From a historical perspective, bottoms almost always coincide with a fundamental shift in market mechanisms—a transformation that fundamentally reshapes investor behavior and expectations.

Article by: Jeff Park

Translation: Block unicorn

Preface

A few days ago, influenced by rumors that Kevin Woorch might be nominated as Federal Reserve Chair, Bitcoin’s price rapidly dropped to $82,000, then briefly fell near $74,500. This volatile price movement made me realize that even among the most seasoned traders in the global macroeconomic field, there remains a persistent unease—an alertness to the paradoxical personality of a “hawkish Fed Chair who wants to cut rates.” Because this contradiction itself embodies the duality within currency devaluation dynamics.

The theory behind currency devaluation trading sounds simple: print money, devalue currency, and hard assets appreciate. But this “cheap money” narrative masks a more fundamental issue—one that determines Bitcoin’s success or failure: how will interest rates change?

Most Bitcoin advocates conflate monetary expansion with hard asset appreciation, believing that capital will automatically flow into scarce stores of value. This view overlooks a key mechanism: if you don’t understand the yield curve’s trajectory, cheap capital doesn’t necessarily mean funds will flow into hard currencies. When interest rates fall, assets sensitive to duration—especially those with cash flows—become more attractive, creating strong competition for Bitcoin in terms of attention and capital. This indicates that the path from currency devaluation to Bitcoin dominance is not linear but depends on whether the current financial system can sustain itself or will collapse entirely.

In other words, Bitcoin is a risk premium duration (Risk Premium Duration) devaluation bet.

This is the distinction I previously discussed between “Negative Rho Bitcoin” and “Positive Rho Bitcoin,” representing two entirely different arguments that require opposite market conditions to materialize.

Understanding Rho: Interest Rate Sensitivity

In options terminology, Rho measures sensitivity to interest rate changes. Applied to Bitcoin, it reveals two very different paths:

“Negative Rho Bitcoin” performs better when interest rates decline. This reflects the continuity theory, albeit in a more extreme form: as long as the current financial system persists, with central banks maintaining credibility, lower interest rates (possibly even negative) make risk assets like Bitcoin more attractive relative to (potentially negative) opportunity costs, becoming the fastest investment choice. Think back to 2020-2021: Fed rates dropped to zero, real interest rates plunged into negative territory, Bitcoin surged, becoming the most attractive alternative to holding cash.

Conversely, “Positive Rho Bitcoin” performs better when interest rates rise or when volatility around the risk-free rate itself surges. This is the “break” theory—when the foundational assumptions of the financial system are shattered, the concept of a risk-free rate is challenged, and all traditional assets must be re-priced for their cash flows. For assets like Bitcoin that do not generate cash flows, this re-pricing has minimal impact, while longer-duration assets suffer catastrophic losses.

Bitcoin’s current price is trapped, directionless, with no clear breakout volatility, perhaps indicating that investors cannot determine which theory is more important. And for most Bitcoin maximalists, the answer is unsettling, because concepts around inflation, and the closely related relationships between deflation and interest rates, are often severely misunderstood.

Two Types of Deflation

To determine which Bitcoin theory holds sway, we need to distinguish between two different types of deflation:

When productivity improvements lead to falling prices, it results in benign deflation (Good Deflation). AI-driven automation, supply chain optimization, and manufacturing process improvements: all can lower costs while increasing output. This type of deflation (sometimes called supply-side deflation) is compatible with positive real interest rates and stable financial markets. It favors growth assets over hard currencies.

When credit tightening causes prices to fall, it results in malignant deflation (Bad Deflation). This kind of deflation is catastrophic: debt defaults, bank failures, chain reactions of liquidation. Demand-driven deflation destroys the government bond market because it requires negative nominal interest rates to prevent total collapse. Stanley Druckenmiller once said, “The way to create deflation is to create asset bubbles,” explaining how malignant deflation destroys duration assets and makes hard currencies essential.

We are currently experiencing benign deflation in the tech sector, while avoiding the malignant deflation in credit markets. This environment is the worst for Bitcoin: enough to sustain growth assets’ appeal and maintain government bond credibility, but not enough to trigger systemic collapse. It’s the perfect breeding ground for extreme distrust in the Bitcoin market.

When cheap money doesn’t flow into hard currencies

Currency devaluation (money supply exceeding productive output) is happening. As previously noted, precious metals prices have risen due to dollar weakness, reflecting this trend. Silver and gold prices have soared to record highs, confirming that the dollar’s purchasing power for physical commodities is declining.

But Bitcoin has not followed precious metals higher, because structurally, Bitcoin faces resistance from negative interest rates: when rates are only moderate or low—not catastrophic—Bitcoin must compete with other long-duration assets for capital, and these competitors are enormous in scale.

The Three Major Competitors for Bitcoin

In a low-to-moderate interest rate environment, Bitcoin faces competition from three asset classes that can absorb funds that might otherwise flow into hard currencies:

1. AI and Capital-Intensive Growth (Total Market Cap over $10 trillion)

AI infrastructure development is the most capital-intensive growth opportunity since electrification. Nvidia alone has a market cap exceeding $2 trillion. The broader AI value chain—including semiconductors, data centers, edge computing, and power infrastructure—has a combined market cap approaching $10 trillion, and the software-enabled AI ecosystem could be even larger.

This is benign deflation: prices fall due to productivity gains, not credit contraction. AI promises exponential output growth while marginal costs decline. Since capital can fund the creation of real cash flow-generating production miracles, why invest in zero-yield Bitcoin? Even more troubling, AI’s insatiable demand for infinite capital is rapidly evolving into a massive, high-stakes arms race closely tied to national security.

In a low-interest environment, such growth assets—especially with government subsidies—may attract significant capital because their future cash flows can be discounted at favorable rates. Bitcoin, lacking cash flows to discount, only has scarcity. When other options fund infrastructure for general artificial intelligence (AGI), Bitcoin struggles to attract investors.

2. Real Estate (Over $45 trillion in the US alone)

The US residential real estate market exceeds $45 trillion; the global real estate market approaches $350 trillion. When interest rates fall, mortgage costs decrease, making housing more affordable and pushing up prices. Additionally, housing provides rental income and enjoys significant tax advantages.

This falls into the realm of malignant deflation: if falling house prices are driven by credit tightening rather than productivity declines, it signals systemic crisis. But in a low-interest environment, housing remains the primary store of wealth for the middle class. It’s tangible, leveragable, and socially connected—unlike Bitcoin.

3. US Treasury Market ($27 trillion)

The US Treasury market remains the largest and most liquid capital pool globally. Unpaid debt totals $27 trillion (and continues to grow), backed by the Fed, priced in the global reserve currency. When interest rates decline, durations lengthen, and Treasury yields can become quite attractive.

The key point: true deflation would cause the Treasury market to collapse. Negative nominal rates would become inevitable, and the concept of a risk-free benchmark would vanish. But we are still far from that scenario. As long as Treasuries offer positive nominal yields and the Fed’s credibility remains intact, they can absorb large institutional capital—pensions, insurance companies, foreign central banks—that Bitcoin can never reach.

The Zero-Sum Reality

These three markets (AI growth, real estate, and Treasuries) together total over $100 trillion. For Bitcoin to succeed in a negative Rho environment, it doesn’t mean all three must collapse, but their relative attractiveness compared to zero-yield investments must diminish.

This can happen in two ways: either interest rates plunge deeply into negative territory (making holding assets extremely costly—“pay to save”), or these markets begin to collapse (making their cash flows unreliable).

We are currently seeing neither. Instead, we are in a system where:

• AI is generating genuine productivity growth (benign deflation, favorable to growth assets)
• Real estate remains stable in a manageable interest rate environment (malignant deflation is controlled, supporting the housing market)
• Treasury yields are positive, and the Fed’s credibility remains solid (benign deflation benefits duration assets)

Bitcoin is caught in the middle, unable to compete with those assets that generate cash flows when the discount rate remains in the “golden zone” (not so low as to be irrelevant, not so high as to destabilize the system).

Why Kevin Woorch Matters

This raises the question of monetary policy architecture. Appointing someone like Kevin Woorch—who has proposed that “inflation is a choice”—to lead the Fed would mark a fundamental shift in policy paradigm, moving away from the post-2008 “low rates for the sake of low rates” model.

This is the message he conveyed in summer 2025:

Woorch represents a new Fed–Treasury agreement that recognizes the moral hazard of implementing quantitative easing while paying interest on reserves (IORB). It’s essentially capital theft disguised as monetary policy. The Fed creates reserves, deposits them at the Fed, and pays interest on funds that never enter the productive economy. It’s a subsidy to the financial sector with no real benefit for economic growth.

A Fed led by Woorch might emphasize:

• Higher structural interest rates to prevent financial suppression
• Reduced intervention on the balance sheet (less large-scale QE)
• Closer coordination with the Treasury on debt management
• Reassessment of the IORB mechanism and its fiscal costs

This sounds terrible for negative Rho Bitcoin: interest rates become moderate, liquidity decreases, and monetary policy becomes more orthodox. And that may indeed be the case (though I suspect the neutral rate remains below current levels, Woorch would agree—expect rate cuts, but perhaps not all the way to zero).

But it’s extremely bullish for positive Rho Bitcoin because it accelerates the liquidation process. If you believe debt growth is unsustainable, if you think fiscal dominance will ultimately override monetary orthodoxy, and if you believe the risk-free rate will eventually be proven fictitious, then you want Woorch. You want the façade to be torn down. You want markets to face reality rather than prolonging the illusion for another decade. You want risk pricing driven by industrial policy rather than monetary policy.

The Bullish Rho Scenario

Positive Rho for Bitcoin means the foundational assumptions of the financial system are shattered. Not gradual decline, but total collapse. This implies:

The risk-free rate becomes unreliable. This could be due to sovereign debt crises, conflicts between the Fed and Treasury, or a split in reserve currencies. When all asset pricing benchmarks lose credibility, traditional valuation models break down.

Duration assets face catastrophic re-pricing. If discount rates surge or currencies devalue, long-term cash flows become nearly worthless. Over $100 trillion in duration-heavy assets (government bonds, investment-grade bonds, dividend stocks) will experience the most severe re-pricing since the 1970s.

Ironically, Bitcoin’s lack of cash flows becomes an advantage. It has no earnings expectations, no coupons to devalue, and no yield curve to anchor market expectations. Bitcoin doesn’t need to be re-priced against a failed benchmark because it was never priced against one in the first place. It only needs to maintain scarcity when everything else proves to be excess or unreliable.

In this scenario, precious metals are the first to respond to the crisis, while Bitcoin reflects the post-crisis landscape. The current spot devaluation of commodities will converge with the future devaluation of the yield curve. Milton Friedman’s dichotomy—money supply expansion causing inflation and dominating asset prices—will merge into a unified force.

Ideological Insights

Returning to our earlier framework: metal prices tell you that spot devaluation is happening; Bitcoin will tell you when the yield curve itself is breaking.

All signs are already evident: the crazy K-shaped economy is leading humanity toward destruction, while socialism is rapidly rising—precisely because Bitcoin’s three major competitors threaten the welfare of the global middle class: housing affordability, income inequality driven by AI, and the asset-labor income gap. All three are nearing critical points, and once society rejects the failed social contract of financial and labor devaluation, a fundamental transformation is imminent.

And this is where Fed ideology begins to play a role. A true understanding that monetary policy is not isolated but works hand-in-hand with the Treasury to shape national industrial capacity, capital formation, and global competitiveness means a Fed chair who doesn’t recklessly pursue low rates. This is the pre-quantitative easing worldview—when interest rates are a strategic tool, not a sedative. Capital pricing should serve productive growth, not subsidize financial abstractions.

This stance makes the “awkward middle ground” less stable, because trillion-dollar issues become unavoidable: will the Fed restore financial repression, pushing rates near zero to sustain asset prices and fiscal solvency, reigniting the negative Rho Bitcoin thesis? Or will debt, geopolitics, and industrial realities force the Fed to confront the fictitious nature of the risk-free rate, ultimately leading to a positive Rho Bitcoin scenario?

This convergence signals a systemic shift: Rho becomes a leading indicator (while the dollar’s weakness becomes a lagging one), because deflation is more explanatory.

When artificially created “perpetual” fails, when coordination replaces illusion, and when all benchmarks for pricing are ultimately revealed as purely political rather than sustainable eternities, the true moment for Bitcoin will arrive.

Honestly, I don’t know if we are truly at the bottom now, and of course, no one can really claim to know (though technical analysts will always try). But one thing I do know from history is that bottoms almost always coincide with a fundamental shift in market mechanisms—an event that fundamentally reshapes investor behavior and expectations. It may be hard to see at the time, but in hindsight, it’s obvious. So if you tell me that, in retrospect, this marks the arrival of a new world order—an era led by the most innovative Fed Chair, with a weaponized Treasury reshaping the “interdependence” of central banks—I can’t think of a more poetic, inspiring, and satisfying omen that the final ascent is imminent.