After the European and American Christmas and New Year holidays, although the cryptocurrency market experienced a brief decline, with Bitcoin dropping from $100,000 to a low of $92,000, as the holidays ended, significant capital flowed back into the cryptocurrency market, lifting Bitcoin back up to $98,000. However, the original capital within the cryptocurrency market began to flow into main chain coins and DeFi concept tokens. Ether surged above $3,600, and other DeFi tokens also performed well, reversing the previous trend of Bitcoin's dominance.
The main reason for this structural change is quite understandable. According to a Cryptoquant report, the price trend in the past two weeks has shown that Bitcoin's strong trend is fading. This is mainly due to weakened investor demand, especially from U.S. market participants. Before the Christmas holiday, the Coinbase premium index showed decreased demand, dropping to -0.237, the lowest point since December 2023.
Additionally, the U.S. Bitcoin spot ETF market is experiencing capital outflow, with approximately $700 million lost in two trading days, and even on days of capital inflow, there was only a net inflow of $5.3 million. In the four days leading up to Christmas, these ETFs saw a net outflow exceeding $1.37 billion, indicating that institutional and retail investors were settling 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 their buying power will naturally decrease after the holidays. As soon as they return to work, traders will again start buying cryptocurrencies. Sellers likely executed their strategies before the holiday and will not delay until after. The above data confirms this assumption. After the holiday, European and American investors will only be in a buying position, leading to a highly predictable return of buying pressure in the cryptocurrency market.
If traders expect the market to rise after Christmas, this is mostly a short-term phenomenon, as traders are mostly replenishing positions or buying regularly, and this will not last long. Therefore, most investors adopt short strategies at this time, using high leverage to layout 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, and this round of price increase is a similar speculative theme.
Additionally, the market is also anticipating that the 'regulatory easing' theme in the cryptocurrency market before Trump's inauguration will definitely continue. In this case, investors bet that DeFi and related main chain coins will be the main objects of capital hype. Trump is set to take office on January 20th, and both cryptocurrency companies and investors are looking forward to the new government further relaxing regulatory norms. Next, let's discuss the potential trends in the cryptocurrency market.
A. December 31st Grayscale updates the top 20 small and medium-sized cryptocurrencies list, focusing on three major themes.
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 the first quarter of 2025. This update focuses on three major themes: the potential impact of the U.S. elections on DeFi and staking regulations, decentralized AI model tokens, and tokens representing the growth of the Solana ecosystem.
First, Hyperliquid is a Layer 1 blockchain focused on financial applications, providing on-chain perpetual futures trading. Ethena has launched a stablecoin USDe based on hedging with Bitcoin and Ether, and provides staking yield opportunities. Furthermore, Virtual Protocol supports AI token proxy development based on Ethereum Layer 2. Additionally, Jupiter is the highest trading volume decentralized exchange aggregator on Solana.
Jito, as a liquid staking protocol, generated over $550 million in fee revenue in 2024. Grass is a data-sharing platform that allows users to share idle computing power by selling it to AI developers for profit. This update removed tokens such as Celo, as Grayscale pointed out that competition among smart contract platforms is intensifying. Although Ethereum made progress in 2024, it faces challenges from Solana and The Open Network, with emerging challengers quickly catching up.
B. January 1st Cryptoquant: The continuous outflow of Bitcoin from cryptocurrency exchanges increases the likelihood of price rises.
Currently, the price of Bitcoin is consolidating between $94,000 and $92,000, affected by the European and American holidays and the selling actions of investors from other regions. The price of Bitcoin has recently fallen and is hovering around $93,750. CryptoQuant analyst Axel Adler Jr pointed out that the current deposit amount of Bitcoin in cryptocurrency exchanges is extremely low, indicating that investors are transferring assets to personal wallets, which may suggest significant price fluctuations in the short term.
According to the report's analysis, the daily deposit amount of Bitcoin in cryptocurrency exchanges is only about 30,000 BTC, nearing the lows of 2016, far below the 90,000 BTC average balance in exchanges over the past decade and the peak of 125,000 BTC during the 2021 bull market. The low deposit amount in exchanges indicates that users prefer to hold assets in private wallets rather than preparing to sell.
Under the premise of reduced selling supply, this may lead to market shortages and drive prices up. Additionally, Bitcoin's net flow-to-reserve ratio is negative, indicating that the outflow of funds from exchanges exceeds the inflow, suggesting that investors are withdrawing a significant amount of Bitcoin to personal wallets. The situation of buying more and selling less will increase the likelihood of subsequent price rises.
C. January 2nd Outlook for 2025: U.S. cryptocurrency companies hope for a clearer regulatory environment.
With the new U.S. President and Congress about to take office, the U.S. cryptocurrency industry anticipates that the new regulatory body may bring more favorable regulatory policies. Firstly, Ripple's Chief Legal Officer, Stuart Alderoty, stated in a post on December 31st in the X community that he hopes the SEC will confirm certain principles in the regulation of digital assets, such as 'tokens themselves are not securities but may involve securities transactions.' Ripple is currently appealing against the $125 million fine imposed due to unregistered securities issuance in August 2024.
Coinbase's Chief Legal Officer, Paul Grewal, believes that the U.S. Supreme Court's overturning of the Chevron principle in 2024 will affect the SEC's regulatory approach. This ruling requires the court to interpret the law itself, which could change how cases related to digital assets are handled. Looking towards 2025, the SEC and the Commodity Futures Trading Commission (CFTC) still have unresolved cases against several cryptocurrency companies.
In addition, the U.S. judiciary will continue to handle criminal cases related to former FTX, Celsius, and Terraform Labs executives. With changes in the leadership of the SEC, CFTC, or the New York Attorney General's office, the direction of existing cases may change. The inauguration of the Trump administration 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 lead to the return of DeFi staking and the resurgence of main chain coins.
DeFi concept tokens have become objects of market pursuit, and their future potential remains.
This week's themes are twofold: 'main chain coins' and 'DeFi'. First, the main chain coins benefiting include SOL, AVAX, ADA, etc., primarily because these main chain coins are seen by the market as having the potential to surpass the Ethereum ecosystem, attracting investor bets, especially as the Trump administration may further ease the 'fundraising' attributes of DeFi tokens, leading to rebounds of more than 10% to 20%.
XRP is the protagonist of this wave of small and medium-sized cryptocurrency rebounds, with a weekly increase of 13%. This is mainly due to Ripple Labs launching the USD-backed stablecoin Ripple USD (RLUSD) on December 17th, which is planned to be integrated into Ripple Payments in early 2025 to facilitate cross-border transactions for corporate clients. The market capitalization of RLUSD has reached $72 million.
At this point, Europe has introduced new regulations requiring USDT to be delisted in Europe, giving the stablecoin issued by XRP the opportunity to capture USDT's market share. Moreover, in early December of last year, WisdomTree became the fourth company to submit a spot XRP ETF application to the U.S. Securities and Exchange Commission, leading some investors to anticipate that Trump might recognize the spot XRP ETF after taking office. These factors have propelled XRP to surpass USDT and become the third-largest cryptocurrency by market capitalization.
The remaining SOL, ADA, and AVAX main chain coins also benefit from similar themes. They all possess a well-established 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. Additionally, the market liquidity of these main chain coins is relatively high, aiding traders in earning higher profits through high leverage in the short term.
We believe that the Trump administration is expected to take office on January 20th, and the future imaginative space is still large. Considering that European and American investment companies have just returned to work, there is likely to be more capital injected into the market. 'Regulation' remains a capital trend, but currently, the situation of capital outflow is somewhat severe, making the overall bull market not too healthy. However, DeFi concept cryptocurrencies still have room for short-term price increases. Traders have already completed their layouts and are ready to capitalize on the inflow of capital to gain excess returns.
