Author: Biupa-TZC
In addition to the order book and technical indicators that I have been following, a grass snake gray line affecting the trend of the crypto market is the macroeconomy. Knowing history is knowing rise and fall, reviewing the past will help us judge the future market.
I. The initial bull market, from August 2023 to March 2024
The FOMC meeting dates in the second half of 2023 are:
July 26, September 2, November 1, December 13, remember these four time points
I believe the start of this bull market is after August 18, 2023. August 18 is a wash-out, and the timing is very clever.
July 2023 is the last rate hike of the current cycle (at the time we didn't know it was the last one), and the next FOMC meeting is in September 2023. In September 2023, it was generally expected that there would be no rate hike (the market couldn't bear consecutive hikes), but the dot plot in September predicted one more rate hike in 2023 (generally believed to be in November).
The turning point is between September and November.
First, various Western countries have already started cutting interest rates (high interest rates are unsustainable). Second, various US data have improved. Third, financial conditions have tightened (as reflected in the sharp drop in the Nasdaq). During this period, market expectations have shifted from "there will be one more rate hike in 2023" to "there will be no more rate hikes in 2023 - and rate cuts will start in 2024 (the majority expect rate cuts to start in May 2024)".
Finance is about speculating on expectations.
Before the Fed's pivot in November, traders generally started betting on the end of rate hikes and started buying - the change in expectations led to a change in market risk. The crypto market also had the expectation of ETF approvals. The two combined led to a bottom rebound and a bull market starting in October in the crypto market.
There was only one wash-out during this rally, which was the Grayscale dump after the ETF approval in January. It then continued to rise to the peak in March. Looking back, there were many signs that the March peak was a top. There was also a huge turning point in the macroeconomy in March.
II. The bear market wash-out, from March 2024 to August 2024
The FOMC meeting dates in the first half of 2024 are:
January 31, March 20, April 30, June 12, July 31
In January 2024, there was no shortage of optimism in the market, believing that rate cuts could start as early as March 2024. (If this were true, we might have entered an epic bull market directly)
But the CPI and PPI in February and March rebounded, dashing the hopes of a March rate cut. After the March meeting, the market generally bet on rate cuts in June or July.
The March CPI released on April 16 again exceeded expectations, and the unemployment rate also hit a new high, greatly reducing the possibility of rate cuts in June and July, and the market generally believed that it would be delayed to September.
From the super optimism in January (predicting a March rate cut), to the delayed but optimistic March (predicting a June rate cut), to the greatly increased uncertainty in April (predicting a September rate cut), the market has completely turned bearish since then. I believe the whales generally entered the distribution mode after March. Whether it was the prediction from March to June or from April to September, the time to maintain the coin price at a high level was too long, so the whales generally chose to distribute after March. After the Ethereum ETF news on May 20 pumped the market, that was the last chance to escape.
April 14 was a black swan event similar to March 14 and May 19. But how the market reacts after a black swan event still depends on the macroeconomy. Like the roaring bull market after March 14, the April 14 event brought a long bearish oscillation, because the deterioration of rate cut expectations led to the whales' violent distribution, so every rebound was an opportunity for the whales to distribute, causing the altcoins' higher and lower points to also decrease in turn (March 13 top > May 20 top > late July top > late August top).
June and July were relatively quiet, although BTC still had moments of returning to $70,000, the altcoins performed very poorly. An additional macroeconomic event in July was the assassination of Trump and his speech at the Bitcoin conference. These two events drove a rebound in July. Otherwise, we have reason to believe that after the May 20 rebound, the entire June and July should have been in a low-range oscillation, until the August 5 plunge.
August 5 was a macro negative event caused by the Bank of Japan's unexpected rate hike, which led to a brutal dump in US stocks, Japanese stocks, and the crypto market. This negative event, I think, is similar to August 18, 2023, marking a low point in the wash-out and brewing hope for the next stage.
III. The bull market brought by rate cuts, from September 2024 to December 2024
FOMC meetings in the second half of 2024: September 18, November 7, December 18
The rate cut in September can be interpreted in multiple ways. First, inflation continued to improve from May to August (May CPI expected 0.4 actual 0.3; June expected 0.1 actual 0; July expected 0.1 actual -0.1; August and September met expectations). Second, the market's long-standing expectation of a September rate cut. Third, the tightening of financial conditions after the August 5 plunge. Therefore, the September rate cut was expected.
What was more surprising was that September saw a 50 basis point cut directly. The surprise in September was great, on the one hand because it was a 50 point cut vs the market's expected 25 point, and on the other hand because November and December were expected to see further cuts, making it a 100 point cut for the full year vs the market's expected 75 point.
The unexpected positive in September gave a big boost to the crypto market. After September 18, altcoins and BTC did not have a similar large correction like April 14, May 17, August 5, and September 5, but maintained an overall upward trend.
The crypto market's complete takeoff was after Trump's re-election on November 5, which is a relatively recent history that I won't repeat (everyone still has a fresh memory).
IV. Where to go in 2025?
From the above three historical stages, we can also learn a principle - the market is oscillating. The market will see corrections due to excessive optimism, corrections will bring pessimism, and the excessively pessimistic market will be saved by the Fed, and after being saved, it will enter excessive optimism again - the market is in such oscillation.
With the takeoff from September to December, the FOMC on December 18 saw another turning point. Although there was still a rate cut in December, the expectations for 2025 were greatly revised. The original expectation in September 2024 was for 4 rate cuts in 2025, but by December 2024 this was reduced to 2 (referring to the dot plot here). Meanwhile, the timing of the first rate cut in 2025 was also significantly delayed from the original expectation of January to March (currently March and May each have a probability).
From 4 to 2, from January to March, although we are still in a rate cut cycle, the slowdown in the pace of rate cuts also constitutes a negative. Therefore, it is not difficult to understand the short-lived and rapid decline of altcoins from the 18th to the 20th. In my view, this is very similar to the situation after March. However, since there was no black swan event, just an internal correction in the crypto market, the magnitude was not as severe as April 14.
At this moment (January 5, 2025), we are in a moment of the first rebound after a wash-out of about two weeks. Some see an escape wave (followed by a C-wave decline to 86,000), some see the start of the mountain season. I currently believe that in addition to order book data, it will be largely dependent on the FOMC meeting on January 28-29 and the various macroeconomic data released in the rest of January.
First, the remaining data in January includes
The unemployment rate and non-farm payrolls on January 10
The PPI on January 14
The CPI on January 15
Based on these data, the market will form expectations of the first rate cut in January/March/May. If the data is better (here "better" means favorable to us), the probability of a rate cut in March will be higher / the expected number of rate cuts for the whole year will be more. (A rate cut in January is still seen as a low-probability event, so the main game is between March and May.)
At the same time, there will be a dot plot in March - which means that the expected number of rate cuts for the whole year will be given in March. If the January data is favorable, and January gives a very dovish statement, then the expectation of a rate cut in March will increase, and the bull market is likely to continue. If the rate cut is postponed to May, then it is likely that the market will fluctuate in a range until April before starting to rise.
The dot plot is also very important - if the dot plot given in March shows an expectation of more than 2 rate cuts for the whole year (currently the one given in December is two, and if there can be another 2-3 after the March cut), this will also be seen as favorable. Therefore, if the January and March FOMC meetings are in line with our expectations, there may be a long-term rise from January to May, which is the so-called "mountain season".
On the contrary, if the January FOMC is not in line with our expectations, and March is also not in line, and only one rate cut is made in May, then the market may fluctuate at low levels in January-April (the possibility of an 86,000 washout cannot be ruled out), rebound to around May's rate cut, and start fluctuating again from June (similar to the trend from April to August 2024).
As for whether altcoins can reach new highs. I can say this, the lack of liquidity is an excuse for the decline, but not the real reason. The real reason for the decline is "the expectation of a decline", and the reason for the rise is also "the expectation of a rise". The USDT market cap in 2021 was only half of what it is now, but it was still able to support the "mountain season" bull market, and this round is not unexpected. As long as there is an "expectation", the "mountain season" may not be able to rise 100 times, but it is no problem to exceed the 2021 high by 50%-100%.
In addition, there is a complex variable, the Trump factor. The Trump factor is the main reason for the BTC frenzy starting in November. (Although in my view, it only affected the degree, not the direction.)
Trump will officially take office on January 20. Trump's impact on the market is multifaceted. First, his economic policy may adopt direct rate cuts to stimulate the stock market and the economy. Second, his policy may lead to repeated inflation, and Powell's suppression of the 25-year expectation in December also took into account the Trump factor. Third, his direct positive impact on the crypto sector may lead to a direct rise in some beneficiary cryptocurrencies (rather than "macroeconomics leading to liquidity leading to XX leading to YY leading to ZZ leading to the rise" - but a simple and straightforward direct rise).
Therefore, the Trump topic is a very grand topic, and it is difficult to explain clearly what the pros and cons are in a few words. After confirming the general direction, you can focus on selecting cryptocurrencies related to Trump (which have risen more and fallen less).
What we can do next is not much, on the one hand to observe the changes, and on the other hand to respond in a timely manner to the variables that may arise in the future. If everything goes well, perhaps "the big one has really come", if not, we may return to the fluctuations of April-August last year. Whichever situation arises, be psychologically prepared, and take the right approach when it actually occurs, which is the solution.
