When will this situation see improvement?

Written by: Blockchain Knight

If you have been watching both the traditional U.S. stock market and the cryptocurrency market, the trends over the past six months will surely leave you with a strong sense of disconnection.

On one hand, U.S. stocks have been reaching new highs fueled by the enthusiasm for artificial intelligence; on the other hand, the cryptocurrency market has been struggling in a persistent decline, with occasional rebounds quickly drowned by selling pressure.

This seesaw game where traditional finance feasts while the cryptocurrency market starves is intertwined with the effects of macro liquidity and the inherent flaws of the crypto ecosystem.

Over the past six months, AI has become a vacuum cleaner for global capital, draining the premium out of the cryptocurrency market. In the past, blockchain was the grand narrative for adventurers betting on future technology, while this past half-year saw the AI ecosystem experiencing a real industrial explosion.

Capital is extremely realistic; AI giants in the U.S. stock market not only have endless stories to tell but also late-night chip orders and black-and-white profit reports to back them up.

In contrast, the cryptocurrency market has fallen into a narrative vacuum over the past six months. The various high-performance public chains that were once praised in the last cycle now appear more like ghost towns with no one interested. As AI demonstrates a dimension-reducing capacity to attract funds, a large amount of risk capital that originally belonged to the crypto sector has packed up overnight, turning to embrace tech stocks.

Furthermore, the Fed's strategy has become a sword of Damocles hanging over cryptocurrency assets. Although the market is always looking forward to news of rate cuts, the macro data over the past six months has made the Fed's steps exceptionally cautious. Thus, against a backdrop of high interest rates, the global appetite for risk is shifting.

Large-cap tech stocks are like a safety house with built-in heating functions; relying on robust cash flows and stock repurchases, they can withstand the cold winter of high interest. The cryptocurrency market, however, is purely a liquidity barometer, and without cheap and abundant funds to irrigate it, this parched soil cannot nourish a broadly bullish market.

Even more crucially, the high FDV and the crisis of unlimited unlocking chips in the cryptocurrency market are the internal causes of the collapse of many altcoins over the past six months.

The numerous high-valued, low liquidity projects fostered by VCs over the past few years have ultimately reached their unlocking period.

In a situation where outside incremental funds are lacking, existing funds are ruthlessly diluted by a continuous influx of unlocked chips, leading the market into a vicious cycle of only bleeding without any blood formation.

Additionally, the compliance of spot ETFs has somewhat tamed Bitcoin but has also stripped it of its elasticity. When Wall Street's old money becomes the largest pricing holder of Bitcoin, it starts to resemble a traditional macro allocation tool more and more.

Under the temptation of U.S. stocks' profitable performance over the past six months, many long-standing investors in the cryptocurrency market have chosen to take profits at high levels and shift back to the stock market. This flow of funds from crypto to stocks has robbed the cryptocurrency market of its upward momentum.

Of course, you might be curious, when will this situation see improvement?

As for the current situation, there seems to be no visible momentum to drive the cryptocurrency market to continue rising in the short term. The depletion of narratives, the withdrawal of funds, and the pressure of the macro economy are three mountains that will continue to exist before us, and all we can do is wait.

As Siddhartha said, "Waiting, thinking, fasting," is perhaps the remedy for the cold winter.