Liquidity transfer hidden under the game between China and the United States

Author: Crypto_Painter; Source: X, @CryptoPainter

I have been thinking about it for a long time recently, and I really want to make a systematic analysis of the overall structure of the current market. Why is there a countercyclical phenomenon in BTC and the entire cryptocurrency market?And how to use a complete narrative to connect AI, the game between China and the United States, and the abnormal performance of BTC and gold?

Let’s first talk about several market phenomena we have observed so far:

BTC has emerged from a bear market structure among global risk assets. It has fallen below MA50 on a weekly basis, market liquidity has been greatly reduced, and the bull market structure is crumbling. Even the beginning of this bull market is different from the past rhythm (BTC’s current bull market began with the interest rate hike cycle)…
Gold continues to reach new highs, followed closely by silver. The precious metals market behaves like the era of floods after 2020. Even so, buying orders are still coming…
The U.S. stock market is either strong or bad. Under the leadership of AI stocks, it has achieved epic gains comparable to those before the Internet bubble in 2000. While people are afraid of bubbles, they are constantly creating bubbles…
The game between China and the United States is constantly evolving from the aspects of trade, technology, AI, geography and even public opinion. In the process of ups and downs, everyone has planted the expectation that “sooner or later a full-scale conflict will break out between China and the United States”…

The above is the phenomenon, and the following is a preliminary analysis:

What stage is BTC currently in?

Many people will say that the market has clearly turned bearish, and many people are focusing on the direction of macro policies and saying that the bear market is still early. The main controversy in the current market actually comes from the contradiction between technical aspects and macro aspects;

Let’s talk about the technical aspects first. The bull market structure of BTC usually follows a continuous and rhythmic rise. During this period, there may be a correction, but the depth or intensity of the correction will not destroy the original structure of gradual upward movement of high and low points.

Take BTC’s weekly MA50 as an example:

Chart from Coinbase: BTCUSD spot trading pair

The iconic signal of the end of the bull market in 2017 and 2021 is the weekly sharp fall below MA50. The fall below due to the epidemic in 2020 was immediately recovered afterwards, so it can be ignored for the time being.

The current weekly chart of BTC has once again fallen below MA50. According to standard technical analysis, there will be at most one rebound against MA50 in the future, and then it will be the main decline wave of the bear market…

From this perspective, my ASR weekly channel indicator and super trend indicator all reflect a similar trend destruction structure. For anyone who believes in the “efficient market hypothesis”, they will think that this is an early manifestation of a bear market…

“Outside of this market, there must be something long-term negative that has not been widely reported, otherwise the market would have no reason to commit suicide before dawn…”This is the view of most technical analysts, and I personally agree with this.

At this time, objections emerged:

Macro analysts will say: “The interest rate cutting cycle has begun, and the release of liquidity will come sooner or later. Don’t forget that the Fed’s QT has just ended!”

If we can indeed easily deduce this conclusion based on the correlation between past cycle changes and macro policies, as long as the macro is in an easing cycle, the market will not truly go bearish…

But the question is “Is the correlation between the macro cycle and the BTC bull and bear cycle itself a constant and unchanging relationship?”

ifThe Fed can regulate global liquidity through monetary policy aloneWhat about the fact that it no longer has actual control?

ifThe U.S. dollar is the only reserve currency for international trade today.Has this fact become less convincing?

So will the correlation between macro cycles and cryptocurrencies become less solid?

There is no answer to this question in theory. We can only judge after the market gives the answer. However, the purpose of this article is still to find a clue to the possibility of the future from the clues, so the best way is to collect more information!

So, there was a discussion about gold…

Is gold gradually becoming a new currency anchor?

To answer the above questions, I think gold is the best angle to start with.

To put it simply, the People’s Bank of China’s frenzied purchase of gold reveals a completely different direction for the future currency anchoring strategies of China and the United States.

China’s central bank gold reserve curve

What China is doing now is to bind the RMB to gold one day in the future, and at the same time take over the current status of the US dollar at the appropriate time. Different from the “Bretton Woods System”, China has adopted a “decentralized” gold corridor architecture at the practical level. The global treasury system can realize a distributed accounting network similar to BTC miners.

This gives the new system a perfect monetary credit foundation, which happens to be the monetary attribute that the US dollar is gradually losing. For specific details, you can view the article through the link above. What we mainly need to discuss here is:

Does this reduce the status of the dollar to some extent?By the way, does this also reduce the Fed’s actual control?

To answer this question, we must first ask, “What is the monetary base of the U.S. dollar?”

In the last century, gold was used, so the U.S. dollar was also called the U.S. dollar, but it ultimately failed…

Later, it was oil, so the US dollar was also called petrodollar. However, with the development of new energy and the gradual changes in the oil settlement system, the foundation of this currency is also loosening…

Later, it was the United States that was ahead in technology, military power, culture, and huge. But as time goes by, we gradually find that the cultural lead becomes more and more strange. LGBT seems to have destroyed this advantage, and the lead in military power has long been sucked by the military-industrial complex. Today, almost no one thinks that the United States can win a local war with China on China’s doorstep…

This is not what I said, it was actually said by the Pentagon itself…

So, what’s left of the dollar’s foundation?

It seems that only technology is leading, and the leading technology here mainly refers to AI…

If technological leadership is gradually lost, the U.S. dollar will gradually lose its current reserve currency status, which may be followed by a decline in the influence of the Federal Reserve’s monetary policy on the outside world. In other words, the Federal Reserve’s status does not come from the power of their government agencies, but from the U.S. dollar itself.

To take an extreme example, when other countries in the world no longer use the U.S. dollar, all the policies of the Federal Reserve can only affect the domestic economy and will have almost no substantial impact on the outside world except the exchange rate.

Therefore, when the logical chain is deduced here, you will find that the macro cycle brought about by the Federal Reserve requires the stability of the US dollar’s status, and the stability of the US dollar’s status requires the stability of the United States’ international status. The stability of the United States’ international status currently requires the stability of its leading position in science and technology, and its leading position in technology currently relies entirely on the advantages of the U.S. AI industry to remain stable…

The question arises again: “Is AI’s leadership currently stable?”

Is there currently a bubble in AI?Is the leading position stable?

You see, we people in the currency circle love Lenovo. In order to get the answer to whether BTC has entered a bear market, we can actually ask whether there is a bubble in the US AI industry??

Before writing this article, I made a special poll to let everyone judge intuitively without overthinking, which one has a bigger bubble, NVDA or BTC?

The results showed a 4:6 split. Almost 60% of people believed that AI, or NVDA, had a bigger bubble…

Why is there such an intuitive judgment?

We can start with the data:

You can directly search for “US stock AI circular financing” to get the specific details. I will briefly describe the process, as shown in the picture above:

NVDA invested in OpenAI, and the latter’s valuation took off;
OpenAI signed cloud service orders with other giants, and the latter’s valuation took off because the order was too big…
In order to make this order, the cloud service company had to place a larger order from NVDA to purchase chips, so NVDA’s valuation took off again… completing the closed loop…

At present, all companies in the AI sector are actually participating in this cycle to varying degrees, which has brought about the prosperity of the US stock market and indirectly the prosperity of the US economy.

Ordinary investors see no problem with this cycle, but those of you who have been in the currency circle and Defi for many years should have noticed that something is wrong…

If this revolving financing structure is based on real needs, for example, if someone really needs a certain factory to produce a large number of drones for war, then there will be no logical problem. However, all revolving financing in the AI sector is currently based on “future demand”…

If there is such a huge demand in the future, then there is indeed no bubble in AI. The question is, what if there is not such a huge demand?Or is demand far less than expected?

Remember the classic case of milk dumping from factories during the Great Depression?

In order to figure out how big the demand for AI will be in the future, I have subscribed to most mainstream products. Recently, I have even been using Cursor for Vibe Coding…

I can feel that this is a huge market, but compared with the current overall valuation of the US stock AI sector, the size of this market seems to be a few less…

Of course, this is my personal feeling. Some people may think that expectations and valuations match perfectly.

After discussing the bubble, let’s talk about whether this position is stable?

My opinion is that the leading position is relatively stable at present. There is a generational gap between the first and second place, but this gap is slowly shrinking. The biggest lead is not necessarily at the technical level, but at the capital level.

The U.S. government has been doing its best to maintain this dominant position, which we can see from Trump’s behavior. On the other hand, Sam’s public speech actually verified this. Capital in the AI industry has determined that the scale of the entire market has developed to the “Too big to fail” stage.

Therefore, the conclusion is: the bubble is big, but the leading position is relatively stable, and the stability itself comes from the big bubble, because the US government will never allow it to be surpassed by China in terms of technology.

You see, this is another cycle. The bubble is very big, so the government will always take the bottom line, so it can continue to play with circular financing to its heart’s content, which will lead to an even bigger bubble, and the government must hold it in the palm of its hand for fear of breaking it…

This just explains why when the low-cost DeepSeek came out, it could cause so much damage to the AI sector of the US stock market…

You may ask, what does this have to do with BTC and cryptocurrencies?

Next comes the final step:

Liquidity transfer under the game between China and the United States

The logic is this, let’s break it down step by step:

The game between China and the United States has reached this stage and has turned into a potential currency war;
The U.S. dollar is in a defensive position, and China has begun to build a new currency settlement network behind the scenes (gold has skyrocketed). The most critical defensive stronghold for the U.S. dollar is AI and technology;
There is an obvious bubble in the AI industry, and it is a bubble that cannot burst, otherwise the United States may lose this currency war;
Therefore, a large amount of liquidity in the entire financial market will flow into the AI and technology fields;
The financial bull that starts in 2023 releases a lot of liquidity, and the encryption market and AI are both affected, because everyone’s market value is not high at that time;
This liquidity is gradually consumed under the background that interest rates are still at a high level. Until 2025, the exponential growth of liquidity demand begins to expand, and it is gradually unable to maintain the continued growth of market valuations.
The Federal Reserve is cutting interest rates too slowly, and the cost of high interest rates is gradually emerging;
Liquidity began to be scarce, so the “canary” that was most sensitive to liquidity was the first to fall. Yes, it was BTC…
The technical aspect shows a bear market signal before the macro aspect turns bearish;
This triggered an ongoing “technical bear market.”

To sum up, the current dilemma of cryptocurrency actually comes from the liquidity needs of US stocks to maintain prosperity…

To put it bluntly, both cryptocurrencies and AI are sons of current American landowners, but AI is a biological son and cryptography is a picked-up son. Therefore, when there is a lot of surplus food, both sons can be full. When there is no surplus food, the picked-up son is left hungry first…

My son’s academic performance is better than that of my neighbor’s son, but my neighbor has many sons. The only thing I can show now is my son’s report card…

But what the landlord doesn’t know is that although his grades are good now, his son may not necessarily earn more than his neighbor when he gets a job in the future. The pampering and pampering now is all for the sake of his son’s success in the future…

It turned out that the neighbor’s son went to a two-day cram school some time ago, and the quiz test that month was the same as his own son’s. This time the landlord was able to break his defense, so he decided to increase his efforts!

In order to make his own son progress faster, the landlord directly cut off the food for the son and fully funded the training of his own son…

The wild child who was driven away was still thinking about whether he could go to the neighbor’s house to make a living, but the neighbor posted a paper on the door saying that the wild child was not allowed to enter!!

Now the wild boy can only rely on himself…

Okay, the above is the general idea of this article. It is a note of my thinking process, so the opinions contained in it are my personal subjective opinions and are not verifiable. They are for reference only.