Liquidity Pyramid: Why Can This Bull Run Continue?

Written by: arndxt, encryption KOL

Compiled by: Felix, PANews

This is a liquidity-driven bull market, but not in the traditional sense of liquidity.

The Federal Reserve has adopted a tightening policy, and the effects of fiscal stimulus are gradually fading, yet risk assets continue to soar. Why? Because the top-level economic capital gains and capital expenditures driven by AI are decreasing layer by layer, while encryption treasury companies (TCos) have designed a new transmission mechanism that can quickly convert the optimistic sentiment of the equity market into on-chain buying.

This flywheel can withstand weak seasonal factors and macroeconomic noise until super-sized capital expenditures shift or ETF demand stagnates.

My personal opinion is as follows:

Source of liquidity transformation: not from the Federal Reserve or the Treasury, but from the equity earnings and capital expenditures of AI mega-corporations. The wealth effect of Nvidia (NVDA) and Microsoft (MSFT), coupled with a capital expenditure wave exceeding $100 billion, is radiating towards the workforce, suppliers, and crucially, retail investor portfolios, pulling risk out of the curve and into the encryption market.

New buyers of cryptocurrency: TCos (like MicroStrategy for Bitcoin; Bitmine and other companies for Ethereum) are the bridge bringing public equity capital into spot tokens. This is the structural buyer that was lacking in the last cycle.

The macroeconomic headwinds are currently controllable: The macro data shows signs of sticky inflation risks (tariffs, wages, US dollar) and a weak labor market, but the optionality of AI productivity and the favorable regulatory factors for encryption currency have compressed the risk premium.

1. AI at the top of the pyramid

Capital gains → Risk rotation: As the Standard & Poor's 500 Index is overvalued (with an expected price-to-earnings ratio being high), retail funds are shifting towards loss-making tech stocks, high short-position combinations, and encryption.

Capital expenditure as liquidity: Record spending by mega-corporations has acted as a liquidity pump for the private sector, with funds flowing to suppliers, employees, and shareholders, and then returning to the market.

Side effects: The construction of AI infrastructure (data centers, chips, electricity) currently shows investment growth, which will be reflected in productivity enhancement in the future. Time lag → wealth effect becomes apparent immediately.

2. TCos = DAT

From "first generation" to price-driven TCos: early TCos (such as Saylor) were insensitive to price. The emerging ETH-centered TCos pursue price, defend key price levels, and break through while accelerating the upstream equity value.

Self-reinforcing loop: equity financing → purchase reserve assets (BTC/ETH) → token price rises → TCos equity rises → capital cost decreases → repeat. This is the flywheel effect.

Fatal weakness: the gap between defense levels. If the ETF / retail investors fail to fill the gap in between, failed breakout attempts will force traditional financial companies (TCos) to hold cash, and prices will quickly fall back.

3. The favorable policies and market positioning

The relaxation of regulations and a more friendly stance towards cryptocurrencies have unlocked funding channels for traditional finance (TradFi).

The "tariff 'solution'" is just a mirage: companies are still unable to make accurate judgments about future tariff trends. Uncertainty drives companies to prefer financialization over capital expenditure—more funds chasing assets.

Current Status of Ethereum (and Reasons for Its Rise)

After years of underperformance compared to L2, the demand for government bonds and ETF inflows have brought a turning point for ETH.

"Cup Theory" perspective: Seeking price defending ETH trading companies (TCos) at $3000, $3300 to $3500, and $4000; retail investors (ETFs) need to fill the gap in between. If approximately $27 billion in demand is realized in stages, the current market can continue. If not, price volatility (the gap at the bottom of the cup) will become a problem.

Personal opinion: The buyer group of ETH has undergone structural changes compared to previous cycles. It is no longer "retail vs miners", but rather ETF + TCos vs liquidity gap.

Macro: The Wall of Worries (and Why the Market is Rising)

inflation

Investigating Supply Chain Pressures: The sales price index has risen for three consecutive months (the highest since August 2022), indicating an increase in commodity price pressures, which aligns with tariff passthrough, a weakening dollar, and wage stickiness.

Interpretation: An implied inflation rate of about 4% is not a crisis but will complicate the process of interest rate cuts. The Federal Reserve can only tolerate inflation that is conducive to economic growth if there are no cracks in the labor market.

labor force

The youth unemployment rate in the labor market has surged (approximately 17%, three-month average), serving as a warning signal in the early stages of the economic cycle. Young people are the first to feel the changes in the economic situation; if this issue spreads to core employment sectors, the risks will become apparent.

Growth, Debt and AI

The fiscal offset effect of AI: If total factor productivity is 50 basis points higher than the baseline level in the coming decades (AI scenario), by 2055, the ratio of public debt to GDP could be around 113%, compared to a baseline level of 156%, and per capita real GDP could be approximately 17% higher. In other words, AI is the only reliable growth lever capable of reversing the debt curve.

But the lag effect is important: the capital expenditure on computers from the 1980s to the productivity boom of the late 1990s indicates that the widespread adoption of AI takes time. Today, the market is underestimating future efficiencies.

Tariffs and Uncertainty

Policy Fog = Valuation Clarity Risk: Uncertain tax rates, ambiguous agreements (EU/Japan), changes in exemptions, and legal challenges all contribute to an unclear future cost curve. This leads CFOs to prefer holding financial assets over long-term physical assets, ironically supporting the market while increasing medium-term inflation risks.

Bear Market vs. Bull Market

bearish factors

The cash balance of the treasury has decreased + quantitative tightening (QT) is still constrained.

Seasonal factors are weak in September.

The early labor market shows signs of fatigue; inflation accelerates again (tariffs / wages).

bullish factors

AI capital expenditure + wealth effect is the current source of liquidity.

The shift in encryption policy has opened the funding floodgates of traditional finance.

The TCos/ETF structure is a continuous mechanical buyer.

The dovish stance of the Federal Reserve in 2026 is a credible forward-looking catalyst.

In summary: As long as the chain AI → retail investors → TCos → spot trading remains intact, we should remain optimistic.

When will you change your mind?

Significant reduction in capital expenditures: AI infrastructure orders have noticeably decreased.

ETF demand stagnates: Continuous capital outflow or failed secondary issuance.

TCo equity financing window closed: financing rounds decreased, issuance failed, or the ratio of premium to net asset value plummeted.

Weak labor market: The youth employment market's weakness is spreading to the golden age employment market.

Tariff shock → Consumer Price Index: Goods inflation forces the Federal Reserve to tighten policy again instead of cutting interest rates.

Cycle positioning (NFA)

Core: High-quality AI composite enterprise; selectively holding key assets (computing, electricity, network).

Cryptocurrency: BTC as the beta version, ETH as a reflexive flywheel. Emphasize defensive levels; assume there is a gap between the two.

Risk Management: Adjust positions based on ETF flow data, TCo issuance calendar, and guidance from large-scale enterprises. Increase positions at defensive levels; reduce positions during frenzied breakouts without follow-up.

Summary

This cycle is different from 2021.

It is driven by the liquidity of private enterprises, which comes from AI equity earnings and capital expenditures, and is transferred into encryption through a new corporate structure, and recognized by ETFs.

The flywheel is real, and it will keep spinning until the top of the pyramid (the super-large enterprise) stops operating.

Prior to this, the path of least resistance is still upward (rising) and to the right (sideways).