The Year Ahead for Markets 2025

The Year Ahead for Crypto 2025 – Full Series:
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Markets

Introduction — One Step At A Time, The Future Looks Bright

We often overestimate what can happen in the short term, and underestimate what can happen in the long term.

Most crypto participants thought crypto markets were going to rally to new all-time highs on the back of spot ETF products going live. After all, the institutions were finally coming to buy everyone’s bags and send crypto to the moon, right? Well, not exactly. At least not in the way many expected.

In Q1, BTC rallied over 50% to $73K on the back of these shiny new ETFs launching. Billions of dollars flowed directly into the orange coin, and if there was any question around the institutional demand for BTC, it seemed as if those concerns were put to bed.

The ETFs were an overwhelming success, even outshining the fading bullish macro tailwinds that had previously driven risk assets higher in late 2023 and early 2024. Eventually, these “heavyweight” macro drivers caught up with BTC and crypto markets, and for ~7 months the price mainly chopped and churned within the ~$60K – $70K range. Not great, but not too terrible.

Unfortunately for the broader crypto market, the love was not equally distributed. Outside of small pockets of outperformance, most of the market struggled. The initial “failure” of spot ETH flows — or lack thereof — after their mid-year launch only compounded these struggles. Much of the story in 2024 was a tale of two markets, and subpar industry sentiment and infighting reflected this reality.

Then everything changed again in November. While many viewed the Presidential election as divisive, it was anything but for the crypto industry. After years of regulation by litigation, the industry finally has something to look forward to — a much-needed reset and a fresh start under an administration that has so far promised fair, common-sense regulation. The hope is that now these promises are kept.

The change in sentiment and risk appetite these last few weeks is palpable, so much so that we may begin to see this tale of two markets unify back into one.

For those who’ve been following our Markets research for the last several years, some of these topics and themes will be familiar. We’ve discussed many of them in detail in some of our prior reports, which complement the commentary and analysis found in this piece. We’ve provided links to many of these throughout the report for those seeking additional context.

The Cycle Playbook Is Right On Track

At the end of 2022, we outlined our rationale for why the bottom of the bear market was behind us. Over 15 months ago, we began getting a lot more vocal about our conviction in this upcoming bull market cycle. In last year’s report, we predicted BTC would break to new ATHs by Q4 2024.

While BTC technically broke to new highs in late March on the back of ETF hype, the most recent breakout is more in line with the one we’d been expecting.

At the time, we were just over 3 months out from the next Bitcoin halving. We noted how BTC tends to rally in the weeks leading up to the event — and how price typically consolidates post-event, setting up an even bigger move later on.

Fast forward and that’s essentially what happened.

The explosive move has put us right in the sweet spot — with more room to run.

We also reiterated that Bitcoin halvings weren’t the key catalyst for bull cycles in our view — they just happen to coincide with opportune moments in BTC’s cyclical history.

As a reminder, this was then…

And this is now…

It’s almost miraculous how closely BTC has tracked our cycle playbook.

Longtime readers of our research know why this is the case — no miracles necessary — and why this has been our expectation all along.

Markets are momentum-driven, and nowhere is that more evident than BTC and crypto.

Each new all-time high for BTC has coincided with a monthly RSI breakout > 70. Prior bull markets didn’t run out of steam until this indicator broke above 90.

Hypothetically, if this heuristic were to hold, BTC would have to hit ~$175,000 — or even $190,000-$200,000 if it really starts to run — before these RSI levels were reached. This assumes the current cycle top is marked by a swift period of accelerated gains, like most prior cycles.

BTC is also well below the 1-2 standard deviation moves that often signal cyclical tops.

It’s hard to see the forest through the trees in an industry that moves as fast as this one. As we all know far too well, volatility cuts both ways — which is why time horizons matter.

In case you need more proof of this, here’s a fun fact. Even if you managed to top tick BTC in November 2021, you’d still be outperforming every other major asset class over that period, if you managed to hold on.

Bitcoin breaking to new all-time highs is more than just a catchy headline too — it’s the ultimate risk-on driver for crypto markets.

“Price is the ultimate driver of attention, capital flows, and onchain activity.”

Retail didn’t show up en masse last cycle until BTC’s price made a decisive break above its prior ATH. This pattern is evident in everything from Google search trends and the surge in “Bitcoin” news articles to the growth in Coinbase’s consumer transaction revenue. Investor confidence and risk appetite tend to rise when BTC gives the ‘all clear’, smashing previous ATHs.

Price drives attention — which also turbocharges FOMO and capital inflows.

Look no further than the trend in BTC ETF flows this year.

The iShares Bitcoin Trust ETF (IBIT) has seen the 3rd largest inflows this year across all ETFs — the only ones beating it are the two largest S&P 500 ETFs, which have a combined AUM that’s ~20x the size of IBIT (~$1.1 trillion).

Price is the ultimate driver, and for the second year in a row BTC finds itself atop the leaderboard when compared to traditional asset classes.

BTC has not only broken out to a new price high — it’s also breaking out against the NDX, which is up nearly 30% itself YTD.

BTC has also broken out against the SPX…which is on track for one of its best years in the past three decades.

It’s also broken to new highs against its “boomer” shiny counterpart — gold.

We’ve said for a long time that one day the stigma around BTC would be flipped on its head — that one day not having exposure to BTC would become the bigger risk for investors and institutions. In our view, that day is here.

HAHAHAHA I AM DYING 😭😭😭@JoeSquawk dunking on Tradfi Bitcoin skeptic : “You missed it” 💀 pic.twitter.com/VvlPO3TLA4

— Mason (@MasonFoard) December 5, 2024

Poking fun at bitcoin is no longer the “cool” thing to do anymore. This is the cycle that solidifies BTC as a macro asset that can no longer be ignored.

Bitcoin’s market cap is now ~$2 trillion. Two Trillion American Minted United States Dollars.

That’s big. If it was a publicly traded company, BTC would be the 6th most valuable in the world.

It wasn’t too long ago that many saw $100K BTC as little more than a pipe dream. Now the timeline is flooded with this type of energy.

At $91,150 Bitcoin flips Saudi Aramco
At $109,650 Bitcoin flips Amazon
At $107,280 Bitcoin flips Google
At $156,700 Bitcoin flips Microsoft
At $170,900 Bitcoin flips Apple
At $179,680 Bitcoin flips NVIDEA pic.twitter.com/6Ls81CRVbK

— Creeper (@DegenCreeper) November 12, 2024

Bitcoin is now big enough to command the attention it deserves. But it’s not so big that it doesn’t have plenty of room to still grow. At the time of writing…

• BTC’s market cap is still only 11% of the combined market cap of the MAG7 (AAPL, NVDA, MSFT, AMZN, GOOGL, META, TSLA).
• It’s less than 3% of total US public equity market cap, and ~1.5% globally.
• BTC’s entire market value is still only 5% of total US public debt outstanding — and less than 0.7% of total global debt (public + private).

• There’s 3x more money held in US money market funds compared to BTC’s market cap.
• BTC’s market value is still only equivalent to ~15% of total global foreign reserve assets. Hypothetically, if global central banks reallocated 5% of their gold reserves to BTC, that would net over $150 billion in additional buying power — or 3x the total net flows into IBIT this year.
• Household net worth is at an all-time high (>$160 trillion) — over $40 trillion higher than its pre-COVID peak — largely driven by rising housing prices and a roaring stock market. For those keeping score at home, that’s 80x higher than BTC’s current market cap.

The point is there’s still plenty of deep capital pools for BTC and crypto markets to draw from. All of this serves as potential demand when people gain confidence that the crypto market is heading higher.

In a world where the Fed — and other central banks — are driving 5-7% annual debasement of their currencies, investors need to make more like 10-15% annual returns to outpace this loss in future purchasing power.

That is why investor attention is increasingly shifting towards higher growth industries — it’s the best place to seek out above-average returns.

We believe investors will continue being rewarded for owning risk as the tailwinds stacking up continue to outweigh the potential headwinds.

Global Liquidity → Currency Debasement Marches On

On the macro front, reality has been falling in line with expectations.

By now, we know Bitcoin halvings aren’t the primary catalyst for crypto market cycles, it’s all about liquidity cycles.

Fluctuations in global liquidity drive fluctuations in global markets — stocks, bonds, currencies, gold, bitcoin — they’re all impacted to varying degrees. We’ve spilled a ton of ink talking about liquidity over the years, so we won’t regurgitate all the reasons why it’s so important to understand. For those interested, a few recent reports discussing this dynamic include High off the Halving, and The Dark Night Rises.

Bitcoin is the most sensitive to these fluctuations as its core value proposition is ultimately the purest expression of it — the most pure hedge on global currency debasement. This is precisely why BTC exhibits such high sensitivity to changes in global liquidity and monetary growth.

At the end of last year, we laid out the favorable conditions working in BTC’s favor for a strong Q1 — one of which was the surge in global liquidity we saw starting in Q4 2023. We also warned there was a higher risk of a market pullback starting around late Q1 to early Q2 2024.

The reason? We saw signs of liquidity momentum fading, specifically from the world’s two most important central banks.

BTC is up over 130% year-to-date — and it’s done so without much support from the Fed.

In fact, Fed liquidity has been steadily falling for the last 9-10 months.

As we’ve noted, Fed liquidity essentially tracks changes in bank reserves. (Note: some calculations of Fed liquidity include currency in circulation, but either way the conclusion remains the same).

From mid-2023 through March 2024, Fed liquidity grew by nearly $400B. Despite the $700B+ increase in the TGA over that period, we also saw a whopping ~$1.5T drawdown in the RRP, which more than offset and helped boost bank reserves by ~$400B.

Since then, the Fed’s balance sheet reduction has outpaced further declines in the RRP, helping push bank reserves — and thus Fed liquidity — lower.

We noted back in July how the TGA had grown by over $700B since mid-2023 — and how some of that could get drawn down ahead of the US presidential election.

That hasn’t happened yet — the TGA still has $750B in it. But we expect this drawdown will happen soon.

On January 1st, the US debt ceiling will be reinstated (based on the amount of debt outstanding on that date). Until legislation is passed to raise or suspend the debt ceiling (yet again), the US Treasury will have to tap cash on hand in the TGA to finance its spending obligations.

We’ve seen this song and dance before too (key debt ceiling dates highlighted in below chart).

The US debt ceiling will need to be raised again — it’s not a question of “if”, but “when”.

The US continues to run multi-trillion dollar deficits, which only adds to its growing mountain of public debt. Despite all the recent rhetoric around cutting the fiscal deficit, the gap between total government spending and revenues is not one that’ll be solved in a couple quarters.

Earlier this year, we highlighted how mandatory spending programs and interest expenses on US public debt are larger than the total amount of annual revenue that the USG collects. Again, this doesn’t even include discretionary spending.

We also highlighted how big US interest expenses could get depending on where US rates wind up.

The USG’s interest bill on its swelling $34 trillion public debt is already ~$1 trillion per year alone. For context, that’s equivalent to ~4% of US GDP and ~20% of the USG’s total revenue in FY 2024.

The Fed makes a concerted effort to keep its distance from commenting on fiscal policy, but what the Fed does from here will have a direct impact on this growing segment of US gov’t spending.

Meanwhile, the US Treasury has to rollover nearly $10 trillion of debt over the next 12 months.

That’s over 30% of annual GDP.

At the end of the day, continued fiscal deficits will increase US public debts, which requires more liquidity, more monetization and more currency debasement.

Which is good news for holders of scarce assets (equities, RE, gold, BTC, crypto).

When it comes to global central bank liquidity over this past year, the PBOC has done most of the heavy lifting — especially in the back half of the year.

This is another trend we’ve talked ad nauseam about. The bottom line is that the PBOC is one of the two most influential central banks when it comes to global liquidity — and therefore global markets.

What happens in China matters. It has always mattered.

PBOC liquidity played a role in the 2020/21 crypto bull market, the 2022 bear market, the late 2022/early 2023 recovery from cycle lows, the surge in Q4 2023 (ahead of BTC ETF approvals), and the Q2-Q3 pullback earlier this year. PBOC liquidity even turned positive again a few months ahead of the 2024 US Presidential election.

Changes in PBOC liquidity often precede large volatile moves in BTC and crypto markets.

Last year, we reminded readers that risk assets had one of their best years in 2017 despite consistent Fed rate hikes and QT expectations.

“During this time, the PBOC’s balance sheet was also expanding, and coupled with a weaker USD, helped give risk assets the liquidity boost they needed.”

This is similar to what we’ve seen play out for much of this year — China has been the bigger driver of central bank liquidity.

We’ve previously discussed some of the reasons why PBOC liquidity should continue to expand in 2025 — and the impact that it can have on global markets, BTC, and the spillover effects on global growth.

In last year’s report, we noted the PBOC’s balance sheet expansion and the additional boost that could give US equities.

The SPX is up nearly 30% this year.

We’ve also noted how closely it tracks changes in the US business cycle.

To be fair, the recovery in the US ISM has been more muted than we had expected so far.

But several indicators imply it will start to trend higher into expansionary territory in 2025 amidst a supportive liquidity backdrop.

This is more good news for stocks…

And more good news for BTC.

We’ve talked about some of the similarities between the current setup and the setup we found ourselves in during the 2017 cycle too.

But unlike 2016-2017, the Fed is in the early stages of cutting rates — not hiking them.

There’s now over $6 trillion sitting in money market funds too, some of which will flow out in search of higher returns. We’ve seen this happen during previous rate cutting cycles.

And this isn’t just a US-centric trend either.

The ECB, for example, is projecting a more dovish path forward as the Eurozone faces genuine stagflation concerns. Many Eur