"Creator's Voice" is a dialogue column launched by Foresight News, where we ask outstanding creators selected each month about hot market topics and compile the collected results into written form, gathering diverse opinions to explore deeper thoughts.

Written by: Outstanding content creators and invited guests of Foresight News in September 2024

Compiled by: Foresight News

On September 19, the Federal Reserve initiated a loosening cycle by cutting interest rates by 50 basis points, marking the first rate cut by the Fed in four years. U.S. stocks and Bitcoin surged in response, and various cryptocurrency sectors experienced a long-awaited rebound. Under the stimulus of macro policies, can the crypto market end its "long" period of volatility and rise again?

This issue of "Creator's Voice" is themed "Federal Reserve Rate Cut, Crypto Bull Market Restart?" We invited IOSG Ventures, BeWater, NingNing, BTC_Chopsticks, JiaYi, and DetectiveTON, who are listed in the September 2024 Foresight News Outstanding Creators List, to join this discussion.

Around the topic of "Federal Reserve Rate Cut," we posed six questions: "What is the best investment strategy currently?", "How do you view the 'Memecoin Supercycle' theory?", "What are the differences between this rate cut and the last one?", "Which crypto sub-sector do you favor the most after the rate cut?", "How do you view subsequent policies and the trends in the crypto market?", and "In the coming year, do you favor cryptocurrencies or A-shares more?" Here are the answers we collected:

1. With the Federal Reserve entering a rate-cutting cycle and the crypto market experiencing a long-awaited rebound, what do you think is the best investment strategy currently? What are your main investment operations?

IOSG Ventures: The short-term strategy is relatively conservative; there are no catalysts before the election, and the overall market direction may become clearer after the November rate cut and the election. Beta assets mainly depend on the election; the liquidity in altcoins has not shown a significant improvement trend, and the structural issues in altcoins remain unresolved. The core drivers of Memecoins are also facing some problems, so there may be fewer quality opportunities compared to before, and we need subsequent economic data and the election to bring some breakthroughs.

BeWater: The best investment strategy currently is the "barbell strategy." It is important to note that liquidity transmission is a process; the funds from the rate cut will not immediately flood into the crypto market. On one hand, compared to traditional financial markets, the crypto market is still relatively small, with limited capacity and higher risks. The effects of the rate cut will take time to manifest and will eventually spill over into larger markets, leaving the crypto market behind.

In this situation, if BTC cannot break through, the outlook for Alts is even less optimistic. Therefore, despite BTC.D continuing to rise, a BTC-focused strategy still holds allocation significance. On this basis, investing a small amount of funds into some hot sectors (like Memes) is a relatively good combination.

NingNing: My strategy over the past two years has been to adopt Ray Dalio's All Weather investment strategy, balancing holdings in assets that perform uniquely in different cycles and timing for rebalancing. Currently, I hold four major asset categories: stablecoins, BTC, blue-chip tokens, and growth tokens. Recently, I have been increasing my position in the chain abstraction sector.

BTC_Chopsticks: The increase in market liquidity due to the rate cut makes investors inclined towards higher-risk assets, especially cryptocurrencies. Currently, Bitcoin (BTC) and Ethereum (ETH) are showing significant inflows, particularly after the recent rate cut, with inflows into Bitcoin products reaching $284 million. To cope with market volatility, the best strategy should be:

• Diversified investment: Mainstream cryptocurrencies like Bitcoin and Ethereum remain good choices.
• Risk control: Allocate some funds to stablecoins (like USDC, USDT) to manage market fluctuations.

JiaYi: Hold your chips steady.

The long-term process of rate cuts will gradually bring liquidity back to risk markets. The best investment strategy should be to maintain rationality and composure, avoiding excessive selling of valuable assets.

For me, as the founder of Geekcartel, I pay special attention to primary investment opportunities and dare to seize chips, willing to invest in potential targets in the primary market.

DetectiveTON: You can start looking at opportunities in various altcoins, such as TON. As a responsible self-media, I won't make specific calls here.

2. Memecoins are showing signs of resurgence; how do you view the "Memecoin Supercycle" theory?

IOSG Ventures: Memecoins are a very interesting asset form that has been around for a long time and have now exploded in a mature infrastructure and clearly defined roles for market participants. Compared to altcoins, their advantages lie in low startup costs, fast iteration speeds, and strong dissemination capabilities. However, due to these characteristics, they inherently possess a tendency to falter. Objectively speaking, the narrative dominated by Memecoins struggles to lead the industry to long-term breakthroughs, so we view it more as an innovative wave similar to the NFT Summer. Through Memecoins, we will see new asset paradigms, social models, and on-chain gameplay. For primary funds, we are also keen to support the infrastructure that can help Memecoins develop and thrive.

BeWater: I do not believe in the so-called "Memecoin Supercycle theory." The current good performance of Memecoins has two main factors: first, market liquidity is still limited and cannot support assets with overly large market caps; the scale of assets that can create wealth effects has been shrinking, down to "Meme" assets with market caps in the millions to tens of millions. On the other hand, the poor performance of VC coins and unfair chip rules have forced users to choose Memes.

However, this does not mean that Memecoins have achieved market dominance. On one hand, according to Newton Einstein's research on Pump.fun, as of August 10, Pump.fun has launched about 1.7 million tokens, with only 15 tokens able to maintain a market cap above $10 million for multiple weeks (0.001%). In a sense, the success of Memes is a survivor effect, as most Memecoins masquerade as Memecoins while actually causing more harm to users and the market. Secondly, if the so-called "Memecoin Supercycle" exists, then Memecoins should occupy over 20% of the market cap rankings, just like previous public chains and DeFi, but we have not seen that.

NingNing: Personally, I categorize Memecoins into different stages of their lifecycle: on-chain "dog coins" and exchange-listed Memes. The current stage is characterized by the explosion of on-chain dog coins. On-chain dog coins are alternative assets with low win rates, high odds, and high frequency, essentially a new type of lottery. In the current market environment of stock competition, there is fertile ground for them. Memecoins have now become major consumers of L1 & L2 block space, holding systematic importance for the entire Web3 ecosystem. However, their negative externalities are also evident, leading to shortened user lifecycles and rapid market exits. In summary, I hope Memecoins can generate more positive externalities, such as engaging in charitable donations or serving as a prediction market for social hotspots, becoming a new design space for DApps.

BTC_Chopsticks: The supercycle of Memecoins has once again become a focal point, especially with recent tokens like PEPE and Shiba Inu (SHIB). While these coins show extremely high short-term growth potential, they are also highly volatile and risky. The popularity of Memecoins is often driven by community dynamics and market sentiment, so participants need to closely monitor social media and community trends.

JiaYi: Crypto is essentially a huge Meme market, isn't it?

The uncertainty of rapidly rotating narratives is one of the most attractive points of Web3, and Memecoins, as a class with the most Crypto Native attributes, can explode at any given time. Simply put, they are the best vehicle for a social movement of crypto wealth redistribution; just make money.

DetectiveTON: To be clear, I don't know much about Memes and haven't participated in many primary Memes. The most straightforward observation is that the resurgence of Memecoins reflects the market's pursuit of high-risk, high-return assets. If the rate cut exceeds expectations and liquidity spills out from major asset classes, the next cycle of Memes still has an objective support foundation.

3. Many believe that this round of rate cuts will lead to a massive explosion in the crypto market, similar to the large-scale monetary easing during the COVID-19 pandemic. How do you think this round of rate cuts differs from the last one?

IOSG Ventures: The market's interpretation of this round of rate cuts is not as straightforward as during the pandemic, but overall, for dollar liquidity assets, it has resolved some of the liquidity tightening issues caused by previous balance sheet reductions and has brought about a wave of market activity from September to now. However, the sustainability of this round of rate cuts carries a risk of reversal given the current positive economic data; the rate cuts are not necessarily due to an economic recession, so the likelihood of continuous large cuts is low, and we need to pay attention to subsequent data. The unique economic situation of the last round has less reference significance when taken alone, but overall, being in a rate-cutting cycle is a good thing for the market.

BeWater: There are significant differences between this round of rate cuts and those during the COVID-19 pandemic. Externally, the rate cuts during the pandemic were a response to an external shock, so the short-term impacts that were not priced in were very evident. Additionally, the macroeconomic and geopolitical situation at that time was much better than it is now, especially since the Chinese market was still in the late stages of a boom. Currently, not only is the global macroeconomic outlook more uncertain, but there are also risk factors such as the Russia-Ukraine conflict and the Israel-Palestine conflict, making the external environment much worse than during the pandemic. Internally, the rate cuts are just one of the factors contributing to a potential explosion in the crypto market. The low financing in the primary market from 2019-2020, the significant increase in mainstream institutional adoption, the complete liquidation of all leverage during the March 12 event, and the large-scale native innovations in the DeFi sector have all contributed to the potential for a crypto market explosion. However, relying solely on the rate-cutting cycle is insufficient to support a new bull market logic.

NingNing: There are two differences between this round of rate cuts and the last one: 1. The rate cut was delayed by one year compared to the previous round; 2. The duration of the inversion between short-term and long-term interest rates has set a historical record. There hasn't been a massive influx of liquidity; it's just a turning point for global liquidity. A significant explosion in the crypto market will still require time and the emergence of an industry paradigm revolution similar to the DeFi Summer.

BTC_Chopsticks: This round of rate cuts differs from the monetary easing during the pandemic in some ways. The easing during the pandemic caused the crypto market, such as Bitcoin, to rise from $7,000 to $28,000 (in 2020). While this round of rate cuts has also led to a market rebound, the main driving force comes from increased liquidity rather than a new round of large-scale capital injection. In the current economic environment, although liquidity has increased, the market still faces inflationary pressures and global economic uncertainties.

JiaYi: The last round was an emergency response, while this one feels more like preventive maintenance. The economic data looks decent, and the possibility of a soft landing is greater.

DetectiveTON: There are some obvious differences between this round of rate cuts and the large-scale easing policies during the COVID-19 pandemic:

• Different policy backgrounds: The rate cuts during the pandemic were accompanied by unprecedented quantitative easing aimed at addressing the global economic crisis during COVID. In contrast, the current rate cuts may be more about adjusting expectations regarding inflationary pressures and slowing economic growth, with different policy intensity and direction.
• Differences in market expectations: The last rate cut exceeded market expectations, leading to a significant influx of funds into risk assets. This round of rate cuts is entirely within expectations, so its stimulating effect on the market may be relatively limited.
• Changes in the liquidity environment: The easing during the pandemic led to extremely loose global liquidity, while central banks are currently more cautious in their monetary policies, with a prevailing mindset of seeking "stability."

Therefore, the impact of this round of rate cuts on the crypto market may not be as significant as the last one.

4. Which crypto sub-sector do you favor the most after the rate cut? What impact will the rate cut have on DeFi and RWA?

IOSG Ventures: If more liquidity can be injected into the market, some high-quality infra assets (yes, the VC coin sector) that are significantly undervalued compared to industry expectations, as well as AI and DePIN projects with excellent fundamentals and growth potential, and some emerging ecosystems like Base and ZKsync, are all worth paying attention to. The rate cut itself will attract more funding attention to Ethereum and staking ecosystems, where assets like Etherfi and Eigen are good targets. For RWA, the largest private credit market is likely to see a dual increase in supply and demand due to lower financing costs and increased demand for high-yield products, leading to further market expansion for RWA.

BeWater: The impact of the rate cut on DeFi is limited. Due to the existence of risk premiums and arbitrage thresholds, the "nearly risk-free rate" on-chain does not have much correlation with the money market. The rate cut has more of an overall impact on the industry. Some RWA projects may be affected, but to a limited extent. For example, SKY (MakerDAO) has about 40% of its collateral used for RWA arbitrage. If the base APY drops from 4% to 2%, the overall income of the SKY protocol will decrease by about 20%, which is relatively controllable. Some stablecoins may also be affected, such as impacting the basis of futures contracts over a longer period, which in turn affects Ethena and the opportunity cost of funds, thereby influencing the supply of USDC/USDT. However, overall, these impacts are limited.

The most promising area is PayFi. A conscious observation is that if a project or sector relies on "ample buying power brought by a bull market" or "ample liquidity brought by rate cuts," it is likely that its business model is either unsustainable or worthless. PayFi focuses on real markets and real demands.

NingNing: The rate cut will have a certain negative impact on RWA and DeFi projects that focus on tokenizing U.S. Treasury bonds. However, since the Federal Reserve currently defines the rate cut as preventive, the cut will be relatively mild, so the negative impact will not be particularly severe.

The rate cut will enhance overall market liquidity and the risk appetite of market participants, which is beneficial for the industry, but the impact on specific sub-sectors is limited.

BTC_Chopsticks: In the context of the rate-cutting cycle, DeFi (decentralized finance) and RWA (real-world assets on-chain) are the most noteworthy sectors. According to analysis reports, protocols like Aave and Uniswap will benefit from the rate cuts, especially the stablecoin lending market on DeFi platforms, which has annualized yields stable at 3.7%-3.9%. At the same time, RWA provides higher transparency and liquidity for investors by bringing traditional financial assets on-chain.

JiaYi: The most promising area is undoubtedly the DeAI sector. Web3, as a new type of production relationship, naturally adapts to AI, which represents new productive forces. This is a simultaneous advancement of technology and production relationships. With increased liquidity in traditional financial markets after the rate cut, it will naturally flow to the intersection of this top narrative.

I also believe that people will gradually realize that DeAI, by adopting the Web3 infrastructure of "token economy + AI asset traceability and permission management," is not limited to Web3 but breaks the unequal distribution of resources and opportunities in the traditional AI field. This allows key elements of AI, including computing power, models, and data, to no longer be monopolized by centralized giants, giving everyone the opportunity to find their role in AI to benefit. This effectively attracts a vast number of potential AI developers and incremental users from traditional fields, leveraging Web3 & AI to realize greater narrative possibilities for AI.

DetectiveTON: Various altcoins may finally be approaching their "unwinding" moment. Retail investors who have been suffering from various high FDV models over the past year can consider reducing their positions at highs. Minimizing losses is winning.

5. How do you view the subsequent Federal Reserve policies and the trends in the crypto market?

IOSG Ventures: In the short term, we can look at the data from Polymarket, which shows that the market generally believes that rate cuts in November and December will continue at a pace of 25 basis points. However, looking at data like the unemployment rate, it is actually improving, and this contradiction may manifest in subsequent rate cut decisions, causing some market fluctuations. In the long term, we need to answer the question of how the economic situation is to judge the trends of risk assets, including crypto assets.

BeWater: Although there are significant differences and uncertainties in the Federal Reserve's policies regarding the extent and pace of rate cuts, the overall path of rate cuts is relatively clear. There will be a slow reduction over a longer time period until policy goals are achieved. Additionally, aside from monetary policy, the crypto market has many of its own issues to resolve, so I tend to believe that the trends in the crypto market will gradually decouple from Federal Reserve policies.

NingNing: BTC determines the crypto market, but the Federal Reserve does not determine BTC. Long-term data backtesting shows that BTC has a low correlation with U.S. stocks. As the BlackRock report states, BTC has special value due to its de-correlation with other major asset classes. Looking back at historical data, BTC's super bull market requires the U.S. economy to enter an overheating cycle and copper futures to rise.

BTC_Chopsticks: The Federal Reserve's future policies may continue to be cautious. Rate cuts may temporarily boost the crypto market, especially for higher-risk assets like Bitcoin and Ethereum, but the market may experience high volatility. In the long run, the crypto market will still be influenced by the global economic environment and market sentiment, so investors should remain cautious.

JiaYi: I can only say that rate cuts usually increase market liquidity, which is a positive signal for the crypto market. However, the market's expectations for rate cuts may already be reflected in current prices, so the actual rate cut decision may have limited short-term impact on the market.

DetectiveTON: The liquidity released by the rate cut may not have yet spread to the blockchain. However, even setting aside factors like the Federal Reserve's rate cuts and the U.S. elections, we can still expect BTC to perform relatively well in the fourth quarter.

1) Historically, October is usually a good month for the cryptocurrency market, and users in Europe and the U.S. refer to October as "Uptober."

2) The effects of the Fed's rate cuts have yet to materialize.

The Federal Reserve's rate cuts initiated last month are likely to bring more capital inflows into the cryptocurrency market. JPMorgan analysts point out that the potential impact of the Fed's rate cuts has not yet been reflected, and the overall market capitalization of the cryptocurrency market remains weakly correlated with the U.S. federal benchmark interest rate, at 0.46.

3) In mid-September, the SEC approved BlackRock's options for listing and trading Bitcoin spot ETFs on Nasdaq. Through options trading, investors can now participate in ETFs in a more flexible manner, indirectly increasing BTC's liquidity.

As for the pace of future rate cuts, I personally believe it is still related to the U.S. non-farm unemployment rate. Currently, the non-farm unemployment rate is somewhat deeply coupled with inflation, geopolitical issues, etc. (for example, recent conflicts in the Middle East have caused fluctuations in logistics and some commodity prices, indirectly affecting U.S. inflation and subsequently impacting the hiring pace of U.S. companies). I personally suggest not to bet on the extent of the Federal Reserve's rate cuts.

6. A-shares have recently seen a significant rise; are you participating or planning to participate? In the coming year, do you favor cryptocurrencies or A-shares more?

IOSG Ventures: There are currently no plans to participate, but we will continue to monitor the situation, as the A-share market can have observable capital impacts on the crypto market. The A-share market is indeed a good choice for capital right now, but we can also see structural opportunities in crypto at the moment, which are very much influenced by human actions. In the coming year, we will continue to focus on the primary market to find and support improvements in crypto fundamentals, doing what we need to do.

BeWater: In the short term, I am more optimistic about A-shares (within 6 months), while in the medium to long term (over 6 months), I am more optimistic about cryptocurrencies. The A-share market has already undergone a significant correction, with clear policies and sentiment backing that are yet to be realized. I expect this round of correction (3300) will not be the midpoint of the market, while the crypto market still faces many issues, such as the bottleneck of VC coins, irrational investments in the primary market in the past, and some negative signals emerging in the Meme sector. There is still a possibility of market clearing in the short term, but over a longer period, the favorable factors in the crypto market will gradually manifest and affect prices.

NingNing: I will not participate. Let us not forget our decentralized original intention and stay true to our young people's mission. In the coming year, cryptocurrencies will easily outperform A-shares.

BTC_Chopsticks: Both A-shares and cryptocurrencies have their advantages, but the high-risk, high-reward nature of cryptocurrencies is more suitable for investors willing to bear volatility. Especially as rate cuts increase liquidity, investors may be more inclined towards crypto assets like Bitcoin, while A-shares are more suitable for those with a lower risk appetite.

JiaYi: If I were to exit the crypto space, I would definitely trade A-shares; wherever my understanding lies, that’s where I will invest.

DetectiveTON: Definitely not. The purpose of the price increase is to distribute chips; it’s an opportunity for you to sell, not to increase your leverage. So, let’s stick with crypto, at least it’s transparent on-chain.

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