Why can this bull market go further? What are the real risks?

2025-08-18 18:00:09

Collection

The driving force of this bull market no longer comes from the Federal Reserve or fiscal policy, but from the equity gains of large tech giants and record capital expenditures injected into the market.

Original Title: The Liquidity Pyramid: Why This Bull Market Still Has Legs

Compiled by: Asher, Odaily Planet Daily

Editor's Note: The bull market of summer 2025 is markedly different from previous ones. The sources of funding no longer primarily rely on the policy injections from the Federal Reserve or the Treasury, but are driven by equity gains from large tech giants and record capital expenditures. These funds are transmitted layer by layer into the crypto market through new mechanisms of corporate treasuries (TCo) and ETFs, forming a self-reinforcing flywheel effect. This article will delve into this mechanism, analyze the changes in the buyer structure of ETH and BTC, and provide market forecasts in conjunction with macroeconomic conditions and policy factors.

Despite the Federal Reserve tightening policies and fiscal stimulus waning, risk assets continue to soar, driven by two overlapping chains. First, AI-driven capital gains and record capital expenditures from large tech giants are continuously injecting risk capital into the crypto market through wages, vendor payments, and shareholder dividends. Second, corporate treasury TCo (Treasury Company) has established a new transmission mechanism that directly converts the reflexive frenzy of the stock market into on-chain buying, thereby forming a self-reinforcing market flywheel.

This flywheel effect not only withstands seasonal weakness and macro noise but also continuously drives the market upward until top-tier corporate capital expenditures decline or ETF demand stagnates. In other words, this bull market is driven by liquidity created by large publicly traded companies, rather than traditional monetary or fiscal policy.

The Shift in Liquidity Sources and New Crypto Buyers

Traditionally, market liquidity relied on the Federal Reserve or the Treasury, but the current liquidity has shifted. The equity gains and over $100 billion in capital expenditures from tech giants like Nvidia and Microsoft are radiating across all levels of the economy, affecting not only vendors and employees but also encouraging retail investors to increase their positions in risk assets, especially in the crypto market.

At the same time, a new structural buyer has emerged in the crypto market—corporate treasury TCo. In previous cycles, the lack of large buyers was one reason for price volatility, but now the corporate treasuries of BTC and ETH not only act as a funding bridge but also defend key price ranges and push for price breakthroughs. Corporate treasuries can be divided into two generations: early TCo are price insensitive and only serve as a bottom support; new ETH-related TCo have price discovery functions and can actively buy when equity values accelerate, forming a complete self-circulation: corporate stock issuance brings in funds, TCo buys reserve assets pushing token prices up, while the value of the parent company's stock held by TCo increases, reducing financing costs, and then reinvesting in the crypto market, creating a cycle.

It is important to note that this mechanism is not without risk. If ETFs or retail investors fail to fill critical price ranges, gaps may appear, leading to a rapid decline in token prices, and short-term volatility remains a concern.

Structural Changes in Ethereum

The ETH market is significantly different from previous cycles. In the past, buyers were mainly retail investors and miners, but now ETFs and TCo have become the market's main forces, jointly combating liquidity gaps, with price range defense and phased buying forming a new market narrative.

From a technical analysis perspective, this phenomenon can be understood using the "cup theory": prices first form a low point (the bottom of the cup) within a specific range, then slowly rise (the rim of the cup), creating a U shape overall. When prices break through the rim of the cup, it usually indicates that the market has the potential to continue rising. In the Ethereum market, corporate treasuries focus on defending the price range of $3000 to $3500, while ETFs buy in phases in the middle gaps, like filling a cup with water, allowing prices to smoothly break through the rim and continue the upward trend.

If tech companies maintain strong demand for ETH allocation, this rally still has room to extend; if demand is insufficient, the market may experience temporary gaps and corrections. Overall, the change in the market buyer structure means that Ethereum no longer relies solely on retail investors or miners but is jointly supported by institutions and corporate treasuries, making the market more stable and providing conditions for sustained price increases.

Dual Drivers of Macroeconomic Environment and Tech Giants' Capital Expenditures

In the current market environment, macro factors and AI development are intertwining to influence economic and market trends. U.S. commodity sales prices have risen for several months, with implied inflation levels around 4%, indicating that price pressures persist. Nevertheless, the Federal Reserve may still tolerate a certain degree of inflation to support economic growth, provided the labor market remains stable overall. However, the long-term high youth unemployment rate is often seen as a warning sign in the early stages of an economic cycle—young people are usually the first to feel economic fluctuations, and if employment conditions remain weak, the overall labor market may come under pressure, affecting risk assets.

Capital expenditures from tech giants are becoming an important source of market liquidity. Mega-scale tech companies are making massive investments in AI infrastructure, providing funds not only for vendor payments, employee compensation, and shareholder dividends but also potentially significantly enhancing the economy's total factor productivity in the medium to long term. If the productivity gains from AI meet expectations, by 2055, the U.S. public debt-to-GDP ratio is expected to drop from a baseline of 156% to about 113%, with per capita GDP also projected to grow by about 17%. However, it is important to note that historical experience shows that the productivity effects of technological innovation often have a lag, and the market tends to discount these future gains in advance, which is part of the logic behind the current high valuations in the stock and crypto markets.

At the same time, uncertainty in trade policies and tariff pressures are changing corporate investment behaviors. Faced with a complex international trade environment and policy ambiguities, many companies prefer to invest funds in financialized assets rather than long-term capital expenditures, such as factories, equipment, or expansion projects. This preference for short-term capital flows into asset markets has, to some extent, supported the rise of risk assets, forming a structural background for a bull market driven by private sector liquidity.

Investment Strategy

In terms of investment strategy, focus should be on high-quality tech giants with AI compounding stocks, while selectively positioning in infrastructure sectors such as computing power, electricity, and networks. In the crypto market, Bitcoin can serve as a benchmark asset for risk exposure, while Ethereum plays the role of the "self-reinforcing flywheel," requiring close attention to key price defense ranges and potential gaps. In terms of risk management, attention should be paid to the inflow and outflow dynamics of ETFs, the funding arrangements of corporate treasuries, and the capital expenditure plans of large tech companies. Moderate increases in positions can be made in key defense ranges, but if the market breaks through without subsequent support, caution should be exercised in reducing positions.

Overall, this bull market is significantly different from the 2021 cycle, with the current upward momentum primarily stemming from private sector liquidity driven by large tech companies. These companies release funds through equity gains and capital expenditures, directing funds to vendors, employees, shareholders, and retail investors, which are then transmitted to the crypto market through corporate treasuries and ETF structures, forming a self-reinforcing market flywheel. Key price ranges are defended and supported by corporate treasuries and phased buying, while ETFs and retail investors fill in the middle gaps, allowing market momentum to continue. As long as tech giants remain actively invested in capital, this chain of private sector liquidity remains open, and the bull market still has room for further extension.

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