Author: Zuoye
The cycle originates from leverage. From the fast-growing and fast-dying meme coins to the 80-year-long technological Kondratiev waves, humanity always finds some force, belief, or organizational method to create more wealth. Let’s briefly review our current historical coordinates to frame why the intertwining of crypto, stocks, and bonds is so important.
Since the Great Geographical Discoveries at the end of the 15th century, the core economies of capitalism have undergone the following changes:
• Spain and Portugal—physical gold and silver + brutal colonial plantations
• Netherlands—stocks + corporate system (Dutch East India Company)
• Britain—gold standard + colonial scissors difference (military rule + institutional design + imperial preferential system)
• United States—US dollar + US Treasuries + military outposts (abandoning direct colonization, controlling key outposts)
It should be noted that latecomers absorb the strengths and weaknesses of their predecessors. For example, Britain also adopted the corporate and stock systems, and the US also engaged in military rule. Here, the focus is on the innovations of new hegemons. Based on these facts, we can see two main characteristics of the classic capitalist trajectory:
• Hegemonic Cope’s Law: Just as animals tend to get larger through evolution, the scale of core economies keeps growing (Netherlands->Britain->United States);
• Economic debt cycle: Physical assets and commodity production give way to finance. The classic trajectory of a capitalist power is to profit through new financial innovations and capital raising;
• Leverage eventually collapses: From Dutch stocks to Wall Street financial derivatives, the pressure on returns tarnishes collateral, debts cannot be cleared, and new economies take over.
The US is already at the extreme scale of global dominance. What follows will be a long ending of “you in me, me in you.”
US Treasuries will eventually become uncontrollable, just as the British Empire did after the Boer War. However, to maintain a dignified end, financial products like crypto, stocks, and bonds are needed to extend the countdown to a debt collapse.
Crypto, stocks, and bonds serve as mutual pillars; gold and BTC jointly support US Treasuries as collateral, while stablecoins underpin the global adoption rate of the US dollar, making the deleveraging process more socialized in its losses.
Six Ways Crypto, Stocks, and Bonds Combine
Everything that brings happiness is nothing but an illusion.
Becoming bigger and more complex is the natural law of all financial instruments and even living organisms. When a species reaches its peak, disorderly internal competition follows; increasingly elaborate horns and feathers are responses to heightened mating difficulties.
Tokenomics began with bitcoin, creating an on-chain financial system out of nothing. The $2 trillion market cap of BTC, compared to the nearly $40 trillion scale of US Treasuries, is destined to play only a mitigating role. Ray Dalio’s frequent calls for gold to hedge against the dollar are similar.
Stock market liquidity has become a new pillar for tokens. The Pre-IPO market is seeing tokenization possibilities, and stock tokenization is becoming a new vehicle after electronification. The DAT (treasury) strategy will be the main theme in the first half of 2025.
However, it should be noted that while the on-chain transformation of US Treasuries is self-evident, token-based bond issuance and on-chain company bonds are still in the experimental stage, though small-scale practices have begun.
Image description: Growth in ETF numbers
Image source: @MarketCharts
Stablecoins have become an independent narrative. Tokenized funds and debts will become new synonyms for RWA, while index funds and comprehensive ETFs anchored to more crypto, stock, and bond concepts are beginning to attract capital. Will the traditional ETF/index liquidity absorption story replay in the crypto world?
We cannot judge this for certain, but forms such as altcoin DAT and staking ETFs have already announced the official arrival of a new leverage upcycle.
Image description: Forms of crypto-stock-bond combinations
Image source: @zuoyeweb3
Tokens as collateral are becoming increasingly weak in both DeFi and traditional finance. On-chain, USDC/USDT/USDS are needed; in some sense, they are just variants of US Treasuries. Off-chain, stablecoins are becoming the new trend. Before this, ETFs and RWA have already made their own attempts.
In summary, the market has roughly produced six types of crypto-stock-bond combinations:
• ETF (futures, spot, staking, general)
• Crypto-stocks (financialization methods transforming on-chain use cases)
• Crypto company IPOs (Circle represents the “hard ceiling” of the stablecoin trend at this stage)
• DAT (MSTR crypto-stock-bond vs ETH crypto-stock vs ENA/SOL/BNB/HYPE tokens)
• Tokenized US Treasuries and funds (Ondo RWA theme)
• Pre-IPO market tokenization (not yet scaled, dangerous dormant period, on-chain transformation of traditional finance)
The end and exit timing of the leverage cycle cannot be predicted, but the basic features of the cycle can be outlined.
Theoretically, when altcoin DAT appears, it is already the top of a long cycle. However, just as BTC can range around $100,000, the complete virtualization of the US dollar/US Treasuries releases momentum that the market needs a long time to digest—often calculated in 30-year increments: Boer War to Britain abandoning the gold standard (1931-1902=29), Bretton Woods system (1973-1944=29).
Ten thousand years is too long; seize the day. At least until the 2026 midterm elections, crypto still has a good year ahead.
Image description: Current state of the crypto-stock-bond market
Image source: @zuoyeweb3
Looking at the current market structure, crypto company IPOs are the highest-end and most niche track. Only a very few crypto companies can complete a US stock IPO, which also shows that selling oneself as an asset is the most difficult.
Next best is reselling existing quality assets, which is relatively easier. For example, BlackRock has become the undisputed giant in the spot BTC and ETH ETF fields. New staking ETFs and general ETFs will become the new highs and lows of the competition.
Next, DAT (treasury) strategy companies are far ahead, being the only players to complete the three-way rotation of crypto, stocks, and bonds. That is, based on BTC, they can issue debt, thereby supporting their stock price, and use surplus funds to continue buying BTC. This shows that the market recognizes the safety of BTC as collateral and also recognizes Strategy itself as “representing” the asset value of BTC.
In the ETH treasury company field, BitMine and Sharplink at best only achieve crypto-stock linkage. They have not convinced the market of their ability to issue debt based on themselves (excluding the part where debt is issued for capital operations when buying coins). That is, the market partially recognizes the value of ETH but does not recognize the value of ETH treasury companies themselves. mNAV below 1 (stock price total value below held asset value) is just the result.
However, as long as ETH’s value is widely recognized, high-leverage competition will produce winners. Ultimately, only the long-tail treasury companies will fall, and the remaining ones will gain ETH’s representativeness. After the leverage up/down cycle, they will be the winners.
Currently, tokenized stocks are smaller in scale than DAT, IPO, or ETFs, but have the most application potential. Today’s stocks are in electronic form, stored on various servers. In the future, stocks will circulate directly on-chain—stocks will be tokens, and tokens can be any asset. Robinhood is building its own ETH L2, xStocks is coming to Ethereum and Solana, and SuperState’s Opening Bell helps Galaxy tokenize stocks on Solana.
In the future, tokenized stocks will compete between Ethereum and Solana, but this scenario has the least imagination space and highlights technical service attributes. It represents market recognition of blockchain technology, but the ability to capture assets will be transmitted to $ETH or $SOL.
In the field of tokenized US Treasuries and funds, there is a faint trend of Ondo becoming the sole player, because the combination of US Treasuries and stablecoins diverts flows. The future of RWA needs to explore more non-US Treasury fields, just like non-USD stablecoins. In the long run, the market size is huge, but it will always be a long-term process.
Finally, Pre-IPO adopts two methods: first raising funds and then buying equity, or first buying equity and then tokenizing and distributing it. Of course, xStocks is involved in both the secondary stock market and Pre-IPO. However, the core idea is to tokenize incentives in the unlisted market, thereby stimulating the publicization of the private market. Note this expression—this is the expansion path of stablecoins.
But under the current legal framework, will there still be room for regulatory arbitrage? There are expectations, but it will take a long period of adjustment. Pre-IPO will not be publicized quickly. The core of Pre-IPO is the issue of asset pricing rights, which is fundamentally not a technical problem. Wall Street’s many distributors will do everything to stop it.
In contrast, the distribution and incentive distribution of tokenized stock rights can be decoupled. “People in crypto don’t care about rights, they care more about incentives.” As for tax and regulatory issues on equity income, there is already global practice; on-chain implementation is not an obstacle.
In comparison, Pre-IPO involves Wall Street’s pricing power, while stock tokenization amplifies Wall Street’s profits, distribution channels, and brings in more liquidity. These are two completely different situations.
Upcycles Converge, Downcycles Crush
The so-called leverage cycle is a self-fulfilling prophecy. Any good news is worth two rallies, constantly stimulating leverage to rise. However, when institutions cross-hold different collateral, in a downcycle, they will first sell secondary tokens and flee to safe collateral. Retail investors have less freedom of action and ultimately take all the losses, actively or passively.
When Jack Ma buys ETH, China Renaissance Capital buys BNB, and CMB International issues a Solana tokenized fund, a new era enters our time: global economies remain interconnected through blockchain.
The US is the extreme under Cope’s Law, already the lowest-cost, most efficient governance model, but faces an extremely complex, intertwined situation. The new era’s Monroe Doctrine does not fit objective economic laws. The internet can be segmented, but blockchain is miraculously and naturally unified. Any L2, node, or asset can be integrated on Ethereum.
From a more organic perspective, the combination of crypto, stocks, and bonds is a process of position swapping between whales and retail investors. It’s similar to the principle of “when bitcoin rises, altcoins can’t keep up; when bitcoin falls, altcoins fall even more,” though the latter is more common in on-chain ecosystems.
Let’s discuss this process:
1. In the upcycle, institutions use leverage to move into high-volatility assets with lower collateral prices. In the downcycle, institutions will first sell alt assets to maintain positions in high-value assets;
2. Retail investors do the opposite. In the upcycle, they sell more BTC/ETH and stablecoins to buy high-volatility assets. But due to limited overall capital, once the market turns bearish, they need to sell more BTC/ETH and stablecoins to maintain high leverage in altcoins;
3. Institutions can naturally tolerate larger drawdowns. Retail investors’ high-value assets are sold to them, and retail’s leverage-maintaining behavior increases institutional tolerance, forcing retail to continue selling assets;
4. The end of the cycle is marked by a leverage collapse. If retail cannot maintain leverage, the cycle ends. If institutions collapse and trigger a systemic crisis, retail still suffers the most losses, as high-value assets have already been transferred to other institutions;
5. For institutions, losses will always be socialized. For retail, leverage is their own noose, and they still have to pay institutions. The only hope is to exit before other institutions and retail, which is as hard as landing on the moon.
The grading and evaluation of collateral is just a surface phenomenon. The core is pricing leverage based on expectations for the collateral.
This process does not fully explain why altcoins always fall harder. To add, retail investors desire higher leverage more than issuers do. That is, retail wants every asset pair to be 125x, but in a downcycle, the actual counterparty in the market becomes retail themselves. Institutions often have more assets and more complex hedging strategies, which retail must also bear.
In summary, crypto, stocks, and bonds synchronize leverage and volatility. Tokens, stocks, and debt—let’s dive in from a financial engineering perspective. Imagine a hybrid stablecoin partially based on US Treasuries and using delta-neutral strategies. Such a stablecoin could connect the three forms of crypto, stocks, and bonds. Only then can market volatility make hedging mechanisms effective and even more profitable, i.e., rising in sync.
ENA/USDe already partially have this feature. Let’s boldly predict the trajectory of the deleveraging cycle: higher leverage will attract more TVL and retail trading. Eventually, volatility will reach a critical point. The project team will prioritize protecting the USDe peg and abandon the ENA token price. Then, DAT company stock prices will fall, institutions will exit first, and retail will be left holding the bag.
Afterwards, an even scarier multi-leverage cycle will appear. ENA treasury investors will sell stocks to maintain their value in ETH and BTC treasury companies. But some companies will inevitably fail, slowly blowing up. First, small-token DATs will be liquidated, then large-token small DAT companies, and finally, the market will be on edge, watching every move of Strategy.
Under the crypto-stock-bond model, the US stock market becomes the ultimate source of liquidity, and will eventually be pierced by linkage effects. This is not alarmist—US stocks have regulation but still couldn’t stop the LTCM quant crisis. Now with Trump leading everyone to issue tokens, I don’t think anyone can stop the explosive linkage of crypto, stocks, and bonds.
Global economies are connected on the blockchain and will explode together.
At this point, in the opposite direction, any place with remaining liquidity—on-chain or off-chain, in any of the six crypto-stock-bond forms—will become an exit opportunity window. The scariest thing is that there is no Federal Reserve on-chain. When the ultimate liquidity provider is absent, the market can only fall to rock bottom, ending in heat death.
Everything will end, and everything will begin.
After a long “painful period,” retail investors gradually accumulate sparks of BTC/ETH/stablecoin purchases by delivering food, gifting institutions a new concept for a prairie fire. A brand new cycle begins again. After the financial magic is eliminated and debts are cleared, real labor-created value will still be needed to put an end to everything.
Readers may notice: why not discuss the stablecoin cycle?
Because stablecoins themselves are just the external form of the cycle. BTC/gold supports the shaky US Treasuries, and stablecoins support the global adoption rate of the US dollar. Stablecoins cannot form a cycle on their own; they must be coupled with more fundamental assets to have real yield capability. However, stablecoins may bypass US Treasuries and anchor more to BTC/gold and other safer assets, thus smoothing the leverage curve of the cycle.
Conclusion
From “the classics annotate me” to “I annotate the classics.”
On-chain lending has not yet been touched. The integration of DeFi and CeFi is indeed underway, but it is not closely related to crypto-stocks. DAT is somewhat involved; future articles will supplement institutional lending and credit models.
The focus is on examining the structural relationships among crypto, stocks, and bonds, and what new varieties and directions they will create. ETFs are already solidified, DAT is still fiercely contested, stablecoins are expanding massively, and both on-chain and off-chain offer the greatest opportunities. Crypto-stocks and Pre-IPO have unlimited potential, but it is difficult to transform traditional finance through compatibility without building their own internal circulation systems.
Crypto-stocks and Pre-IPO need to solve the rights issue, but “solving it through rights” won’t work. Economic effects must be created to break through regulation. Facing regulation will only lead to bureaucratic shackles. The history of stablecoins shows this most clearly—surrounding the cities from the countryside is most effective.
Crypto company IPOs are the process of traditional finance redeeming and pricing crypto. It will become increasingly bland. If you want to go public, do it early. Once the concept is exhausted, it’s all about quantitative valuation, just like Fintech and manufacturing. The imagination space will gradually decrease as the number of listings increases.
Tokenized US Treasuries (funds) are a long-term layout, unlikely to yield excess profits, and have little to do with retail, highlighting more the technical use of blockchain.
This article is mainly a static macro framework, lacking dynamic data, such as Peter Thiel’s allocations and investments in various DAT and ETF projects.
And when leverage is withdrawn, whales and retail move in opposite directions. Whales will sell secondary assets first and keep core assets. Retail must sell core assets to maintain leverage in secondary assets. That is, when bitcoin rises, altcoins may not rise, but when bitcoin falls, altcoins will definitely crash. All this needs data to illustrate, but for now, we can only set up a static framework to clarify the thinking.
