# The Global Liquidity Cycle and the 4-Year Crypto Cycle Have Been Talked to Death

Everyone discusses them, but few mention another cycle that's actually more meaningful than both of these.

This cycle truly determines global wealth distribution, asset pricing, and economic boom-and-bust cycles. With a typical timespan of 7-10 years, it's frequently overlooked by investors. Traditional macroeconomics generally calls it the business or credit cycle.

It's slightly more complex than the 4-year cycle. The typical path of a credit cycle is:

Easing → Credit Expansion → Asset Appreciation → Overheating → Inflationary Bubble → Tightening → Recession and Deleveraging → Easing Again.

We've just completed roughly half the cycle. Let me rewind the timeline to the cycle's beginning.

The first phase of the cycle begins with macro easing and credit expansion. After experiencing the previous crisis, central banks cut rates dramatically, funding costs plummet, and after repairing their balance sheets, corporations and households begin testing the waters with cautious borrowing.

At this stage, borrowers operate very conservatively—their cash flows must at least cover principal and interest. Credit thaws and the economy begins a gentle recovery.

As the economy improves, corporate profits increase and household incomes rise. Asset prices (stocks, real estate, crypto) climb steadily, creating strong wealth effects in the market.

Simultaneously, rising collateral values make banks more willing to lend. Corporations and households become bolder, gradually shifting to speculative financing—where cash flows only cover interest, with principals requiring continuous rollover or reliance on asset appreciation for repayment.

The flywheel begins spinning. Supply and demand both accelerate, society and consumption take on a prosperous appearance. Bubbles inevitably follow.

Market optimism rapidly transforms into euphoria as people begin extrapolating current prosperity linearly into eternity. Capital flees the real economy and floods into speculation. Ponzi financing emerges. Borrowers' cash flows can't even cover interest anymore—they depend entirely on continued asset price explosions and refinancing to survive. Meanwhile, overheated aggregate demand exceeds productive capacity limits, commodity and labor prices skyrocket, and inflation rapidly rears its head.

As a result, tightening and turning points arrive swiftly. Vicious inflation forces central banks to act, launching aggressive rate-hike cycles and draining liquidity from the market's foundation. Soaring interest rates cause funding costs to spike sharply. Ponzi financing that previously relied on low-rate rollover faces immediate funding gaps, asset prices halt their rise or begin collapsing, and collateral values shrivel rapidly.

Finally, we reach our current moment—the deleveraging phase, or recession and clearing, the most painful but also most necessary stage of the credit cycle.

Collateral depreciation triggers banking panic. Banks begin massive credit withdrawal. Highly leveraged firms go bankrupt, triggering mass layoffs. Household incomes plummet, forcing consumption cuts and asset sales to service debt. Asset prices crash further. The deflationary spiral of debt contraction accelerates market clearing. Reckless zombie firms perish, and system bad debts wash out rapidly.

Only when valuations become extremely cheap again and debt leverage returns to healthy levels can inflation be truly defeated, and only then can central banks lower rates again, initiating the next cycle.

This cycle began with the 2020 pandemic and, calculated over 7-10 years, we could see the true market bottom as early as next year. Of course, we can't rule out crypto forging its own independent path.

The logic is quite simple: as an emergent industry that exploded within this cycle, particularly given its high volatility and risk, crypto assets haven't accumulated excessive credit bubble fundamentals to the same degree.