Article reprinted from: R3PO
The U.S. economy operated smoothly in December, with core economic data all within expectations, but the Federal Reserve's hawkish remarks exacerbated short-term market volatility; in the greenhouse of the macro economy, U.S. stocks and Bitcoin both broke record highs this month, and investors ushered in a big year-end bonus; looking ahead to 2025, institutions are generally optimistic and believe that Bitcoin may exceed $200,000 in 2025.
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The newly released economic data in the United States in December were basically within expectations: non-farm payrolls increased by 227,000 in November, slightly better than market expectations (expected 220,000); CPI in November increased by 2.7% year-on-year and 0.3% month-on-month, both in line with expectations. Subsequently, it was announced that the target range of the federal funds rate would be lowered by 25 basis points to between 4.25% and 4.50%, in line with expectations. However, after announcing the rate cut, the Fed "made up the knife" and said: it is expected that the rate cut in 2025 may narrow to 50 basis points. This undoubtedly poured cold water on the market, because it means that the number of rate cuts in 25 years has dropped from the previously expected 4 times to 2 times, which also makes the market expect that the Fed will not cut interest rates in January next year. Affected by the hawkish interest rate cut in the United States, U.S. stocks and the cryptocurrency market fell sharply that day.
On the day of the rate cut announcement, the Fed also released its latest economic outlook forecast, predicting that the US economy will grow by 2.5% and 2.1% this year and next year, respectively, up 0.5 percentage points and 0.1 percentage points from the September forecast. The unemployment rate is expected to be 4.2% and 4.3% this year and next year, respectively, down from the previous forecast. The inflation rate measured by the personal consumption expenditure price index is forecast to be 2.4% and 2.5% respectively, and the core inflation rate after excluding food and energy prices is 2.8% and 2.5% respectively, both exceeding the long-term inflation target of 2%. This shows that the US economy is currently running smoothly, but inflation is still some distance away from the 2% target.
The December PMI index complements this economic forecast: the initial value of the US Markit Services PMI in December reached 58.5, exceeding the market expectation of 55.8 and higher than the previous value of 56.1. However, at the same time, the initial value of the manufacturing PMI was 48.3, lower than the expected 49.5 and the previous value of 49.7. The initial value of the composite PMI was 56.6, also exceeding the expected 55.1 and the previous value of 54.9. The service industry economy is experiencing the fastest growth since the lifting of the epidemic blockade in 2021, and the manufacturing PMI is lower than expected due to insufficient export demand.
In the "greenhouse" of the macro level, the US stock market rose in small steps, and the Nasdaq index successfully broke through 20,000 points. Among the Big 7 US stocks, Apple (APPL), Amazon (AMZN), Google (GOOG), Tesla (TSLA) and Meta all continued to hit record highs in December. OpenAI's 12 consecutive days of press conferences this month also pushed AI to another climax. When there is no crisis on the macro level and no new narrative in the market, the market will still move in the direction of least resistance, and this direction may only be the AI with the strongest consensus.
Behind the record high of the Nasdaq is the "super optimistic" investor sentiment. Bank of America's December Global Fund Manager Survey found that investor sentiment was "super optimistic" in December. The report said that investors' allocation to cash was at an all-time low, while allocation to U.S. stocks was at an all-time high. The report said that global risk appetite was at a three-year high, driven by optimism about economic growth related to Trump's second term and the Federal Reserve's interest rate cuts. Bank of America also listed several chip stocks such as Nvidia (NVDA) as top investment options in 2025. The highly optimistic market sentiment has created the current prosperity of the U.S. stock market, but it has also added the possibility of a plunge due to black swan events to the complex and chaotic financial system.
It is worth noting that the Dow Jones Industrial Average has experienced a "ten-day losing streak" this month, setting the worst losing streak record since 1974. The divergence between the Dow Jones Industrial Average and the Nasdaq and S&P 500 is mainly caused by the differences in constituent stocks. This month, the medical giant UnitedHealth was caught up in a political turmoil, causing its stock price to plummet. At the same time, Nvidia, which was newly added to the Dow Jones Industrial Average, performed weakly this month, contributing to the continuous decline of the Dow Jones Industrial Average.
This month, there is another US stock event that has attracted the attention of the cryptocurrency circle - MicroStrategy (MSTR) has been officially included in the Nasdaq 100 Index. In the WealthBee November monthly report, we have analyzed that the "digital gold standard" strategy and capital operation model that MicroStrategy is implementing may become an industry pioneer and promote Bitcoin to be recognized as the top predator of assets if the market continues to rise. This month, MicroStrategy was included in the Nasdaq 100 Index, which is undoubtedly another victory for the crypto world and another progress for the traditional financial world. This may be just a primer, and there will be something bigger happening in the crypto world in the future. Let's wait and see.
On December 5th, Beijing time, Bitcoin finally ushered in its historic moment - officially breaking through $100,000.
At the same time, Ethereum also broke through $4,000. It can be said that Bitcoin's breakthrough of the psychological barrier of $100,000 completely ignited the market sentiment.
This wave of Bitcoin surge is mainly driven by political factors. We don’t know whether Trump will really fulfill his promises on cryptocurrency after taking office, but at least the “emotional value” has really filled the market. At present, abroad, the entire public is permeated with serious fomo sentiment. The proportion of cryptocurrency holders in South Korea has reached 30%, which is equivalent to three out of every ten people holding cryptocurrency (data from the Bank of Korea), which is higher than the proportion of stock investors in my country.
The current fomo situation is obvious to all, and institutions have given future predictions at this juncture: Bitwise, the largest crypto fund index in the United States, predicts that Bitcoin will reach $200,000 in 2025. The Bitwise team believes that Coinbase will enter the S&P 500 index, and 2025 will be a more festive year than this year.
At the end of 2024, the Federal Reserve entered a rate cut cycle, creating a more friendly macroeconomic environment for high-risk assets. Bitcoin has also been favored by domestic and foreign institutional liquidity. 17 US and Japanese icon listed companies have announced plans to hold or approve Bitcoin as a war reserve asset. In the first quarter of 2025, the market may continue to support high-risk transactions, and funds may continue to flow to crypto assets such as Bitcoin.
Looking ahead to 2025, several key storylines in the crypto space have already emerged: the changing role of Bitcoin in global asset allocation, where the new incremental market is, new price ceilings, and regulation. These storylines also have new important clues that deserve continued attention.
Currently, only 0.01% of listed companies in the world hold Bitcoin, which means that this is just the tip of the iceberg of large institutional purchasing power, and the market is still in the "elite experimental stage". OKX Research Institute predicts that the statistical funds entering Bitcoin in the next year will be about 2.28 trillion US dollars. This amount of funds can push the price of Bitcoin to around 200,000 US dollars, which is roughly consistent with the forecasts of Bernstein, BCAicon Research and Standard Chartered Bank icon financial institutions. JMP Securities, a well-known investment institution on Wall Street, predicts that the Bitcoin spot ETF may have a capital inflow of up to 220 billion US dollars in the next three years. Overall, institutions generally expect Bitcoin to reach around 200,000 US dollars in 2025. At the same time, Bitcoin is still a "non-mainstream" investment, which indicates that the incremental market is still unimaginably large.
During the 2024 rally, Bitcoin added value to a multi-asset portfolio, but it remains a volatile, risky asset. Citi analysts said that the return on cryptocurrencies needs to be several percentage points higher than the expected return on stocks to justify a 1% portfolio allocation, and if the share is larger, the return on cryptocurrencies will be much higher. Therefore, the allocation ratio of Bitcoin in a portfolio may still be relatively low, but for investors seeking high risk and high returns, it may be appropriate to increase its allocation.
The regulatory environment has always been an important factor supporting the long-term trend of Bitcoin prices. With Trump taking office, regulation will become a major theme in 2025. The United States will usher in a critical moment to establish regulatory clarity for the crypto industry, and bipartisan support for cryptocurrencies means that regulation is expected to change from resistance to driving force. The European Union (Crypto Asset Market Regulatory Framework) (Mica) will take full effect in 2025, unifying the cryptocurrency regulations of member states. Japan and South Korea in Asia are also continuing to encourage innovation while increasing supervision of exchanges and wallet service providers. Regulatory clarity around the world will help attract more institutional and individual investors to the market.
In addition to Bitcoin, institutions predict that AI and stablecoins will become new highlights in 2025. Currently, many banks are jealous of the profits of Tether (USDT) and have chosen to join the market. According to Bloomberg, Societe Generale, Germany's Oddo BHF, Britain's Revolut, and even China's Hong Kong Monetary Authority have begun to layout the stablecoin market, hoping to get a share of this field. Stablecoins may be the tool with the most obvious application scenarios in the current currency circle, which has also become a key step for the currency circle to further break the circle and become a new consensus.
In the current market uptrend, even the most optimistic forecasts seem so reasonable. However, we need to understand that even if the future is bright, the road is still full of thorns, and we must also pay attention to the risks that may be brought about by short-term market fluctuations. Since 2008, the crypto world has thrived for 16 years - according to human age, it is about to enter the "coming of age ceremony". At the time of adulthood, Bitcoin has become a consensus investment product in the mainstream financial circle, and stablecoins may also become a real real-life application tool. The crypto market in 2025 will be more interesting than in 2024!
