TL;DR: Whale 2026 Market Outlook – Liquidity and the New Order. Liquidity Tightening: The Fed's "defensive rate cuts" in 2025 did not bring the expected flood of liquidity. Instead, large-scale margin lending and repo-based financing continued to drain cash/reserves from the banking system; simultaneously, the US Treasury's large-scale issuance of T-bills made liquidity more reliant on short-duration, frequently rolled-over financing structures, resulting in damage to the dollar's liquidity structure and deterioration in quality. Shifting Allocation Logic: The Return of "Strict Diversification". Funds are no longer solely anchored to dollar assets, but flow to gold, non-dollar currencies, and assets with limited supply. Three Core Themes: In a regionalized context, resources (supply side), AI infrastructure (computing power/energy), and defense security become the asset classes with the highest certainty. Crypto Asset Differentiation: 2026 is a watershed year. Bitcoin, as a "digital commodity," will assume a hedging function, while equity-like tokens will need to provide higher risk compensation under clear regulation and the pressure of high risk-free interest rates. Key Conclusion: The pricing logic of the global market is undergoing a paradigm shift—from "buying growth (efficiency)" in the era of globalization to "buying location (security)" in the era of regionalization. Given the increasing complexity of liquidity risks, embracing hard assets with limited supply (resources/computing power/defense) is the only solution to cope with the "new order." Liquidity: Not abundant, and its quality is deteriorating. In early 2025, the main "bullish" factor for investors was Trump's official inauguration. The prevailing view was that he would trigger more interest rate cuts, injecting liquidity and pushing up asset prices. Indeed, from September to December 2025, due to concerns about the labor market, the Federal Reserve did implement three "defensive" interest rate cuts and announced the end of quantitative tightening (QT). However, this did not bring the "liquidity flood" that investors expected. From October onwards, the Effective Federal Funds Rate (EFFR) gradually moved towards the midpoint of the "interest rate corridor," and subsequently even drifted past the midpoint to the upper limit of the corridor—this is by no means a sign of looser liquidity. The EFFR is the core short-term market interest rate in the United States, reflecting the funding liquidity of the banking system. During periods of ample liquidity, the EFFR typically hovers near the lower bound of the corridor (because banks do not need to borrow frequently). However, in the final months of 2025, banks faced significant liquidity constraints—a key driver pushing up the EFFR. The SOFR-IORB spread further highlighted this pressure. If the EFFR reflects the cash market, then the SOFR (Securities-backed Funding Rate) captures a broader liquidity shortage.Since October 2025, the SOFR has consistently been higher than the interest rate on outstanding reserves (IORB), indicating that banks are willing to pay a premium to "bid" for liquidity even with collateral. Even after the Federal Reserve stopped shrinking its balance sheet, the SOFR-IORB spread did not fall significantly in January. A plausible explanation is that banks' liquidity was largely used for financial investments rather than lending to the real economy. Credit contraction: Over the past year, commercial and industrial loans have shrunk significantly compared to 2024, and consumer credit has also been weak. Leverage surge: In contrast, margin debt bucked the trend, growing by 36.3% to a record high of $1.23 trillion in December; investors' net borrowing balance also expanded to -$814.1 billion, in line with the growth of margin debt. As the liquidity requirements needed to push up the market increase, the banking system is under pressure. To maintain high valuations without triggering a stock market sell-off (a path unacceptable to the White House), the market is heavily reliant on repo market liquidity. In 2025 alone, the repurchase market surged from approximately $6 trillion to over $12.6 trillion—more than three times the size during the 2021 bull market. In 2026, the repurchase market may need to expand further to support the stock market. Repurchase transactions typically use U.S. Treasury securities (T-notes) as collateral. However, since mid-2023, the issuance and proportion of short-term Treasury bills (T-bills) have grown exponentially. This is not a benign sign: a rising proportion of T-bills typically foreshadows a deterioration in sovereign creditworthiness. When investors doubt a government's ability to repay its debts, the government is forced to rely on short-term financing, leading to a further increase in the T-bill proportion, creating a vicious cycle. Another direct consequence of the rising T-bill proportion is that liquidity fluctuations are no longer stable. Over-reliance on short-term T-bills means more frequent rollovers and shorter average liquidity "lifespans." With overall leverage already exceeding historical peaks, frequent and drastic liquidity fluctuations weaken the market's resilience—laying the groundwork for potential cascading liquidations. In short: The quality of dollar liquidity deteriorated significantly in 2025, with no signs of improvement. Risk premiums and "strict diversification" are at play. The direct cost of declining dollar liquidity quality is persistently high long-term funding costs. With the surge in the size of the US Treasury bond market (reaching $38.5 trillion by the end of 2025) and rising policy uncertainty, systemic risk premiums have risen accordingly. Despite a 75 basis point cut in policy rates, the 10-year Treasury yield, a long-term anchor, only decreased by 31 basis points, meaning that long-term funding costs stubbornly remain above 4%. These high funding costs directly limit position allocation.When the implied forward return of a risky asset falls below the yield on government bonds, holding that asset for the long term becomes unattractive. Cryptocurrencies are a textbook example: as implied returns decline, investors gradually reduce their exposure, inevitably leading the market into a bear market. Short-term financing through T-bills is much cheaper than expensive long-term liquidity. But this creates an environment naturally conducive to speculation: investors tend to "borrow short, leverage heavily, and trade quickly." While the market may appear vibrant in the short term, this speculative bubble makes rallies unsustainable—a phenomenon vividly demonstrated in the highly liquidity-sensitive crypto market. Meanwhile, 2025 witnessed the return of "strict diversification" strategies. Unlike the traditional 60/40 strategy, liquidity was no longer confined to dollar assets but diversified across a wider range of assets. In fact, investors steadily reduced their holdings of dollars and dollar-pegged assets throughout the year. The results are evident: assets heavily leveraged by the US dollar (such as cryptocurrencies, WTI crude oil, and the dollar itself) underperformed, while assets less correlated with the dollar (such as precious metals) significantly outperformed other major asset classes. Notably, simply holding euros or Swiss francs did not outperform holding the S&P 500. This indicates a profound shift in investor logic—a shift that transcends a single business cycle. The new order. The most compelling reassessment in 2026 is not the linear question of "whether growth is strong," but rather the adoption of a completely new pricing grammar by the market. The two major assumptions that have underpinned returns over the past two decades—"ultimately efficient supply chains" and "unlimited central bank bailouts"—are crumbling. They are being replaced by "regionalization," where the objective function of the global economy shifts from "efficiency at all costs" to "efficiency under security constraints." Within this framework, the key to allocation is no longer betting in a single direction, but recalibrating exposure to three "hard variables": supply constraints, capital expenditure (Capex), and policy-driven order flows. Equity strategy: From "buying growth" to "buying location." If the past decade was about "buying growth," then 2026 will be about "buying location"—that is, the position of assets on the resource, computing power, and security map. First, there are resources (supply-side assets). In an era where security is paramount, increasing commodity (gold, silver, copper) inventories is rational, even when not urgently needed. This makes commodities no longer merely a mirror of the business cycle, but rather endows them with the attributes of "supply-constrained assets."Options market data shows that despite signs of overheating in some non-ferrous metals, traders still expect gold to have further upside potential in the long term. This logic also provides a basis for allocating resources-rich stocks. Copper (such as Chile) reflects the rigid demand for electrification and industrial infrastructure; precious metals (such as South Africa) have the dual attributes of commodity upside and risk premium. For portfolios, they should be regarded as "supply constraint factors." Next is AI infrastructure. The focus should return to the reality of balance sheets: computing power, energy, data centers, and cooling systems. Rather than chasing application-layer software narratives, it's better to lock in the new round of physical infrastructure. Markets like South Korea, which are at the global computing power industrial interface (semiconductors/electronics), have become direct beneficiaries of the AI Capex cycle due to their more visible capital expenditures and policy support. Furthermore, defense and security have returned to investors' attention. Influenced by the normalization of geopolitics, defense spending has become a rigid fiscal function constrained by national security. Although this sector is often volatile, it plays a crucial "tail insurance" role in portfolios. Meanwhile, the allocation value of Hong Kong stocks and Chinese assets lies in their low valuations and low correlation with European and American assets, providing scarce hedging value in the era of regionalization. Interest Rates and Treasury Bonds: Maintaining a Steep Curve. The core contradiction in the interest rate market in 2026 can be summarized in one sentence: the front end of the curve is more determined by the path of monetary policy, while the long end is more like a "container" for the term premium. Expectations of interest rate cuts do help to lower front-end yields, but whether the long end will decline in tandem depends on whether the tail risk of inflation, fiscal supply pressure, and political uncertainty allow the term premium to continue to contract. In other words, the "stubbornness" of the long end does not necessarily mean that the market has mispriced in the number of interest rate cuts; it may also mean that the market is repricing long-term risks. Supply dynamics will amplify this structural difference. Changes in the US fiscal financing structure will directly affect the supply and demand pattern of different maturities: when the money market has the capacity to absorb, front-end supply is more easily absorbed. In contrast, the long end is more prone to "pulsating" fluctuations driven by risk budget constraints and changes in the term premium. The implications for portfolios are clear: duration exposure should be managed in layers to avoid betting on a single path—such as "inflation disappearing completely and term premiums returning to extremely low levels." The persistence of curve-structured trading (such as steepening strategies) is not solely due to superior trading skills, but also because they align with the different pricing mechanisms at the front and long ends of the curve. Cryptocurrencies: Digital Commodities vs. Risk Assets.In 2026, the crypto market will see more pronounced internal differentiation. Bitcoin, as a non-sovereign, rules-based "digital commodity," is more readily accepted as a payment alternative and hedging tool within a regional narrative. In contrast, equity-like tokens behave more like high-risk assets. In an environment of clear regulation and acceptable risk-free returns, they must provide extremely high risk compensation to justify their allocation value. Therefore, crypto asset allocation should adopt a "separate account management" approach: placing Bitcoin within a commodity framework, leveraging its small weight to capture convexity; treating equity-like tokens as high-volatility risk assets, setting stricter return thresholds. This should be driven by "hard constraints" and fueled by "structural differentiation." In summary, the core of building a portfolio for 2026 lies in managing a series of "hard constraints," rather than simple predictions. This means restoring the strategic position of commodities and resource stocks to address supply bottlenecks, utilizing capital expenditures on AI infrastructure to lock in profit visibility, and relying on policy order flows from the defense sector to enhance portfolio resilience; simultaneously, it requires adapting to the reshaping of bond market returns due to term premium reversion and utilizing valuation differences in carefully selected non-US assets to provide structural hedging. This doesn't require investors to perfectly predict every macroeconomic event. Instead, in a regionalized era, the scarcest capability is reducing reliance on "perfect predictions": allowing hard assets to absorb structural demand, letting the yield curve absorb macroeconomic divergence, and letting hedging factors absorb market noise. The trading philosophy of 2026 will no longer be about trying to "guess the answer," but about "acknowledging constraints"—and accordingly, completely resetting asset allocation priorities. [Wu Blockchain]