After the Christmas and New Year holidays in Europe and America, the cryptocurrency market experienced a brief decline. Bitcoin once fell from $100,000 to a low of $92,000. However, with the end of the holidays, significant funds from Europe and America flowed into the cryptocurrency market, lifting Bitcoin back up to $98,000. However, the existing funds in the cryptocurrency market began to flow into main chain coins and DeFi concept tokens, with Ether rising strongly above $3,600, and other DeFi tokens also performing well, reversing the past situation of Bitcoin being the only strong performer.
The main reason for this structural change is also quite understandable. According to the Cryptoquant report, the price trend over the past two weeks shows that Bitcoin's strong trend is fading. This is primarily due to weakened investor demand, especially among participants in the U.S. market. The Coinbase premium index showed a decrease in demand before the Christmas holiday, dropping to -0.237, the lowest point since December 2023.
In addition, the U.S. Bitcoin spot ETF market is experiencing capital outflows, losing about $700 million in two trading days, with only a net inflow of $5.3 million on days of capital inflow. In the four days before Christmas, these ETFs saw a net outflow of over $1.37 billion, indicating that both institutional and retail investors were closing positions before the holidays, with short- to medium-term investors choosing to take profits.
As we mentioned earlier, European and American investors were the main buyers in last year's cryptocurrency market, and after the holiday, their buying strength will naturally weaken. As soon as Europe and America return to work, traders will start buying cryptocurrencies again. If sellers want to execute strategies, they must have completed them before the holidays, and the above data confirms this assumption. After the holidays, European and American investors are expected to only stand on the buying side, making it highly predictable that the buying power in the cryptocurrency market will return.
If traders expect the market to rise after Christmas, this phenomenon is mostly short-term, as traders are generally replenishing positions or buying regularly, and this won't last long. Therefore, most investors adopt a short-term strategy, using high leverage to position in small and medium-sized cryptocurrencies and waiting for a surge in capital inflow after returning to work. This high-leverage strategy will yield considerable returns during this rally, which is a similar speculative theme.
Additionally, the market is also expecting that the 'regulatory easing' theme in the cryptocurrency market before Trump's inauguration will definitely continue. In this context, investors bet that DeFi and related main chain coins will be the main targets of capital boosts. Trump is set to take office on January 20, and cryptocurrency companies and investors are looking forward to the new government further relaxing regulatory standards. Next, let's discuss the possible trends in the cryptocurrency market.
Sources: MICA RESEARCH
A. December 31: Grayscale updates the list of the top 20 small and medium-sized cryptocurrencies, focusing on three major thematic concepts.
Grayscale Research updated its list of the top 20 cryptocurrencies compiled by the research institution, adding six tokens: Hyperliquid, Ethena, Virtual Protocol, Jupiter, Jito, and Grass for the target quarter of Q1 2025. This update focuses on three major themes, with applications emphasizing the potential regulatory impacts of the U.S. elections on DeFi and staking, decentralized AI model tokens, and growth concept tokens within the Solana ecosystem.
First of all, Hyperliquid is a Layer 1 blockchain focused on financial applications, providing on-chain perpetual futures trading. Ethena launched a stablecoin USDe based on hedging with Bitcoin and Ethereum, offering staking yield opportunities. Furthermore, Virtual Protocol supports the development of AI token agents based on Ethereum Layer 2. Additionally, Jupiter is the highest trading volume decentralized exchange aggregator on Solana.
As a liquid staking protocol, Jito generated over $550 million in fee revenue in 2024. Grass is a data-sharing platform allowing users to share idle computing power by selling it to AI developers for rewards. This update removed tokens such as Celo, with Grayscale noting that competition among smart contract platforms is intensifying. Although Ethereum made progress in 2024, it faces challenges from Solana and The Open Network, as emerging challengers have been closing the gap.
B. January 1: Cryptoquant reports that Bitcoin continues to flow out of cryptocurrency exchanges, increasing the likelihood of a price rise.
Currently, Bitcoin's price is consolidating between $94,000 and $92,000, affected by the European and American holidays and the selling pressure from investors in other regions. Bitcoin's price has recently fallen and is hovering around $93,750. CryptoQuant analyst AxelAdlerJr pointed out that the current Bitcoin deposit volume on cryptocurrency exchanges is extremely low, indicating that investors are transferring assets to personal wallets, which may suggest significant price volatility in the short term.
According to the report, the daily Bitcoin deposit volume on cryptocurrency exchanges is only about 30,000 BTC, close to the low point of 2016, far below the average Bitcoin balance of 90,000 BTC over the past 10 years and the peak of 125,000 BTC during the 2021 bull market. The low deposit volume on exchanges indicates that users prefer to hold assets in private wallets rather than preparing to sell.
Under the premise of reduced selling supply, this could lead to a market supply shortage and push prices up. Additionally, Bitcoin's net flow-to-reserve ratio is negative, indicating that the outflow of funds from exchanges is greater than the inflow, suggesting that investors are transferring large amounts of Bitcoin to personal wallets. This buying more and selling less situation will increase the likelihood of price rises in the future.
C. January 2: Looking ahead to 2025: U.S. cryptocurrency companies expect a clearer regulatory environment.
With the new U.S. president and Congress about to take office, the U.S. cryptocurrency industry expects that new regulatory authorities may bring more favorable regulatory policies. First, Ripple's Chief Legal Officer Stuart Alderoty posted on X on December 31, expressing hope that the SEC would clarify some principles in the regulation of digital assets, such as the identification that 'tokens themselves are not securities but may involve securities transactions.' Ripple is currently appealing against a ruling imposing a $125 million fine for unregistered securities issuance in August 2024.
Coinbase's Chief Legal Officer Paul Grewal believes that the 2024 U.S. Supreme Court ruling overturning the Chevron principle will affect the SEC's regulatory approach. This ruling requires courts to interpret the law themselves, potentially changing the handling of cases related to digital assets. Looking ahead to 2025, the SEC and the Commodity Futures Trading Commission (CFTC) still have unresolved cases against several cryptocurrency companies.
In addition, the U.S. judicial system will continue to handle criminal cases related to former FTX, Celsius, and Terraform Labs executives. With changes in leadership at the SEC, CFTC, or the New York Attorney General's office, the direction of existing cases may change. The Trump administration taking office at the beginning of the year will trigger the theme of 'regulatory easing' in the cryptocurrency market. The industry is looking forward to subsequent open policies that could create a more favorable business environment for cryptocurrency innovation and potentially drive the return of DeFi staking and the hot trend of main chain coins.
DeFi concept tokens have become the objects of market pursuit, with potential still ahead.
This week's themes are twofold: 'main chain coins' and 'DeFi'. Firstly, the main chain coins benefiting include SOL, AVAX, ADA, etc., primarily because these main chain coins are regarded by the market as having the potential to surpass the Ethereum ecosystem, attracting investor bets, especially as the Trump administration may further relax the 'fundraising' attributes of DeFi tokens, resulting in rebounds mostly exceeding 10% to 20%.
XRP is the main character in this wave of small and medium-sized cryptocurrencies' counterattack, with a weekly increase of 13%. The main reason includes Ripple Labs launching a USD-backed stablecoin Ripple USD (RLUSD) on December 17, planning to integrate it into Ripple Payments in early 2025 to facilitate cross-border transactions for corporate clients. RLUSD's market capitalization has reached $72 million.
At this time, Europe has introduced new regulations requiring USDT to be delisted in Europe, giving XRP's issued stablecoin a chance to capture USDT's market share. Additionally, in early December last year, the fund company WisdomTree became the fourth company to submit a spot XRP ETF application to the U.S. Securities and Exchange Commission. Some investors began to anticipate that under Trump's administration, there may be a possibility of approving the XRP spot ETF. These factors have driven XRP to surpass USDT, becoming the third largest cryptocurrency by market capitalization.
Other main chain coins such as SOL, ADA, and AVAX also benefit from similar themes, as they all possess a complete DeFi ecosystem that allows issuers to launch new staking projects, becoming the main beneficiaries of this wave of price increase. Investors are looking forward to the new government's regulatory easing theme driving up coin prices. Moreover, the higher market liquidity of these main chain coins helps traders earn higher profits through high leverage in short-term trades.
We believe that the Trump administration is expected to take office on January 20, with a lot of room for imagination in the future. Considering that European and American investment firms have just returned to work, more funds may be injected into the market. 'Regulation' remains a hotspot for capital, but the current situation of capital outflow is somewhat severe, and overall it is not a very healthy bull market. However, DeFi concept cryptocurrencies still have short-term upward potential. Traders have already completed their layouts, ready to seize excess returns as funds flow in.
Last week's review of 【MICA RESEARCH】 indicates that the theme of 'regulatory easing' is expected to continue, with significant upward potential in the market.
Statement: The article only represents the author's personal views and opinions, and does not represent the views and positions of Block. All content and opinions are for reference only and do not constitute investment advice. Investors should make their own decisions and trades, and the author and Block will not bear any responsibility for any direct or indirect losses incurred by investors' trades.
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"【MICA RESEARCH】The situation of capital returning to Europe and America is good, and the market is expected to continue to rise." This article was first published on (Block).
