Since the issuance of the BTC Spot ETF, the correlation between BTC prices and U.S. stocks has become stronger. This has been vividly reflected in the market trend since November.
After Trump's victory, U.S. stocks and BTC simultaneously started the 'Trump market'. The confidence of trading parties in Trump's economic policies was very strong, driving this market to continue rising until December 18. On that day, the Federal Reserve made hawkish statements, suggesting a possible change in monetary policy, and the market expected the number of interest rate cuts in 2025 to be significantly revised down from 4 times to 2 times. Subsequently, both U.S. stocks and BTC initiated a significant downward revision.
The flow of funds is similarly reflected, showing a vigorous inflow state before December 18, which quickly turned into an outflow state after the 18th.
Although it has reached new highs, before the 18th, BTC maintained an upward trend, gradually approaching $110,000. The Federal Reserve's policy shift triggered a cooling in trading sentiment, and this cooling made BTC 'cold at high altitudes', forcing it to start a downward move.
The global economy is still in a rate-cutting cycle; the current cooling is merely a temporary setback. As liquidity gradually recovers, BTC, after adjusting at a high level, will again challenge the $100,000 mark.
Is the upcoming CPI still important?
Since September 2024, the Federal Reserve has cut interest rates three times for a total of 100 basis points, currently bringing the federal funds rate down to 4.33%. Although still high, the data has not shown any suppression of economic activity, with both new employment and the unemployment rate indicating that the U.S. economy is in good shape. However, inflation rebounded over the last two months, prompting the Federal Reserve to decide to pause interest rate cuts to observe whether inflation data can decline.
This pause is seen as the end of the first phase of interest rate cuts, and a second restart requires more guidance from economic data, namely a weakening of economic activity or a decline in CPI.
In 2024, despite experiencing ups and downs and chaos, the three major U.S. stock indices have achieved significant gains for two consecutive years. Looking ahead to 2025, systemic risk remains low, with uncertainty stemming from the conflict between Trump’s economic policies and monetary policies.
Due to market linkage reasons, if BTC wants to completely break through the $100,000 mark after adjustment, it is likely necessary for the U.S. stock trading parties to clarify direction and for the stock indices to return to an upward trend.
BTC Market Share
BTC's market share has long been above 50%, reaching a high of 57.53% on November 21, after which it began to decline, hitting a low of 51.22% on December 8, and then rebounding again, but the trend could not continue. This indicates that altcoins have not received sufficient long-term capital support, and more often, they experience sharp rises and falls under short-term speculative funds or manipulation after BTC rises significantly, making it much harder for investors to operate.
In addition, although various concepts and projects such as LRT, RWA, AI, Layer 2, and DePhin have emerged one after another, they have not produced a prolonged bull market like last round's DeFi and high-performance public chains that lasted for a year or even 20 months. This point is particularly noteworthy.
The phase starting on November 4 is driven by the speculative enthusiasm of the 'Trump trade', which was quickly cooled down on December 18 when the Federal Reserve lowered its interest rate cut expectations. During this period, BTC adjusted alongside U.S. stock indices, with the pullback being at a relatively low level in the bull market's pullback record, and the volatility ratio with the Nasdaq also remained within a reasonable range.
Currently, the funds in the market are still ample, and there is no major crisis; the subsequent focus will be on whether the U.S. stock market can regain upward momentum after Trump takes office, and whether capital will flow back into the cryptocurrency market.
However, if the U.S. stock market adjusts for too long and selling pressure accumulates, BTC does not rule out testing new lows again. If so, the decline of altcoins is likely to be even greater.
Pay attention to subsequent selling pressure.
Currently, the BTC and cryptocurrency asset market is in a bull market uptrend. The main market activity during this phase is characterized by long positions selling off chips, while short positions continue to accumulate, driven by the increasing liquidity pushing asset prices to continue rising.
The long position group conducted the first round of selling in this cycle between January and May of this year, returning to accumulation from June, reaching a position of 14,207,303.14 by October. Starting from October, along with the price increase, they resumed selling, marking the second round of selling in this cycle. Historically, this round of selling will continue until the transition period, which is the peak of the bull market.
Massive sell-offs absorbed the flood of incoming funds, and once the subsequent capital inflow is difficult to sustain, prices can only adjust downward for the market to establish a new balance.
The behavior of long positions depends on the will of this group and the capital inflow situation. Whether subsequent selling continues or pauses needs to be observed continuously.
If capital inflow resumes and selling pressure decreases, prices may recover upward; if capital does not resume inflow or only flows in slightly, and long positions continue to sell, prices will break downward through the new consolidation zone of $90,000 to $100,000; if capital does not resume inflow or only flows in slightly, while long positions pause selling, the market is likely to fluctuate within the new consolidation zone, waiting for larger-scale capital inflow.
The timing and scale of adjustments primarily depend on when mainstream funds in U.S. stocks resume bullish positions and the selling plans of long positions.
For the broader cryptocurrency market, the most noteworthy question at present is when the second stage of the uptrend has opened, when will the altcoin season start, and how to better seize the opportunity of the next main rising wave.
The first half of the year will continue the rhythm of the ongoing bull market, but by mid-year and after the third quarter, caution is needed for top reversal risks and to grasp the right timing to exit. From a cyclical perspective, as institutional funds continue to enter this cycle and future regulations become increasingly standardized, the overall market cycle may be extended in terms of time dimension.