Author: Yang Ge Gary
Kondratiev Nodes, Bitcoin Transformation.
Trump's tariff policy has triggered turmoil and strong unease in global markets, with the VIX index reaching 52 on April 8. However, it is clear that this is far from resolving the overly complex superposition of contradictions at this stage. Fiscal and monetary policies currently seem only capable of providing temporary emotional value, and in an environment where bonds, stocks, and currencies are all declining, asset allocation issues have also reached a deadlock. What should one hold now? It seems to have become a question that everyone is concerned about in Q2 2025.
When will Bitcoin rebound and rise again? This was probably the most frequently asked question during the first two weeks of April at the Web3 Festival in Hong Kong. In many panels and meetings, people would ask and ponder how Trump's tariff policy would affect the crypto market and the direction of Bitcoin prices. To be honest, this simple question is not easy to explain, which is why I returned to write this article for everyone's reference.
tl;dr
- The issue of the simultaneous decline of bonds, stocks, and currencies and the failure of the Merrill Clock
- The Thucydides Trap and the comparison with the historical endings of five Kondratiev cycles
- Greenspan's prophecy and the significance of crypto at the intersection of Kondratiev cycles
- What is the real Thucydides Trap this time?
- The shift in the correlation between Bitcoin and chaos: the change in inertia perception and similarities with the Merrill Clock issue
- The essential reasons for the continued growth of the second curve of crypto growth
1. The Issue of the Simultaneous Decline of Bonds, Stocks, and Currencies and the Failure of the Merrill Clock
Why did Trump adopt extreme tariff policies? Simply put, it seems very MAGA, as it can reduce import dependence, boost employment, and mobilize political sentiment. Unfortunately, the American public is not simply naive; high inflation and a $1.3 trillion fiscal deficit do not create a good environment for people to buy into "Made in America." The reality of survival issues has become urgent and irreconcilable. Under the conditions where fiscal and monetary policies are no longer effective, it can be said that tariff policies have become a last resort. Buffett pointed out in a recent interview: "They (Tariffs) are an act of war to some degree." Although many of Buffett's ideas are outdated in the paradigm of the next era, this assessment is still very accurate. The world is at a new intersection of Kondratiev cycles, where the post-war peace and credit system has almost completely collapsed, and the reshaping of new mechanisms in this chaotic era has already begun.
In addition to the high VIX index, the simultaneous decline of bonds, stocks, and currencies at this stage is a relatively obvious signal. During the Web3 Festival in Hong Kong, I was pleased to discuss with Dr. Yi the historical similarities of the simultaneous decline of bonds, stocks, and currencies in 1929 and 1971. The economic indicators and external environments of these two time points are very similar to those of 2025. Whether the outcome will be a Great Depression plus localized wars, a Cold War confrontation script, or a brand new independent script depends on (or should be said to be reflected in) the performance of safe-haven financial assets, especially gold. The saying "in chaotic times, hoard gold" reflects the characteristics of this intersection of Kondratiev cycles. It is important to note that the properties of gold at this time are completely different from the commodity properties during the overheating phase of the Merrill Clock.
According to the standard view of the Merrill Clock, the transition from stagflation to recession is a process of shifting from cash is king to bonds are king, while everyone is waiting for the subsequent recovery phase, which is a new round of growth where stocks are king. Clearly, we are not in such a state; the external environment does not have the conditions to enter a recovery phase, and the Merrill Clock cannot continue to operate downward. At this time, gold repeatedly breaks historical highs, clearly jumping out of the logic of the Merrill Clock. We can also compare this with other major commodities: crude oil, silver, copper, soybeans, rubber, cotton, rebar, etc., all maintain levels that are flat or slightly higher compared to pre-pandemic levels, widening the gap with gold's increase.
The failure of the Merrill Clock indicates that the economic policies and market experiences at this stage will deviate from conventional expectations. Trump's introduction of tariff policies at this time is, from a macro perspective, merely a passive driver of historical patterns.
Three points are worth adding: ① The failure of the Merrill Clock only occurs under conditions that do not meet its existence at the intersection of Kondratiev cycles, but the objective laws of the Merrill Clock still hold under the right external environment; ② During the transition between Kondratiev cycles, there are still other types of safe-haven financial assets besides gold. For example, the recent global search for quantitative funds and CTA strategies is not coincidental. Of course, whether Bitcoin will prove itself as "digital gold" in this opportunity, breaking away from the positive correlation with other financial assets and developing independently, remains to be seen; ③ At different historical stages of the intersection of Kondratiev cycles, the point at which the Merrill Clock fails does not have to be the same, and from a regulatory perspective, it is not that important. However, if certain asset management companies and family offices are still using previous inertia strategies, they must pay attention and make timely adjustments.
2. The Thucydides Trap and the Comparison with the Historical Endings of Five Kondratiev Cycles
In 2020, I summarized a chart to describe the industry changes and geopolitical environment comparisons during the five historical Kondratiev cycles. However, very few people have experienced the intersection of two Kondratiev cycles, so until today, when personally feeling the impact from both the economic and policy sides, it has become more intuitive.
Historically, the intersection of Kondratiev cycles usually brings about the intensification of contradictions related to the Thucydides Trap or hypothetical enemies of the Thucydides Trap, and this time is no exception. However, this time it has fallen between China and the United States, two countries with a significant historical civilizational path gap. Trump's tariff policy fermenting into this result at this time is also quite natural.
The table below provides a comparison of various aspects at the end points of the five historical Kondratiev cycles:
(Note: The Thucydides Trap parties are expressed in the order of Ruling Power – Rising Power)
As long as we extend our perspective, the failure of the Merrill Clock and economic policies appears very natural, because the energy confrontation at the intersection of Kondratiev cycles is clearly much greater than the changes in economic cycles under the Merrill Clock. Therefore, this intersection will directly shatter the operating Merrill Clock and plunge it into a chaotic era.
A direct comparison shows that our situation and the future we face over the next decade will be very clear. The similarities in paradigms are no longer discussed; we must also consider several paradigm leap questions: ① Will the new technological paradigm of digitalization and AI bring about innovations in global production relations and governance methods? ② Is the relationship between China and the U.S. truly a Thucydides Trap? ③ What role do Bitcoin and crypto play in the above two questions?
3. Greenspan's Prophecy and the Significance of Crypto at the Intersection of Kondratiev Cycles
Similar to the tariff policies at historical Kondratiev intersection points, Trump's current tariff policy may also trigger a butterfly effect to some extent. Whether it is internal economic issues in the U.S. or the handling of U.S.-China relations, if it is not smooth and reasonable enough, it will inevitably trigger a transmission effect leading to the outbreak of a chaotic era.
However, the potential failure this time may not only be the Merrill Clock at the intersection of Kondratiev cycles mentioned above. From a longer-term perspective, the new paradigms of digitalization and AI are gradually changing the essential structure of production units and labor organization that has existed for the past two hundred years since the Industrial Revolution. The Fed's governance of the U.S. economy through traditional monetary and fiscal policies, which also affects the management of the global economic and trade landscape during this historical phase, will face severe challenges of failure or at least transformative change.
In his reflective work "The Map and the Territory: Risk, Human Nature, and the Future of Forecasting," published in 2013, Greenspan mentioned:
“We must accept that monetary and fiscal policy cannot permanently boost economic growth in the presence of deeply rooted structural constraints.”
Most people likely recognize or at least feel that the world is currently facing very "deep structural constraints." The global landscape and economic policy methods that have evolved since the Industrial Revolution increasingly cannot match the rapid development needs of digitalization and AI. Since the rapid explosion of the digital and AI era, production tools have been changing exponentially, and with the emergence of Bitcoin in 2009, the development of the crypto market and Degen over four cycles in 2016, the energy accumulated in productivity and production relations will clearly erupt into qualitative changes at this fragile intersection of Kondratiev cycles.
It is difficult to assert that crypto and blockchain protocol management will quickly take over all economic policy governance tasks corresponding to the previous paradigm from this node. However, it is clear that this is an unavoidable trend. It is very likely that in the coming decades, the world will continue to exist in a dualistic parallel governance structure, where crypto and blockchain protocol management will continuously grow or dominate parts of global economy, finance, trading, settlement, and even social governance, while at the same time, social and economic management, including monetary and fiscal policies, will still be managed in some regions according to original cultural methods and interests. This also responds to the direction of solving the current "main contradiction in the global world" mentioned in the previous article "The Pattern Change After Trump's Election."
In summary, the significance of crypto at this intersection and turning point is immense and will comprehensively change the global economic and social landscape.
4. What is the Real Thucydides Trap This Time?
I do not believe that the Thucydides Trap at this stage lies between China and the U.S. It is not that the economic scale between China and the U.S. does not constitute competition, nor is it like Huntington said in "The Clash of Civilizations" that future greater power confrontations will unfold between the West and Islam. This paradigm leap clearly exceeds a change based on nationality and ethnicity.
I remember back in 2014, a well-known investor friend from Korea who invested in Kakao told me that he believed major global cities are not much different, and the civilizational consensus among them has surpassed that of many domestic cities within countries. In recent years, the formation of consensus among digital nomads and Degen further proves this point.
When considering historical patterns like the Thucydides Trap, one must compare the similarities of historical paradigms while also viewing the correspondence of paradigms through the lens of technological and production changes. Especially at this intersection point that breaks the "deep structural constraints," the differences in management positions between China and the U.S. are not, from many perspectives, greater than the essential differences between TradFi and DeFi, nor are they greater than the differences between the common law system and crypto protocols, or the ideological and cultural differences between conservatives and Degen.
As I mentioned in a previous article: "Most countries and interest groups globally still exist in a semi-feudal, semi-decentralized state capitalism environment, and the current main contradiction is pushing it towards a semi-decentralized state capitalism and semi-decentralized digital information management environment." The current global intersection of Kondratiev cycles, along with the accumulated transformative energy of contradictions, will certainly point towards the latter.
Looking back at the changes after the past five intersection points, chaos and reconstruction, the surge of safe-haven assets, and the rapid development of a new generation of production technologies are all inevitable trends that will occur. Unlike before, although the energy accumulation this time is more powerful and globalized, the direction of change is decentralized and systemically abstract. Therefore, in response to the question in the first paragraph, I believe that this time (the energy explosion at the node) is more likely to face a completely new independent script, where the level of global chaos will be high, but the focus of confrontation will not be particularly concentrated.
5. The Shift in the Correlation Between Bitcoin and Chaos: Changes in Inertia Perception and Similarities with the Merrill Clock Issue
In such a background environment, Bitcoin has clearly prepared itself to claim the title of "digital gold." However, the development of history is always tortuous. As of Q2 2025, in an environment where chaos and panic are continuously increasing, Bitcoin's safe-haven capability is still slightly inferior to that of gold. During times of heightened chaos, Bitcoin still exhibits a similar downward performance to bonds, stocks, and currencies, meaning that its price is negatively correlated with chaos to a certain extent.
I will not elaborate on how to define chaos here. The VIX can be an important factor indicator. Additionally, the MOVE index, hidden volatility of various assets, the Libor-OIS spread, gold price volatility, divergence of FED and central bank interest rates, the proportion of countries with negative interest rates, war risk indices, and the degree of global trade disruption can all serve as reference points.
The issue of Bitcoin still being negatively correlated with chaos to a certain extent is primarily determined by the mindset of its holders. This indicates that Bitcoin holders still consist of at least close to half or more who hold it with the mindset of asset appreciation or simply as a speculative gamble (the reason for saying it might be close to half is that a significant proportion of Bitcoin is either long-term locked or lost due to forgotten private keys, as well as those who are unwilling to sell out of laziness; these two categories irrationally provide positive correlation), and the turnover rate of these individuals is still quite high.
However, regardless of the circumstances, data from the past six months shows that Bitcoin's performance has significantly diverged from that of all other altcoins. Although Bitcoin and various altcoins are not negatively correlated, Bitcoin's resilience in various environments has gradually become apparent, especially in the current environment where chaos is expected to increase after the end of 2024. This also indicates that the correlation between Bitcoin and chaos is quietly changing, with the negative correlation weakening and the positive correlation increasing.
Since Trump took office for his second term, he has signed over 100 executive orders and continuously implemented lenient policies for the crypto industry. Coupled with the recent ignition of this tariff policy, these actions are macro-level drivers pushing the occurrence of this Kondratiev cycle intersection, leading to a strong confrontation between the old and new cycles. Of course, this will also help accelerate the reversal of the correlation between Bitcoin and chaos. As of mid-April 2025, the SEC has officially withdrawn lawsuits against several crypto projects, including Uniswap, Gemini, OpenSea, Kraken, Consensys, Cumberland, Coinbase, and Ripple; additionally, the FDIC and OCC have made significant adjustments to the regulation of banks participating in crypto businesses, eliminating the requirement for banks to obtain approval and report for developing crypto businesses. However, these positive developments have still not been digested by the public amid the current chaotic environment, and the $2.6 trillion market still has many factors that have not been priced in (not including the rapidly developing RWA and PayFi markets that will be mentioned later).
At the end of this historical "garbage time," we need to consider two questions: ① Before a positive correlation with chaos forms, will there be another round of emotional decline? ② How long will it take for Bitcoin to form a strong positive correlation with chaos like gold and become a safe-haven asset? The ignition of this trend usually requires a shift in market and public inertia perception, and this transition process, if achieved smoothly, typically takes a considerable amount of time, which is clearly not permissible at the current historical intersection. Of course, Bitcoin has always served to alert and educate the market and participants in a counter-intuitive manner, so it is very likely that there will be extreme or counterintuitive market conditions in the near future.
Similar to the Merrill Clock, Bitcoin has also formed a four-year bull-bear conversion cycle in the crypto market due to its halving, and from the perspective of emotional shifts and asset class preference, the process is very similar, just 2.5 times faster. However, after experiencing four cycles of development over 16 years, this year has shown irregular characteristics, leading many to believe that the current situation is a "famous bull but actual bear," attributing the failure of strategies to the entry of ETFs and the collapse of meme confidence. In essence, I believe this is related to the energy intervention at the intersection of Kondratiev cycles, which has disrupted the original rules of the crypto market amid the current global chaos. The past four cycles have familiarized people with the operational rules of Bitcoin and the crypto market, successfully establishing it as a strategic reserve for countries and professional institutions. At this time, cleverly breaking the rules through the intersection of Kondratiev cycles may be the best moment for Bitcoin to emerge as digital gold.
In summary, as a historical intersection point of intense change in the Kondratiev cycle, 2025 may see a brief decline that breaks the original four-year cycle experience, but we will soon witness a qualitative change in Bitcoin that correlates positively with the level of chaos, which will drive significant growth in the entire crypto market in the next phase, namely the second curve of crypto growth.
6. The Essential Reasons for the Continued Growth of the Second Curve of Crypto Growth
At the Web3 Festival in Hong Kong in early April 2025, the RWA topic was exceptionally hot, successfully breaking the colored glasses some native degens had towards it in the previous cycle.
The pursuit of real yield and sustainable development has gradually become a new consensus in the crypto market this year. History is often forced; after experiencing the fervor of meme and BTCFi narratives in 2024, failing to connect with real yields and real applications makes it increasingly difficult to believe in the first curve logic based solely on storytelling.
In my previous article "The Second Curve of Crypto Growth," I mentioned and discussed some phenomena and initial reasons for the rise of RWA and PayFi. Through this article's description of the intersection of Kondratiev cycles, we can understand that the more essential reason for this trend is the irreversible demand for the establishment of new cycles and new paradigms amid chaotic changes.
Many people at this stage worry whether RWA and PayFi will be fleeting like other narratives and never cycle back. It is clear that, unlike narrative refreshment and empty pledges, long-term institutional matters will sustain value.
As of Q1 2025, a large number of actual PayFi application scenarios and RWAFi funds have begun to emerge rapidly. The rapid development of new-generation projects, protocols, and public chains like CICADA.Finance and Plume will bring overall changes to the market in 2025 and lay a solid foundation for the continued growth of the second curve of crypto.
Trump's tariff policy is merely a butterfly effect, but the historical-level opportunities that will arise at the intersection of the Kondratiev cycle will be significant. The expectation and realization of the reversal of the correlation between Bitcoin and chaos will become an important factor driving the growth of various crypto second curve industries, including RWA and PayFi, representing the beginning of the gradual integration of crypto and blockchain protocol management into global economic, financial, trading, settlement, and various social governance tasks after entering the new Kondratiev cycle.
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