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Fed’s big choice: Save the economy or unleash inflation hell?

Fed’s big choice: Save the economy or unleash inflation hell?

Weakness in the US labour market has cast a shadow over investor confidence, while trade policy announcements and fiscal uncertainties in the UK add layers of ambiguity. At the same time, financial markets, from equities to cryptocurrencies, are sending mixed messages, reflecting both resilience and caution.

In this analysis, I’ll explore these factors in depth, weaving together the data and offering my perspective on what it all means for the global risk landscape.

A troubling signal from the US labour market

The US economy, often seen as the engine of global growth, is showing signs of faltering, particularly in its labour market. The latest ADP employment report revealed that private sector employers shed 33,000 jobs in June, a stark reversal from the consensus expectation of a 98,000 job gain.

This marks the first negative reading since March 2023, a period when the economy was still grappling with post-pandemic recovery challenges. With the nonfarm payrolls (NFP) release looming, this data has heightened anticipation and anxiety among investors and policymakers alike.

The significance of the ADP figure lies in its role as a leading indicator for the NFP, which provides a broader snapshot of employment trends. A weak NFP report could confirm fears of a slowing US economy, potentially signalling the end of the robust growth narrative that has supported markets in recent years.

This possibility is particularly concerning given the Federal Reserve’s delicate balancing act between taming inflation and sustaining economic expansion. If the labour market continues to soften, the Fed might lean toward a more accommodative stance, perhaps lowering interest rates, though this could risk reigniting inflationary pressures.

This labour market weakness is a pivotal driver of the subdued global risk sentiment. Investors are understandably jittery, as a faltering US economy could ripple across global markets, dampening demand and weighing on corporate earnings.

The uptick in gold prices to US$3,357 per ounce and the slight dip in the US Dollar Index suggest that some are already positioning for a risk-off environment. The stakes are high, and the NFP release will likely be a defining moment for market sentiment in the near term.

Trade policy: A glimmer of hope amid uncertainty

On the trade front, President Trump’s announcement of a deal with Vietnam has sparked a flicker of optimism. The prospect of a new trade agreement could ease some of the tensions that have plagued global commerce, particularly in the context of the US-China rivalry.

Vietnam’s growing role as a manufacturing hub makes it an appealing partner for diversifying supply chains, potentially reducing reliance on any single country and bolstering economic resilience. Yet, this optimism is tempered by significant uncertainty. At the time of writing, no official confirmation has come from Vietnamese authorities, and details about the deal remain frustratingly scarce.

Trump’s track record of issuing bold, unilateral trade proclamations, sometimes followed by protracted negotiations or reversals, further adds to the skepticism. Without clarity on the agreement’s scope, timeline, or enforceability, it’s difficult for markets to embrace this development as a game-changer fully.

The trade announcement is a double-edged sword. On one hand, it hints at progress in stabilising global trade dynamics, which could lift risk sentiment if substantiated. On the other hand, the lack of concrete information leaves it as more of a headline than a foundation for confidence. Until Vietnam weighs in and specifics emerge, this remains a wildcard in the broader risk equation.

UK fiscal woes stir global ripples

Across the Atlantic, the UK is grappling with its own set of challenges that are reverberating through global markets. The government’s abrupt reversal on welfare reforms has reignited concerns about fiscal stability, amplifying political uncertainty at a time when clarity is sorely needed.

This policy shift triggered a sharp bear-steepening in gilt yields, a technical term that describes a scenario where long-term yields rise faster than short-term ones. In practical terms, it signals growing investor unease about the UK’s fiscal health and the potential for higher borrowing costs.

This market reaction hasn’t stayed confined to British shores. The upward pressure on gilt yields has contributed to a broader rise in global bond yields, including US Treasuries, where the 10-year yield climbed to 4.277 per cent and the two-year yield reached 3.785 per cent. This interconnectedness underscores how fiscal instability in one major economy can unsettle others, particularly when confidence is already fragile.

The UK’s predicament is a sleeper issue in the global risk narrative. While it may not dominate headlines like US labour data or trade talks, its implications are profound.

A sustained loss of faith in the UK’s fiscal management could erode its standing in global markets, prompting investors to shift toward safer assets and further dampen risk appetite. The bear-steepening in gilts is a warning shot, one that global markets would be wise not to ignore.

Markets reflect a tug-of-war

Overnight, US equity markets offered a mixed bag of results that mirror the broader uncertainty. The S&P 500 rose by 0.5 per cent and the NASDAQ gained a more robust 0.94 per cent, buoyed by strength in technology stocks.

Meanwhile, the Dow Jones slipped by a modest 0.02 per cent, hinting at uneven investor sentiment across sectors. This divergence suggests that while some corners of the market remain optimistic, perhaps driven by innovation or earnings resilience, others are more guarded.

The rise in US Treasury yields and the movements in commodity prices further illustrate this cautious mood. The 10-year Treasury yield rose by 3.5 basis points, and the two-year yield increased by 1.2 basis points, reflecting expectations of tighter financial conditions or lingering concerns about inflation.

Gold, a classic safe-haven asset, climbed 0.6 per cent to US$3,357 per ounce. In comparison, Brent crude surged three per cent, its most significant jump in two weeks, after Iran announced it was suspending cooperation with the UN atomic agency, stoking fears of oil supply disruptions.

In my analysis, these market movements reveal a tug-of-war between risk-on and risk-off impulses. The equity gains suggest some investors are betting on resilience, while the rise in yields and gold prices points to underlying worries about economic stability. Brent crude’s leap adds another layer of complexity, as higher energy costs could fuel inflation, complicating central banks’ efforts to manage growth and prices.

Bitcoin’s highs meet trader caution

In the cryptocurrency realm, Bitcoin is making waves, surging past US$109,000 and trading just two per cent below its all-time high. This rally coincided with monetary expansion in the eurozone and the softening of the US labour market, factors that often bolster Bitcoin’s appeal as an inflation hedge or alternative asset.

Yet, derivatives data tell a more cautious tale. The Bitcoin futures premium, a gauge of trader sentiment, remains below the five per cent neutral threshold, inching up from four per cent but still far from bullish territory.

This hesitancy is echoed in other metrics, like the USDT discount in China and outflows from spot Bitcoin ETFs, which highlight investor wariness amid global trade tensions. Despite the price surge, traders seem unconvinced of its staying power, perhaps mindful of past volatility or macroeconomic headwinds.

A standout development is BlackRock’s iShares Bitcoin Trust ETF (IBIT) outpacing its iShares Core S&P 500 ETF (IVV) in annual fee revenue. With US$75 billion in assets, IBIT generates US$187.2 million yearly at a 0.25 per cent expense ratio, edging out IVV’s US$187.1 million from US$624 billion at 0.03 per cent. This shift, driven by steady inflows over 17 of the last 18 months, underscores Bitcoin’s growing institutional allure.

Bitcoin’s story encapsulates the broader risk sentiment. Its price reflects optimism and speculative fervor, but the cautious derivatives data and ETF outflows suggest a market on edge, awaiting clearer signals. BlackRock’s revenue milestone is a watershed moment, hinting at a future where cryptocurrencies rival traditional assets in prominence.

Bottom line

Pulling these threads together, the global risk sentiment feels like a tightrope walk, balanced between tentative hope and palpable concern. The US labor market’s stumble is a red flag, potentially foreshadowing a more challenging road ahead if the NFP disappoints.

Trade optimism from the Vietnam deal is a bright spot, but its vagueness keeps it from being a game-changer. The UK’s fiscal turbulence and rising yields exacerbate the unease, while markets fluctuate between gains and safe-haven moves.

For me, the overriding sense is one of caution. The mixed signals —equity advances, gold’s rise, and Bitcoin’s cautious rally — suggest that investors are hedging their bets and braced for volatility. The NFP release will be a litmus test, but even beyond that, clarity on trade and fiscal fronts will be key to shifting this subdued mood.

 

Source: https://e27.co/feds-big-choice-save-the-economy-or-unleash-inflation-hell-20250703/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author. The latest book is Web4: The Age of Autonomous Intelligence.

www.anndy.com
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The crypto catalyst: How inflation, rates, and risk sentiment shape Bitcoin’s path

The crypto catalyst: How inflation, rates, and risk sentiment shape Bitcoin’s path

Bitcoin, the world’s pioneering and largest cryptocurrency, has been riding a wave of momentum in recent days, hovering tantalisingly close to its all-time high of just under US$112,000, a peak it reached on May 22. As of Wednesday morning, Bitcoin’s price surged to US$110,400 before retreating slightly to US$108,800, mirroring a broader pullback in US stock markets.

This performance comes against a complex backdrop of cooling US inflation data, escalating trade tensions, and shifting global risk sentiment. With the cryptocurrency staging a decisive breakout above a technical flag pattern earlier this week, investors are eyeing potential new highs, even as macroeconomic uncertainties loom large. Let’s take a look.

A technical breakout signals bullish momentum

From a technical analysis standpoint, Bitcoin’s recent price action paints an encouraging picture for bulls. Earlier this week, the cryptocurrency broke out above a flag pattern—a chart formation that typically emerges after a sharp price move, signalling a period of consolidation before the trend resumes.

In this case, the breakout suggests that Bitcoin is poised for another leg higher, building on its rally over the past week. Key resistance levels to watch are US$112,000—the previous record high—and US$137,000, which could serve as the next major target if upward momentum persists.

On the flip side, support levels at US$107,000 and US$100,000 provide critical floors. Should Bitcoin slip below US$107,000, it could trigger a deeper correction, potentially testing the US$100,000 mark. For now, the breakout above the flag pattern reinforces a bullish narrative, but these key levels will determine whether Bitcoin can sustain its climb or face a near-term setback.

Technical analysis alone doesn’t tell the whole story, but it provides a roadmap for interpreting price movements. The flag pattern’s bullish implication is bolstered by Bitcoin’s 16 per cent gain since the start of the year, a performance that has outpaced major US stock indices, such as the S&P 500 and Nasdaq, which ended Wednesday down 0.27 per cent and 0.50 per cent, respectively.

This divergence highlights Bitcoin’s growing appeal as an alternative asset, even as traditional markets grapple with renewed trade tensions sparked by President Donald Trump’s pledge to set unilateral tariff rates within two weeks.

Fundamental drivers: From political support to institutional adoption

Beyond the charts, a confluence of fundamental factors is underpinning Bitcoin’s resilience. One of the most striking developments is the cryptocurrency’s newfound legitimacy, driven in part by political support. President Trump, who was once a skeptic of digital currencies, has recently expressed enthusiasm for cryptocurrencies, alongside several allies in Congress.

This shift could pave the way for more favorable regulatory frameworks, a stark contrast to the early days when Bitcoin was dismissed as a speculative oddity. While Trump’s tariff threats have rattled global markets, his pro-crypto stance offers a counterbalancing positive for Bitcoin, potentially boosting its long-term adoption.

Institutional interest is another powerful tailwind. Publicly traded companies like Strategy (MSTR) have been aggressively accumulating Bitcoin, using proceeds from equity sales to bolster their corporate treasuries with the digital asset.

This trend reflects a growing perception of Bitcoin as a store of value and a hedge against inflation, particularly in an environment where traditional safe havens like US Treasuries are seeing yields slip—the 10-year yield fell 6 basis points to 4.12 per cent on Wednesday following cooler-than-expected inflation data.

Meanwhile, Bitcoin exchange-traded funds (ETFs) have seen their total assets balloon to US$132 billion this month, up from US$91 billion in early April. This surge highlights the growing demand from institutional investors, who now have regulated avenues to gain exposure to Bitcoin without directly holding the asset.

Perhaps most telling is the steady decline in Bitcoin held on centralised exchanges. Since the beginning of 2025, exchange balances have dropped 14 per cent, reaching 2.5 million BTC—a level last seen in August 2022. This trend signals growing investor confidence and a shift toward long-term holding.

When investors move Bitcoin into cold storage or custodial wallets, it reduces the liquid supply available for trading, limiting short-term sell pressure. Large entities, including institutional players and so-called “whales,” often withdraw coins after buying, suggesting accumulation is underway. With fewer coins readily available to flood the market, this dynamic could amplify upward pressure on Bitcoin’s price, especially if demand continues to climb.

Macro context: Inflation, rates, and risk sentiment

Bitcoin’s recent surge hasn’t occurred in a vacuum—it’s been fuelled by encouraging macroeconomic signals. On Wednesday, US CPI and Core CPI data revealed a modest 0.1 per cent increase in May, weaker than economists had forecast. This softer-than-expected inflation print suggests that companies are absorbing higher tariff costs rather than passing them on to consumers, easing inflationary pressures.

For investors, this is a green light: cooler inflation strengthens the case for the Federal Reserve to cut interest rates as early as September. Lower rates typically diminish the appeal of yield-bearing assets, such as bonds, driving capital toward riskier investments, including equities and cryptocurrencies. Gold, a traditional inflation hedge, edged up 0.1 per cent to US$3,324.72 per ounce on the news, while Bitcoin’s rally reflects a similar flight to alternative stores of value.

Yet, the macroeconomic picture isn’t uniformly rosy. Global risk sentiment took a hit as Trump’s tariff threats dialed up trade tensions, sending US stocks lower and dragging the US Dollar Index down 0.47 per cent to 98.63. Asian equity markets were mixed on Thursday morning, and US equity futures pointed to a lower open, signalling persistent unease.

In commodities, Brent crude jumped 4.3 per cent to US$69.77 per barrel amid escalating US-Iran tensions, highlighting geopolitical risks that could ripple across asset classes. Bitcoin, often touted as “digital gold,” may benefit from this uncertainty, but its correlation with risk assets, such as stocks, suggests it’s not immune to broader market sell-offs.

Risks and opportunities: A balanced perspective

The outlook for Bitcoin remains overwhelmingly bullish, but it’s not without caveats. On the positive side, the technical breakout, institutional adoption, and declining exchange balances form a robust foundation for further gains.

The prospect of Fed rate cuts, bolstered by Wednesday’s inflation data, adds fuel to the fire, as does the growing political and corporate embrace of cryptocurrencies. If Bitcoin can clear the US$112,000 hurdle, US$137,000 becomes a plausible target, potentially marking a new chapter in its ascent.

However, risks loom on the horizon. Regulatory uncertainty remains a wildcard—while political support is growing, the specifics of future legislation are unclear, and adverse rules could dampen enthusiasm. Bitcoin’s high volatility is another concern; sharp price swings are par for the course, and a sudden shift in risk sentiment could trigger a pullback.

The broader economic context adds complexity: Trump’s tariff plans could disrupt global trade, and a resulting downturn might drag risk assets, including Bitcoin, lower. Finally, despite its gains, Bitcoin’s long-term value proposition is still debated. Critics argue it lacks intrinsic value, while proponents see it as a hedge against fiat currency debasement. This tension keeps the asset class polarising.

My point of view: Optimism tempered by caution

Tracking Bitcoin’s evolution, I’m struck by how far it’s come—from a fringe experiment to a mainstream contender. Its recent performance reflects a maturing asset class, buoyed by institutional credibility and macroeconomic tailwinds.

I’m optimistic about its near-term prospects; the technical breakout and fundamental drivers suggest more upside, especially if the Fed pivots to rate cuts. The declining exchange balances, in particular, strike me as a powerful signal of conviction—investors aren’t just speculating, they’re committing for the long haul.

That said, I can’t ignore the risks. Bitcoin’s volatility is a double-edged sword, and its sensitivity to global risk sentiment means it could falter if trade tensions escalate or economic clouds gather. For all its progress, it’s still a young asset, and its fate hinges on factors beyond its control—regulation, geopolitics, and market psychology among them.

My view is one of cautious optimism: Bitcoin has the wind at its back, but investors should tread carefully, balancing its potential rewards against its inherent uncertainties.

 

Source: https://e27.co/the-crypto-catalyst-how-inflation-rates-and-risk-sentiment-shape-bitcoin-path-20250612/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author. The latest book is Web4: The Age of Autonomous Intelligence.

www.anndy.com
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Economic crossroads: Inflation, markets, and the crypto revolution

Economic crossroads: Inflation, markets, and the crypto revolution

Drawing from the latest data and market insights, this analysis explores the interplay of inflationary pressures, slowing growth, and shifting investor sentiment, providing a detailed view of where the world stands today.

The macro picture: Inflation volatility and economic cooling

The macroeconomic environment is increasingly defined by caution and complexity. Federal Reserve Chair Jerome Powell has sounded a clear warning about inflation volatility, highlighting the risks posed by supply shocks and the potential for persistently high long-term interest rates.

Speaking recently, Powell emphasised the critical need to keep inflation expectations anchored to support economic growth, reaffirming the Fed’s commitment to its two per cent inflation target as a bulwark against job losses. This rhetoric is pivotal, as recent US economic data points to a noticeable slowdown.

In April, the producer price index (PPI)—a key measure of prices paid to US producers—dropped unexpectedly by 0.5 per cent, marking the most significant decline in five years. This followed a flat reading in March and defied forecasts of a 0.2 per cent increase. The core PPI, which excludes volatile food and energy prices, fell even more sharply by 0.4 per cent, the steepest drop since 2015.

Analysts attribute this decline to shrinking profit margins, as companies appear to absorb the impact of tariffs rather than pass costs onto consumers. This could reflect economic resilience—firms weathering the storm to maintain market share—or an early warning of weakening demand and slower growth ahead.

Consumer spending, a cornerstone of the US economy, also faltered in April. Retail sales rose by a mere 0.1 per cent, unadjusted for inflation, missing estimates and paling compared to March’s revised 1.7 per cent surge—the strongest in two years.

The retail control group, a subset used in GDP calculations, declined by 0.2 per cent, against expectations of a 0.3 per cent rise. Shoppers cut back on discretionary items like cars, sporting goods, and imports, likely rattled by tariff-related price hikes and broader economic uncertainty.

Meanwhile, US factory production dropped by 0.4 per cent in April, the first decline in six months, driven by higher import duties and softening demand for goods like motor vehicles, computers, and apparel. Capacity utilisation slipped to 76.8 per cent, and factory activity remains mired in contraction territory, underscoring industrial fragility.

This cooling trend isn’t confined to the US Japan’s economy contracted by 0.7 per cent annually in the first quarter, its first decline in a year, weighed down by lower exports, higher imports, and stagnant consumer spending. This downturn has sparked concerns about global economic resilience and prompted discussions in Japan about potential stimulus measures—tax cuts or cash handouts—ahead of the summer election.

Together, these developments suggest a world economy at a crossroads, with central banks like the Fed and the Bank of Japan navigating a delicate balance between inflation control and growth support.

Equities: Tech giants face scrutiny

Turning to equity markets, the tech sector is grappling with mounting challenges, as exemplified by Alibaba’s recent stumble. The company’s American Depositary Receipts (ADRs) plunged 7.6 per cent after it missed revenue and income expectations, a stark reminder of the headwinds facing even the most prominent tech giants. Regulatory pressures in China, potential market saturation, and softening global demand may all be at play.

Alibaba’s woes could signal a broader reckoning for the tech sector, where sky-high valuations—built on years of growth optimism—are now being tested by rising interest rates and economic uncertainty. Investors will likely approach the upcoming earnings season with heightened scrutiny, searching for signs of durability or vulnerability among other tech heavyweights.

FX: The dollar’s resurgence

In foreign exchange markets, the US dollar (USD) has staged a notable recovery, bolstered by two key factors: the US government’s commitment to a strong dollar in trade negotiations and a rise in Treasury yields. The uptick in yields reflects market expectations of tighter monetary policy from the Fed, as investors brace for potential rate hikes to tame inflation.

A stronger USD carries far-reaching implications—it could bolster US purchasing power for imports but make exports less competitive, potentially widening trade imbalances. For emerging markets, a robust dollar spells trouble, raising the cost of servicing dollar-denominated debt and risking capital outflows. This dynamic underscores the USD’s pivotal role in shaping global trade and financial flows.

Commodities: Gold’s safe-haven appeal

The commodities market offers a window into investor sentiment amid this uncertainty, with gold staging a rally as bond yields declined and US economic data disappointed. Weak retail sales and PPI figures have fueled a flight to safety, driving demand for gold as a traditional store of value.

This resurgence aligns with the broader narrative of a slowing economy, where investors seek refuge from volatility and inflationary risks. Gold’s appeal is timeless in such moments, offering a hedge against both market turbulence and currency depreciation.

Yet, an intriguing twist is unfolding in the commodities space: Bitcoin increasingly challenges gold’s dominance as a safe-haven asset. Analysts at JPMorgan, led by managing director Nikolaos Panigirtzoglou, have forecasted that Bitcoin will significantly outperform gold through the end of 2025, driven by a wave of crypto-specific catalysts.

Since mid-February, the two assets have followed divergent paths—gold rose at Bitcoin’s expense until mid-April, but over the past three weeks, Bitcoin has surged while gold has slumped nearly eight per cent since April 22.

Structural changes, including substantial outflows from gold ETFs like the SPDR Gold Trust and robust inflows into spot Bitcoin ETFs fuel this shift. Bitcoin recently topped US$100,000 for the first time in months, a milestone that underscores its growing acceptance as a digital alternative to gold, particularly as expectations for aggressive Fed rate cuts fade and equity markets climb.

Fixed income: Treasuries gain ground

In the fixed-income arena, US Treasuries have risen in value as lacklustre economic data—namely the retail sales control group’s decline and the PPI’s sharp drop—has stoked speculation of a more dovish Fed stance. Lower bond yields reflect this shift, as investors anticipate that the central bank may pause or slow rate hikes to bolster growth.

Treasuries, like gold, are benefiting from their safe-haven status, drawing capital in a market wary of risk. This trend reinforces the broader theme of economic caution, with fixed-income assets serving as a barometer of investor confidence—or lack thereof—in the growth outlook.

Cryptocurrencies: Bitcoin and Ethereum take centre stage

The cryptocurrency market is a dynamic and increasingly influential piece of this puzzle, with Bitcoin and Ethereum capturing attention for their distinct trajectories. Bitcoin’s ascent, as noted, is underpinned by a pivot away from gold, with futures markets showing shrinking gold positions and rising Bitcoin exposure. JPMorgan’s bullish outlook hinges on crypto-specific drivers—think institutional adoption, regulatory clarity, and technological advancements—that could propel Bitcoin further into the mainstream as a store of value and inflation hedge.

Ethereum, meanwhile, is carving out its own narrative. The top altcoin gained nine per cent on Tuesday following April’s softer-than-expected US Consumer Price Index (CPI) reading, which renewed bullish sentiment across the crypto market. Priced at US$2,700 today, Ethereum has stretched its weekly gains to 50 per cent, bouncing off a US$2,400 support level.

This rally has sparked talk of a rotation from Bitcoin to Ethereum, as investors diversify within the crypto space. Analysts see potential for Ethereum to validate a bullish flag pattern if it flips its 200-day simple moving average into support, though caution lingers—the ETH/BTC ratio could face a sell-off if historical trends repeat.

Ethereum’s outperformance reflects its unique strengths, from its decentralized finance (DeFi) dominance to its role in smart contracts, which draw sustained demand. The weak CPI data has given Ethereum bulls a tailwind, amplifying optimism that the altcoin could continue to shine as the crypto market matures.

Tying it all together: A world in flux

Stepping back, the current economic and market conditions reveal a world in flux, shaped by a complex interplay of forces. Central banks are at the helm, with the Fed and others weighing inflation risks against slowing growth—a tightrope walk that will define the trajectory of 2025. Equity markets, particularly in tech, face a reality check as valuations come under pressure.

The USD’s strength signals confidence in US policy but poses challenges for global trade. Commodities like gold and Bitcoin are thriving amid uncertainty, with Bitcoin’s rise marking a generational shift in how we perceive value. Fixed-income assets, meanwhile, reflect a cautious retreat to safety, while Ethereum’s surge hints at a diversifying crypto landscape.

My view is that we’re witnessing a pivotal moment—one where traditional economic playbooks are being rewritten by digital innovation and geopolitical realities. The data backs this up: from the PPI’s plunge to Bitcoin’s ETF-driven rally, the evidence points to a market adapting to new risks and opportunities.

For investors, the path forward demands vigilance and flexibility, balancing the stability of Treasuries and gold with the potential of cryptocurrencies. For policymakers, the challenge is to foster growth without igniting runaway inflation. And for all of us, it’s a reminder that in times of uncertainty, the only constant is change itself.

 

Source: https://e27.co/economic-crossroads-inflation-markets-and-the-crypto-revolution-20250516/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author. The latest book is Web4: The Age of Autonomous Intelligence.

www.anndy.com
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