Kondratiev Wave Node, Bitcoin’s Fundamental Shift.

What should one hold now? This seems to have become a question that everyone in Q2 2025 is concerned with.

When will Bitcoin rebound and rise again? This is probably the most frequently asked question at the Web3 Festival in Hong Kong during the first two weeks of April. In many panels and meetings, people raised questions and discussed how Trump’s tariff policy would affect the crypto market and Bitcoin’s price direction. To be honest, this simple question is not easy to explain, so I’ve returned to write this article for everyone’s reference.

tl;dr

1. The issue of bond, stock, and currency crashes and the failure of the Merrill Lynch clock.

2. The Thucydides Trap and comparison with the end of the five Kondratiev cycles in history.

3. Greenspan’s prophecy and the significance of Crypto at the intersection of Kondratiev cycles.

4. What the true Thucydides Trap is this time.

5. The shift in Bitcoin’s correlation with chaos: a change in inertia-based cognition and similarities with the Merrill Lynch clock problem.

6. The essential reason for the continuous growth of Crypto’s second growth curve.

1. The Issue of Bond, Stock, and Currency Crashes and the Failure of the Merrill Lynch Clock

Why did Trump adopt an extreme tariff policy? Simply put, it seems very MAGA—it can reduce dependence on imports, boost employment, and stir political sentiment. Unfortunately, the American public isn’t just a bunch of “little pinks.” High inflation and a $1.3 trillion budget deficit don’t create a fertile ground for buying into “Made in America.” The reality of survival problems is urgent and irreconcilable. With fiscal and monetary policies no longer effective, tariff policies have become a last resort. Buffett recently pointed out in an interview: “They (Tariffs) are an act of war to some degree.” Although many of Buffett’s ideas are outdated in the context of the next paradigm, this judgment is still very accurate. The world is at the intersection of a new Kondratiev cycle, where the post-war peace and credit system has nearly collapsed, and the reshaping of new mechanisms in this chaotic era has already begun.

In addition to the high VIX index, the simultaneous drop in bonds, stocks, and currencies is a clear signal. At this year’s Hong Kong Web3 Festival, I had an insightful discussion with Dr. Yi about the historical similarities between the bond-stock-currency crash in 1929 and 1971. The economic indicators and external environment of these two points in history are very similar to 2025. Whether we follow the script of the Great Depression + local wars, the Cold War confrontation script, or an entirely new independent script will depend on the performance of risk-averse financial assets, particularly gold. The notion of hoarding gold in chaotic times is a feature of the Kondratiev cycle intersection point. It’s important to note that gold’s role here is completely different from its commodity status during the overheat phase of the Merrill Lynch clock.

According to the standard view of the Merrill Lynch clock, the transition from the stagnation phase to the recession phase is a process of shifting from cash to bonds as king, and inertia leads everyone to wait for the subsequent recovery phase, which is a new growth cycle where stocks become king. Clearly, we are not in such a state. The external environment does not meet the conditions for entering the recovery phase, and the Merrill Lynch clock cannot continue to move downward. At this point, gold repeatedly hits new historical highs, clearly jumping out of the Merrill Lynch clock’s logic. We can also compare with other major commodities: oil, silver, copper, soybeans, rubber, cotton, and rebar have remained at or slightly above pre-pandemic levels, widening the gap with gold’s price increase.

The failure of the Merrill Lynch clock indicates that economic policies and market experiences in this stage will deviate from normal expectations. Trump’s tariff policies at this point are just a passive force of historical laws from a macro perspective.

Three additional points worth mentioning:

① The failure of the Merrill Lynch clock only occurs under the environment of crossing Kondratiev cycle nodes, but the intrinsic laws of the Merrill Lynch clock still hold true in the right external environment.

② During the crossing of Kondratiev cycles, in addition to gold, there are other risk-averse financial assets. For example, the recent global search for quantitative funds and CTA strategies is not accidental. Of course, whether Bitcoin will prove itself as “digital gold” in this opportunity, breaking its positive correlation with other financial assets and developing independently, remains to be seen.

③ The specific point at which the Merrill Lynch clock fails during the crossing of Kondratiev cycles doesn’t always align historically, and from a rule-based perspective, it’s not so important. However, from an asset allocation standpoint, if certain asset management companies and family offices are still following the inertia of previous strategies, they should pay close attention and adjust in time.

2. The Thucydides Trap and Comparison with the End of the Five Kondratiev Cycles

In 2020, I summarized a chart to describe the industry changes and geopolitical environment comparisons during the five Kondratiev cycles in history. However, very few people have experienced the intersection points of two Kondratiev cycles, so it only becomes more intuitive when one personally feels the impact from both the economic and policy perspectives.

Historically, the intersection points of Kondratiev cycles have usually led to the intensification of the Thucydides Trap or conflicts with imagined enemies. This time is no exception. The difference is that it has fallen between two countries, China and the U.S., which have a significant historical and civilizational path gap. Trump’s tariff policy fermenting into this outcome at this point is thus entirely reasonable.

The table below provides comparisons of various aspects at the end of the five Kondratiev cycles.

(Note: The Thucydides Trap is described in the sequence of Ruling Power – Rising Power.)

If we widen the perspective, the failure of the Merrill Lynch clock and economic policies becomes quite natural. The energy conflict at the intersection of Kondratiev cycles is clearly much greater than the changes in economic cycles under the Merrill Lynch clock. As a result, this intersection point directly shatters the operating Merrill Lynch clock and pushes us into the chaotic era.

By intuitively comparing, our current situation and the next ten years ahead become very clear. The paradigm similarities are no longer discussed, but several paradigm shift issues need to be considered:

① Will the new technological paradigm of digitalization and AI bring about a revolution in global production relations and governance methods?

② Is the Sino-U.S. relationship truly a Thucydides Trap between the two sides?

③ What role do Bitcoin and Crypto play in these two issues?

3. Greenspan’s Prediction and the Significance of Crypto at the Intersection of Kondratiev Cycles

Greenspan’s Prediction and the Significance of Crypto at the Intersection of Kondratiev Cycles

Similar to the tariff policies at the intersection points of Kondratiev cycles in history, Trump’s current tariff policy will also trigger a butterfly effect to some extent. Whether it’s internal economic issues in the U.S. or how Sino-U.S. relations are handled, if the policies aren’t smooth and reasonable enough, they will inevitably trigger a transmission effect that leads to the eruption of a chaotic era. However, this time, the failure may not only be the Merrill Lynch clock under the intersection of Kondratiev cycles mentioned above. From a longer-term perspective, due to the new paradigm of digitalization and AI gradually changing the essential structure of production units and labor organization from the last two centuries of the industrial revolution, the FED’s traditional monetary and fiscal policies that govern the U.S. economy and even influence the management of the global stable economic and trade structure will face intense challenges of failure or at least transformative change.

In his 2013 reflective work The Map and the Territory: Risk, Human Nature, and the Future of Forecasting, 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 “deeply rooted structural constraints.” The global structure and economic policies that evolved since the industrial revolution are increasingly mismatched with the rapid development of digitalization and AI. Since the explosive rise of digitalization and AI, production tools have changed exponentially, and with the emergence of Bitcoin in 2009, the development of the Crypto Market and Degen through four cycles over 16 years, the accumulated energy of productive forces and relations will inevitably erupt into a qualitative change at this fragile intersection point of the Kondratiev cycle.

It’s difficult to arbitrarily claim that Crypto and Blockchain Protocol Management will immediately take over all the economic policy governance roles under the previous paradigm starting from this point, but it’s clear that this is an unavoidable trend. It’s very likely that, in the coming decades, the world will remain in a dual governance structure, with Crypto and Blockchain Protocol Management growing or leading parts of global economic, financial, trade, settlement, and social governance work. At the same time, sovereign nation-states will still manage their societies and economies, including monetary and fiscal policies, in some regions, according to their original cultural methods and interests. This also responds to the “global major contradictions” solution direction mentioned earlier in The Post-Trump Victory Pattern Shift.

In summary, the significance of Crypto at this intersection and turning point is profound and will fundamentally change the global economic and social structure.

4. What is the Real Thucydides Trap This Time?

I don’t believe the Thucydides Trap at this stage is between China and the U.S. It’s not that the economic size of China and the U.S. doesn’t constitute competition, nor is it like Huntington said in The Clash of Civilizations, where a larger power struggle will occur between the West and Islam. This paradigm shift clearly goes beyond national and ethnic boundaries.

I remember back in 2014, a famous Korean investor who invested in Kakao told me that he believed global big cities are quite similar, and the consensus between them has surpassed the consensus within many countries’ own cities. In recent years, the formation of consensus among Digital Nomads and Degen further proves this point.

When looking at historical patterns like the Thucydides Trap, one must compare the similarities in historical paradigms, but also view the paradigm’s correspondence through the lens of technological and production changes. Particularly at this crossroads that breaks the “deep structural constraints,” the differences in management stances between China and the U.S. are not, from many angles, any larger than the essential differences between TradFi and DeFi, or between maritime law systems and Crypto Protocols, or even between conservatives and Degen cultures.

As I mentioned in a previous article: “Most countries and stakeholders around the world are still in an environment of semi-feudal, semi-centralized state capitalism, and the current primary contradiction is pushing them toward a transition to a semi-centralized state capitalism, semi-decentralized digital information governance environment.” At this crossroads of the global Kondratiev cycle and the accumulating forces for change, the resulting paradigm shift will definitely point towards the latter.

Looking back at the changes after the last five crossroad points, chaos and reconstruction, the surge in safe-haven assets, and the rapid development of the new generation of production technologies are all inevitable trends. What is different this time, however, is that while the energy accumulation is stronger and more globalized, the direction of this change is decentralized and systemically abstract. Therefore, in response to the question in the first paragraph, I believe the energy explosion at this node is more likely to face an entirely new independent script, with global chaos being intense, but the focus of the conflict will not be particularly concentrated.

5. The Correlation Shift Between Bitcoin and Chaos: The Change in Inertial Perception and Similarities with the Merrill Lynch Clock

In this context, Bitcoin has clearly prepared itself to claim the title of “digital gold.” However, history is always full of twists and turns. As of Q2 2025, under an environment of increasing chaos and panic, Bitcoin’s hedging ability still lags behind gold. During times of heightened chaos, Bitcoin continues to show similar downward performance to stocks, bonds, and currency, with its price negatively correlated to chaos to a certain extent.

The definition of chaos is not discussed here in detail. VIX can be an important factor, along with the MOVE index, hidden volatility in various assets, Libor-OIS spread, gold price volatility, divergence in FED and central bank interest rates, the proportion of negative interest rate countries, the war risk index, and the degree of global trade breakdown—all of these can serve as reference indicators.

The negative correlation with chaos is largely driven by the mindset of Bitcoin holders. This indicates that at least half or more of Bitcoin holders view their holdings as a means of asset appreciation or are simply engaging in speculative gambling (the reason it could be half is that a large portion of Bitcoin is locked for the long term or the private keys have been lost, or holders are too lazy to sell—both of which irrationally provide positive correlation). Moreover, these holders have a high turnover rate.

However, from the data of the past six months, Bitcoin’s performance has shown a significant divergence from all other altcoins. Although Bitcoin and various altcoins do not show a negative correlation, Bitcoin’s ability to resist downturns in various environments has gradually become evident, especially in the current environment where chaos is increasing after the end of 2024. This indicates that the correlation between Bitcoin and chaos is subtly 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 has continually pushed for a more lenient approach to the Crypto industry. Additionally, the recent tariff policy igniting further momentum has driven this Kondratiev cycle inflection point, resulting in a strong confrontation between the old and new cycles. This will help accelerate the reversal of the correlation between Bitcoin and chaos. As of mid-April 2025, the SEC has officially dropped lawsuits against several Crypto projects, including Uniswap, Gemini, OpenSea, Kraken, Consensys, Cumberland, Coinbase, and Ripple. Moreover, the FDIC and OCC have made significant adjustments in their oversight of banks participating in Crypto businesses, removing the requirements for approval and reporting. These favorable developments have not yet been fully digested by the public amid the current panic in the chaotic environment. The $2.6 trillion market still has many factors that haven’t been priced in (excluding the rapidly developing RWA and PayFi markets mentioned later).

At the end of this historical “garbage time,” we need to think about two questions: ① Before Bitcoin becomes positively correlated with chaos, will there be another round of emotional decline? ② How long until Bitcoin, like gold, forms a strong positive correlation with chaos and becomes a hedging asset? The catalyst to ignite this trend usually requires a shift in market and public perception, and this transformation process, if to occur smoothly, typically takes a long time. Clearly, this is not allowed at the current historical inflection point. Of course, Bitcoin has always alerted and educated the market and participants in a counter-cognitive manner, so in the coming period, extreme or counterintuitive market behaviors may occur.

Similar to the Merrill Lynch clock, Bitcoin also follows a four-year bull-bear cycle in the Crypto market due to its halving event. From the perspective of shifts in market sentiment and asset class preference, the process is very similar, just 2.5 times faster. However, after four cycles of development in 2016, this year has shown irregular characteristics, leading many to believe that we are currently in a “bullish bear market,” attributing strategy failures to the entry of ETFs and the collapse of Meme confidence. In essence, I believe this is due to the energy intervention of the Kondratiev cycle, where the current global chaos has disrupted the original Crypto market patterns. The past four cycles have familiarized people with the operation of Bitcoin and the Crypto market, successfully positioning it as a strategic reserve for various countries and professional institutions. This disruption of patterns at the current time, through the Kondratiev cycle inflection point, may well be the perfect moment for Bitcoin to emerge as digital gold.

In conclusion, 2025, as a period of significant change in the historical Kondratiev cycle, may see a brief downturn that breaks the previous four-year cycle experience, but we will soon witness a Bitcoin transformation that is positively correlated with chaos. This will, in turn, drive the next phase of significant growth in the Crypto market, marking the second growth curve of Crypto.

6. The Essential Reasons for the Continued Growth of the Second Curve in Crypto

At the Hong Kong Web3 Festival in early April 2025, the RWA (Real World Asset) topic became exceptionally hot, surpassing all others and successfully breaking through the skepticism held by some native degens from the previous cycle.

The search for Real Yield and sustainable development has gradually become a new consensus in the Crypto market this year. History is always shaped by external pressures. After the frenzy of Meme and BTCFi narratives in 2024, relying solely on storytelling and the first curve logic no longer holds much credibility without integrating Real Yields and Real Applications.

In my earlier article, “The Second Growth Curve of Crypto,” I mentioned and discussed some of the phenomena and initial reasons behind the rise of RWA and PayFi. Based on the description of the Kondratiev cycle inflection point in this article, we can understand that the fundamental reason for this trend is the irreversible demand for the establishment of new cycles and new paradigms under chaotic changes.

At this stage, many are concerned whether RWA and PayFi will become another fleeting narrative, never to return. It is clear that, unlike narrative refreshes and hollow staking, long-term structural changes will sustain value.

As of Q1 2025, numerous practical PayFi application scenarios and RWAFi funds have begun to emerge rapidly. The fast development of new-generation projects, protocols, and public chains, such as CICADA.Finance and Plume, will bring about an overall change in the market in 2025 and lay a solid foundation for the continued growth of the second curve in Crypto.

Trump’s tariff policy is merely a butterfly effect, but it triggers historical-level opportunities at the inflection point of the Kondratiev cycle. The expected and realized reversal in the correlation between Bitcoin and chaos will become a key driver for the growth of the Crypto second curve, including sectors like RWA and PayFi. This marks the beginning of the first phase of the new Kondratiev cycle, where Crypto and Blockchain Protocol Management gradually integrate into global economic, financial, trading, settlement, and social governance systems.

Disclaimer:

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