Original author: arndxt

Original translation: Luffy, Foresight News

Global M2 and Bitcoin price chart

The most crucial structural conclusion is that cryptocurrencies will not decouple from the macroeconomy. The timing and scale of liquidity rotation, the trajectory of the Federal Reserve’s interest rates, and institutional adoption patterns will determine the evolutionary path of the crypto cycle.

Unlike 2021, the upcoming altcoin season (if there is one) will be slower, more selective, and more institution-focused.

If the Federal Reserve releases liquidity through rate cuts and bond issuance, and institutional adoption continues to rise, 2026 could become the most significant risk asset cycle since 1999-2000. Cryptocurrencies are expected to benefit, but their performance will be more regulated rather than explosive.

Fed policy divergence and market liquidity

In 1999, the Federal Reserve raised interest rates by 175 basis points, yet the stock market rallied to its peak in 2000. Today, forward markets anticipate the exact opposite: a 150 basis point rate cut by the end of 2026. If this expectation materializes, the market will enter an environment of increasing liquidity, not tightening. From a risk appetite perspective, the market backdrop in 2026 could resemble that of 1999-2000, but with interest rates moving in the opposite direction. If so, 2026 could become "a more violent 1999-2000."

The new context of the cryptocurrency market (compared to 2021)

Comparing the current market with the previous major cycle, the differences are significant:

• Stricter capital discipline: High interest rates and persistent inflation force investors to be more cautious in selecting risky assets;
• No COVID-19-level liquidity surge: Without a surge in broad money supply (M2), industry growth must rely on increased adoption and capital allocation;
• The market size increases 10-fold: A larger market capitalization base means deeper liquidity, but the possibility of 50-100 times excess returns is lower;
• Institutional capital inflows: Mainstream institutional adoption is well-established, and capital inflows are becoming more gradual, driving slow market rotation and consolidation rather than explosive rotations between assets.

Bitcoin's hysteresis and liquidity transmission chain

Bitcoin's performance lags behind the liquidity environment because new liquidity is trapped upstream in short-term Treasury and money markets. As assets at the end of the risk curve, cryptocurrencies can only benefit if liquidity is transmitted downward.

Catalysts for cryptocurrency outperformance include:

• Bank credit expansion (ISM manufacturing index > 50);
• Funds flowed out of money market funds after the rate cut;
• The Treasury issues long-term bonds, which drives down long-term interest rates;
• The weakening of the US dollar eases global financing pressure.

Historical patterns show that when these conditions are met, cryptocurrencies typically rise late in the cycle, later than stocks and gold.

Risks faced in the baseline scenario

Despite the bullish liquidity framework, several potential risks remain:

• Rising long-term yields (triggered by geopolitical tensions);
• A stronger US dollar tightens global liquidity;
• Weak bank credit or tightening credit conditions;
• Liquidity is trapped in money market funds and does not flow into risky assets.

The core characteristic of the next cycle will no longer be a "speculative liquidity shock," but rather the structural integration of cryptocurrencies into global capital markets. With the combined effects of institutional inflows, prudent risk-taking, and policy-driven liquidity shifts, 2026 could mark the transition of cryptocurrencies from a "boom and bust" model to one of systemic relevance.