in the book by Fisher that I recently read are very similar to the issues we face today in the crypto ecosystem.

For example, some stocks in emerging industries that he invested in during the 1950s would also struggle to withstand scrutiny if measured solely by the profit models we are familiar with today.

But why did he dare to invest in those stocks? What were his thought processes and strategies? These are all worth learning from and referencing today. I will find an opportunity to share more after I finish reading his book.

2. In the future, even if the Federal Reserve lowers interest rates, there may not necessarily be a bull market in the crypto space.

I think we shouldn't worry too much about this. What's important is whether we have corresponding strategies to deal with these situations.

What if there is no bull market this time? I have written several times in my articles—my approach is to continue holding and wait for the next bull market.

Moreover, I have always believed that the real bull market in the crypto space must come from innovative applications within the ecosystem, rather than simply external liquidity.

In recent years, the major bull market in U.S. stocks has occurred despite the Federal Reserve raising interest rates.

Why is that?

The fundamental reason is that innovations in artificial intelligence have brought a series of enormous benefits. This strong internal momentum has greatly offset the pressures from the external financial environment.

Therefore, in my view, the importance of internal factors far outweighs that of external factors.

We will have an online discussion with everyone on September 7 (Saturday) at 8 PM.

Discussion link:
https://x.com/i/spaces/1LyxBgYwLaMKN