Article by original author: @DistilledCrypto
Article translated by: Deep Tide Tech Flow
When will liquidity enter the market?
Thanks to liquidity, more money entering usually means higher cryptocurrency prices. However, the current market is still dry, and there are no signs of the “rising tide” of 2021. I examined the insights of macro expert CG (@pakpakchicken) to look for some clues.
Policy Influences
@pakpakchicken spends several hours a day tracking policy changes. “Policy drives liquidity, liquidity drives assets, assets drive GDP… etc.” His conclusion is that the biggest risk comes from the upside. @CryptoHayes and @RaoulGM also agree with this.
An overlooked insight
@pakpakchicken points out that few people are discussing the expected weakening of the US dollar. He predicts a coordinated devaluation of the dollar in the future, which could increase liquidity.
As a background story, let’s review the events of 1985.
The policy background around 1985 will help us understand the mindset of policymakers:
→ Tight monetary policy
→ High long-term interest rates
→ Strong US dollar (exploring the “milkshake theory”)
→ High deficits
Unprecedented volatility
As the season of volatility approaches, @pakpakchicken predicts that extreme turbulence will occur. This will be driven by the need for the US to repay $35 trillion in debt.
Why volatility is a good thing
@pakpakchicken believes that volatility is not a flaw, but an ideal feature for profitability. A lot of money is made in short-term bursts. Sideways oscillations will shake out the ordinary investors, and the market will rise when you give up.
The impact of debt on cryptocurrencies
In order to manage its massive debt, the US may increase liquidity to devalue its currency. This would ensure that the debt extension is manageable. Without these controls, yields could get out of control.
Larry Fink’s view
When discussing national debt, BlackRock CEO Larry Fink mentioned:
No matter how the US increases taxes or reduces debt, these measures are not enough to solve the national debt problem. Therefore, he emphasizes the importance of building new infrastructure. He believes that by building new infrastructure, not only can economic growth be promoted, but also the foundation for future development can be laid.
CG’s macro updates (late Q2)
At the end of the second quarter, the US weekly liquidity support for each operation reached as high as $20 billion, and QT decreased from $60 billion per month to $25 billion. The US policy intensifies the issuance of short-term notes, while the Chinese yuan may face devaluation.
The liquidity growth of tens of trillions of yuan in China
may benefit cryptocurrencies. With the deflation of goods, services, and asset values, currency devaluation is imminent, and these factors all indicate the potential bullishness in the second half of the year.
US Treasury repurchase
The U.S. Treasury repurchase, which began on May 29, has seen a surge in weekly liquidity support repurchases to $20 billion. This liquidity injection could amplify cryptocurrency prices in a chaotic election season.
CG (@pakpakchicken) believes that there may be an upward trend in the second half of 2024.
Summer of the index
@pakpakchicken is committed to making cryptocurrencies the leading asset class. However, he emphasizes that “the market may remain irrational for longer than you can remain solvent.” The future of global liquidity surge is on its way…
Narrative fatigue
CG (@pakpakchicken) emphasizes that narrative understanding is key. The market is driven by narratives until the value of the narrative is exhausted. The CPI/inflation narrative is weakening; recent reports lack impact.
The next mainstream focus
As bank reserve volatility rises, employment becomes the focus, and rate cuts may come earlier than expected.
TLDR: “Stay long”
The most painful market trend
With the convergence of macro forces, according to market rules, CG expects the appearance of the “most painful market trend”.
PS:
“Most painful market trend” is a concept in the financial market, translated directly as “maximum pain,” which refers to the price trend that the market adopts during a specific period, which usually brings the greatest pain and distress to most investors. The logic behind this concept is that the market often chooses price trends that amplify losses for the majority of investors, driven by market manipulation, institutional investor strategies, and the market’s inherent supply and demand relationships.
The signs before moving towards the “most painful market trend”
The retail industry is not yet prepared for an uptrend.
Many influential people say the market has peaked.
Market makers are shorting.
Overwhelming bearish positions
The final result is likely to see a large uptrend.
Betting on $ETH
CG (@pakpakchicken) believes that $ETH will stand out during the uptrend.
As Larry Fink pointed out, from a long-term perspective, debt is unsustainable. Although the dollar has value, everything will transition and be tokenized. There is only one L1 that has stood the test of time and has the highest adoption rate so far—$ETH.
Respect for probability
Although CG (@pakpakchicken) leans towards an uptrend, further decline is not impossible. Macro expert @fejau_inc sees the slowing economic growth as a fundamental issue, and he believes that there is a significant downside risk not seen since 2019.
