Introduction: Starting from Capital, Not Stories
This marks the beginning of a new series of research on global asset allocation and rotation. After delving into this topic, we discovered one of the most surprising yet crucial facts: it is not the emergence of new narratives that ultimately drives the crypto bull market.
Whether it’s RWA, X402, or any other concept, these themes are usually just triggers rather than true drivers. They can attract attention, but they do not generate energy themselves. The real force comes from capital. When liquidity is abundant, even weak arguments can be amplified into market consensus. Conversely, when liquidity dries up, even the strongest arguments struggle to maintain their momentum.
The first part focuses on building the foundation: how to construct a global asset allocation and rotation framework that places cryptocurrencies within the appropriate macro context. The latter half of the framework will be elaborated in subsequent articles.
Step One: Step Out of the Crypto Realm and Map the Global Asset Landscape
The first step is to deliberately step outside the crypto market and create a panoramic view of global assets. Traditional classifications—stocks, bonds, commodities—are useful but insufficient for understanding capital rotation across different cycles.
Instead, we can categorize assets based on their roles at various stages of the economic and liquidity cycles. The key is not whether an asset is labeled as “equity” or “commodity,” but what it depends on and what factors influence it. Some assets benefit from declining real interest rates, others from inflation uncertainty, and some from thorough risk aversion.
Building an “asset map” does not require in-depth knowledge of every market. What’s truly needed is an intuitive understanding of the interdependencies among assets: what conditions support them, and what conditions weaken them. This mind map will serve as a reference system for all subsequent decisions.
Within this framework, cryptocurrencies should be treated with special consideration.
Why do cryptocurrencies belong to alternative assets rather than traditional risk assets?
Cryptocurrencies are often grouped with stocks (especially US tech stocks) because their price movements are highly correlated. On the surface, this classification seems reasonable. Cryptos exhibit extreme volatility, high beta, and large drawdowns—all characteristics similar to risk assets.
However, correlation alone does not define the essence of the economy.
From a capital structure perspective, stocks have cash flows. Companies generate earnings, distribute dividends, and can be valued using discounted cash flow models or valuation multiples. Even if prices deviate from fundamentals, their anchoring logic remains based on cash flows.
Crypto assets operate under a completely different logic. They do not generate dividends or have intrinsic cash flows that can be discounted. Therefore, traditional valuation frameworks are fundamentally inapplicable.
Instead, cryptocurrencies behave like pure liquidity-sensitive assets. Their price movements are primarily driven by capital inflows and outflows, rather than changes in fundamental productivity. Explaining this helps clarify why capital flows matter, but they do not determine everything—regardless of capital movement.
Thus, cryptocurrencies are best understood as non-cash-flow alternative assets, positioned at the extreme end of risk appetite. When liquidity is plentiful and risk appetite is high, cryptos perform best; when capital prioritizes safety and yield, they tend to underperform.
Liquidity is the core driver of crypto performance
Once viewed as liquidity assets rather than valuation assets, their behavior across different cycles becomes easier to explain.
In stock research, target prices usually stem from a structured process: forecasting future earnings, applying valuation multiples, and discounting the results to present value. This approach works because the assets themselves generate measurable economic output.
Crypto assets lack this anchoring effect. Their upside depends on whether new funds are willing to enter the market and accept higher prices. These funds almost always come from outside the crypto ecosystem—stocks, credit, or idle cash from declining yields.
Therefore, understanding the source and timing of liquidity is more important than tracking individual protocols or events. When capital begins seeking higher volatility and convexity, cryptocurrencies become one of the most attractive investment destinations. Conversely, when capital prioritizes preservation, cryptos are often the first to be sold.
In short, liquidity is the decisive factor; everything else is secondary.
Step Two: Focus on Macro Drivers First, Then Asset Details
The second pillar of this framework is macro analysis. Instead of starting with specific asset research, it’s more efficient to identify the variables influencing price movements—integrating all assets together.
At the highest level, five macro indicators play a core role:
- Interest rates, especially the difference between nominal and real interest rates.
- Inflation indicators, such as CPI and PCE.
- Economic growth metrics, like PMI and GDP trends.
- Systemic liquidity, often reflected in central bank balance sheets and money supply.
- Risk appetite, typically measured by volatility indices and credit spreads.
Many crypto participants closely watch Federal Reserve meetings but often focus only on rate decisions. However, institutional capital pays more attention to real interest rates (nominal rates adjusted for inflation), because real rates determine the true opportunity cost of holding yieldless assets.
Inflation data is widely discussed in crypto circles, but liquidity and risk appetite are rarely given enough attention. This is a blind spot. Money supply dynamics and volatility mechanisms often explain overall market behavior before various narratives emerge.
A useful mental model is a simple transmission chain:
- Inflation pressures influence interest rates.
- Interest rates affect liquidity conditions.
- Liquidity conditions influence risk appetite.
- Risk appetite drives asset prices.
Understanding where the economy stands along this chain provides deeper insights than analyzing assets in isolation.
Step Three: Build a Cycle-Based Thinking Model
The economic cycle is a familiar concept but remains crucial. From a macro perspective, cycles tend to alternate between expansion and contraction, easing and tightening.
In simple terms, this pattern usually looks like:
- Loose monetary policy favors risk assets, including cryptocurrencies and small caps.
- Tight monetary policy favors defensive assets like cash, government bonds, and gold.
This framework is not meant to be mechanically applied. Each asset’s response varies depending on timing, expectations, and positioning. Nonetheless, cycle-based references help avoid emotional decisions during market regime shifts.
A subtle but important point is that global economic cycles are not synchronized. The world does not operate as a single economy.
As growth slows in the US, it may be shifting from late-cycle high interest rates to easing. Japan might be cautiously ending decades of ultra-loose monetary policy. China continues structural adjustments in a low-inflation environment, while parts of Europe still grapple with stagnation.
Despite these differences, the US remains the anchor for global capital flows. USD liquidity and US interest rates continue to exert the strongest influence on global capital movement. Therefore, any global asset rotation framework should start with the US and expand outward.
Conclusion: A Framework Is Needed Before Prediction
The first half of this framework emphasizes structure rather than prediction. Its goal is not to forecast short-term price movements but to understand the factors that make certain assets competitive at specific times.
By redefining cryptocurrencies as liquidity-driven alternative assets, focusing on macro drivers before narratives, and basing decisions on cycle awareness, investors can avoid many common analytical pitfalls.
The next article will build on this foundation, exploring the sequence of capital flows, real-world indicators, and how to identify when liquidity truly shifts toward high-risk assets.
The above views are partly inspired by @Web3___Ace
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