Author: 0xWeilan
The market, project, and cryptocurrency information, opinions and judgments mentioned in this report are for reference only and do not constitute any investment advice.
After the BTC Spot ETF was issued, the correlation between BTC price and the US stock market has become increasingly stronger. This was fully reflected in the market performance since November.
On November 5, when Trump was elected as the 47th US President, the US stock market and BTC simultaneously launched the "Trump trade". Market participants had strong confidence in Trump's economic policies, driving this trend to continue rising until December 18. On that day, the Fed made hawkish remarks, hinting that it might change its monetary policy, and the market expected the number of rate cuts in 2025 to be revised down sharply from 4 to 2. Subsequently, both the US stock market and BTC initiated a significant correction.
The capital flows also showed the same pattern. Before December 18, there was a strong inflow, while after that, it quickly turned into an outflow.
Although it hit new highs, before December 18, BTC maintained an upward trend, gradually approaching $110,000. The Fed's policy shift led to a cooling of trading sentiment, and this cooling forced BTC to start a downward revision from the high.
EMC Labs believes that the global economy is still in a rate-cutting cycle, and the current cooling is just a temporary setback. With liquidity gradually recovering, BTC will challenge the $100,000 mark again after adjusting from the high.
Macro Finance: 2025 US Rate Cut Expectation Revised Down from 4 to 2
On December 18, after announcing the December rate cut, the Fed made hawkish remarks, stating that "the risks to the achievement of the employment and inflation targets are roughly balanced, and the Committee will be prepared to adjust the monetary policy stance as appropriate if risks emerge that could impede the attainment of the goals".
The "goals" refer to "achieving full employment" and "maintaining price stability". Balancing the two through federal interest rate adjustments is considered the basic work of the Fed.
According to the data released by the US in December, the US added 227,000 jobs in November, indicating a robust job market; the unemployment rate remained at 4.2%, flat with the previous months, showing a relatively stable job market. The CPI data showed that the inflation rate rose 2.6% year-on-year, slightly higher than the 2.4% in October, indicating that inflationary pressure has rebounded and there have been two rebounds.
US CPI
Since September 2024, the Fed has cut rates three times, a total of 100 basis points, and the federal funds rate is currently at 4.33%. Although it is still at a high level, the data does not show any suppression of economic activity. Both the increase in employment and the unemployment rate indicate that the US economy is in a healthy state. However, the two-month rebound in inflation has led the Fed to decide to pause rate cuts to observe whether inflation data can decline.
This pause is seen as the end of the first stage of the rate cut cycle, and the second restart will require more economic data guidance, that is, a weakening of economic activity or a decline in CPI.
In 2025, although experiencing ups and downs and turmoil, the three major US stock indexes have achieved significant gains for two consecutive years. Looking ahead to 2025, systemic risks are still not large, and the variable lies in the conflict between Trump's economic policies and monetary policies.
Due to market linkage, for BTC to break out of the adjustment and successfully challenge the $100,000 mark, the US stock trading participants need to have a clear direction, and the stock indexes need to return to an upward trend.
Crypto Assets: $100,000 Mark and Market Unsaturation
In December, BTC opened at $96,464.95 and closed at $93,354.22, down 3.23% for the month, with a volatility of 17.74%. Trading volume was lower than November but still at a relatively high level, indicating that there was significant divergence and selling pressure after breaking through the $100,000 mark.
Reviewing 2024, BTC rose 120.76% for the full year, but 4 out of the 12 trading months were in a downward state. From April to October, a period of 7 months, BTC was in a long-term sideways consolidation after hitting a historical high of $70,000, during which it experienced the impact of the rate hike restart, the German government's sell-off, and the collapse of the yen carry trade, with ups and downs and dangers.
It was a rather difficult year.
ETH and SOL, the two major smart contract platforms, rose 46.27% and 86.11% respectively, both lagging behind BTC, which was strongly supported by US stock capital. Except for a small number of coins that are still in the price discovery stage or have strong manipulation, only about 20% of the top 100 coins by market cap had annual gains exceeding BTC, which is very different from the previous bull market.
BTC Dominance
BTC's market dominance has been above 50% for a long time, reaching a high of 57.53% (November 21), and then started to decline, reaching a low of 51.22% (December 8), before rebounding again, but the trend has not been able to continue. This shows that Altcoins have not been able to attract sufficient long-term capital, and have mostly experienced rapid rises and falls under the influence of short-term speculative capital or manipulation, making it much more difficult for investors to operate.
In addition, although concepts and projects such as LRT, RWA, AI, Layer2, and DePhin have emerged one after another, they have not been able to produce the long bull market tracks of DeFi and high-performance public chains that lasted for a year or even 20 months in the previous bull market. This is particularly noteworthy.
Capital: Quickly Turned to Outflow After December 18
According to the data on traceable capital (stablecoins, BTC ETFs, ETH ETFs), the crypto market recorded positive inflows throughout 2024, with each month recording positive inflows. This data indicates that BTC and the crypto market are in the upward phase of the current cycle, and the liquidity released by the rate cut cycle has driven the market to rise in a pulsed manner.
Especially after the Fed started cutting rates in September, the second wave of liquidity began to gradually recover, and started to flow in exuberantly in November after the crypto-friendly candidate Trump won the election, setting a monthly record of $26.9 billion. In the entire December, the market inflow reached $15.7 billion, ranking second highest in this bull market and fourth highest historically.
Monthly Inflow and Outflow of Stablecoins, BTC ETFs and ETH ETFs
In addition, Microstrategy invested about $12.8 billion to accumulate BTC in November and December, directly driving the company's market value to soar and enter the Nasdaq 100 index.
However, after the Fed lowered its rate cut expectations on December 18, the two major ETFs and stablecoin channels quickly turned to outflows the next day, and although there were fluctuations afterwards, the overall trend was still one of amplified outflows. BTC prices also fluctuated downwards accordingly, from a high of $108,388.88 to a low of $91,271.19, a maximum drawdown of 15.84%.
Daily Inflow and Outflow of Stablecoins, BTC ETFs and ETH ETFs
The three major US stock indexes also experienced downward adjustments during this period, with the Nasdaq, Dow Jones and S&P 500 falling 5.13%, 6.49% and 4.39% respectively. The adjustment range of BTC was about 3 times that of the Nasdaq.
The driving force of the stage rally that started on November 4 came from the speculative enthusiasm of the "Trump trade", and this sentiment was quickly cooled by the Fed's lowering of rate cut expectations on December 18. During this period, BTC adjusted along with the US stock indexes, and the drawdown was at the lower end of the bull market drawdown record, and the volatility ratio to the Nasdaq was also in a reasonable range.
Currently, there is still ample capital in the market, and there is no major crisis. The focus going forward is whether the US stock market can return to an upward trend after Trump takes office, and whether the crypto market capital will return to an inflow trend.
However, if the US stock market adjusts for a long time and the selling pressure accumulates, BTC may not rule out revisiting new lows. If so, the decline of Altcoins is likely to be even greater.
Secondary Sell-off: Liquidity and Historical Rules
According to eMerge Engine, the BTC and crypto asset market is currently in the bull market upward phase. The main market activity in this stage is the long-term sell-off of positions, while the short-term players continue to increase their holdings, and the continuous increase in liquidity drives the asset prices to continue rising.
Followin' group conducted the first round of sell-offs in this cycle during January-May this year. Followin' resumed accumulation from June, and their holdings reached 14,207,303.14 by October. Followin' restarted sell-offs as prices rose from October, which is the second round of sell-offs in this cycle. Historically, this round of sell-offs will continue until the transition period, i.e., the bull market top.
**Monthly holdings of long/short, CEX, and miners**
As of December 31st, the long position size was 13,133,062.92, and the "sell-off size" (recalculated based on on-chain UTXO, greater than the actual sell-off volume) has exceeded 1.07 million BTC from the October high.
The massive sell-off has absorbed the surging inflows of funds. If subsequent fund inflows fail to continue, the price can only be revised downward for the market to establish a new equilibrium.
The behavior of the long group depends on the will of this group and the inflow of funds. Whether the subsequent sell-off will continue or be postponed needs to be observed.
If funds resume inflows, selling pressure will decrease, and prices may resume an upward trend; if funds fail to resume inflows or only see a small inflow, and the long group continues to sell-off, the price will break below the new consolidation range of $90,000-$100,000; if funds fail to resume inflows or only see a small inflow, and the long group postpones the sell-off, the market is likely to fluctuate within the new consolidation range, waiting for a larger influx of funds.
**Conclusion**
The cyclic juggernaut is running as usual. Time, space, and the long/short game all indicate that this stage of adjustment is triggered by the sudden cooling of the long sentiment due to the sharp rise in prices and the downward revision of the Fed's rate cut expectations.
The timing and scale of the adjustment first depend on when mainstream funds in the US stock market resume long positions and the long group's sell-off plan.
For the broader crypto market, the most noteworthy issue now is that the second stage of the uptrend has opened, but will the core track-leading, long-lasting Altcoin Season be absent in this bull market!
**EMC Labs (Emerging Labs) was founded in April 2023 by crypto asset investors and data scientists. It focuses on blockchain industry research and Crypto secondary market investment, with industry foresight, insights, and data mining as its core competencies, committed to participating in the thriving blockchain industry through research and investment, and promoting blockchain and crypto assets to bring well-being to humanity.**
**For more information, please visit: https://www.emc.fund**
