The recent Altcoin crash has plunged the entire market sentiment into a state of "extreme panic". Within a short month, from anticipating a raging bull market to having to accept that "the bear market may have arrived", investors' emotions have been like a roller coaster, with confidence ruthlessly crushed by the violent price fluctuations.

Is there still a bullish case for cryptocurrencies in 2025? Has this bull market cycle really come to an end? The founder of The DeFi Report, Michael Nadeau, provides his analysis and views, as follows:

01
Review of this cycle

Before diving into on-chain data, I want to share some qualitative analysis on how we think about crypto cycles.

1. Early Bull Market Phase

This is roughly from January 2023 to October 2023.
This is the period when the market bottomed out after the FTX event. The crypto market became very quiet (low trading volume, crypto Twitter silent). Then we started to rally again.

BTC went from around $16.5k to $33k during this time.

However, no one was calling this a bull market. During the "early bull" phase, most market participants are still on the sidelines.

2. Wealth Creation Phase

This is roughly from November 2023 to March 2024.

This is the period where we see some big moves and significant wealth creation. Solana (SOL) went from $20 to $200. The Jito airdrop (December 2023) created an additional wealth effect within Solana and repriced Solana's DeFi projects (Pyth, Marinade, Raydium, Orca, etc.) The venture capital market reached a frenzy peak during this period (which is typical).

BTC went from $33k to $72k. Ethereum (ETH) went from $1.5k to $3.6k.

Bonk went from a $90M market cap to $2.4B (26x). WIF went from a $60M market cap to $4.5B (75x). The seeds of a larger "meme coin season" were sown during this period.

But this period was still relatively "quiet". Your "average friend" may not have started asking you about crypto yet.

3. Wealth Distribution Phase

This is roughly from March 2024 to January 2025.

The "hype peak" period. We often see "WAGMI" (we're all gonna make it) type sentiment, rapid rotation, new trends (that quickly fade), and reckless risk-taking being rewarded. Celebrities and other "crypto tourists" typically enter the market during this stage. Crazy headlines like "Tesla buys Bitcoin" or "Bitcoin Treasury Reserves" tend to emerge in the wealth distribution phase.

Why?

New investors enter the market due to these headlines. They don't realize they're late to the party.

This is the second wave of the "meme coin season", which then evolves into an "AI proxy season". During this period, the market ignores many obvious red flags. No one wants to point out any issues. Everyone is making money.

Now, this brings us to today.

4. Wealth Destruction Phase

We believe we entered this phase shortly after Trump took office.

This is the period following the market top. The bullish catalysts are now in the past. Seemingly positive news is accompanied by bearish price action.

In the current environment, executive actions around "strategic Bitcoin reserves" have failed to drive the market - an important signal. During this period, rallies tend to encounter key resistance levels and fade (we saw this last week after Trump's tweet about crypto reserves).

Some additional signals we look for in the wealth destruction phase include:

• Liquidations and "panic" events that shake the market but still don't fully wake it up. We saw this with the DeepSeek AI panic and tariff uncertainty.

• Investors clinging to "hopium". We see a lot of discussion today about the dollar declining and global M2 rising (more on this later in the report).

• "Grifter" types entering the market. More people DMing us to "check out their project". Advertising capital flowing more in the market. Reckless spending by well-funded projects at conferences. More player-vs-player (PvP) competition/infighting. The industry as a whole emanating a more "dirty" vibe. Bad actors start getting called out during the "wealth destruction" phase.

During this time, failed projects also start to surface - usually after liquidations. The last cycle started with Terra Luna. This led to the collapse of Three Arrows Capital. Then came the bankruptcies of BlockFi, Celsius, FTX, and ultimately the demise of Genesis and the sale of CoinDesk.

We haven't seen any explosive events yet. We note that this cycle should have fewer explosions - simply because there are fewer CeFi companies. Time will tell. Fewer explosions may lead to us forming a higher low when we officially bottom.

Where might these explosions come from?

No one knows, but my guess is to watch the usual suspects.

• Exchanges: Keep an eye on some "B and C-tier" international exchanges for hidden leverage and/or potential fraud.

• Stablecoins: We're watching Ethena/USDe - its circulating stablecoin value is close to $5.5B. It maintains its peg and generates yield through cash and arbitrage trading (holding spot assets, shorting futures) - a major source of leverage in the last cycle (via Greyscale). Ethena's increased reliance on centralized exchanges adds additional counterparty risk. Additionally, MakerDAO has invested a portion of its reserves into USDe, creating additional cascading risk within DeFi.

• Protocols: Watch for an increase in hacks, as well as potential liquidation cascades on platforms like Aave due to crypto collateral - Aave still has over $11B in active loans (down from a peak of $15B).

• Microstrategy: We believe they've done a good job managing their debt, as most of it is long-term unsecured debt or convertible bonds (no margin calls on their BTC holdings). Additionally, they were able to withstand a 75% drop in Bitcoin in the last cycle. However, a significant drop in Bitcoin price could still put pressure on Saylor, potentially forcing him to sell large amounts of Bitcoin at the worst time.

The best time to re-enter the market is at the end of the wealth destruction phase. We don't believe we're there yet. Of course, we'll let you know when we think we're back in the "buy zone".

02
Bearish Signals

DEX Trading Volume

DEX trading volume on Solana has declined 80% from its peak after Trump's meme coin launch. At the same time, the number of unique traders has dropped by over 50%. This, to us, signals that animal spirits are waning.

Source: The DeFi Report, Dune

Token Issuance

Token issuance on Solana has declined 72% from its peak. However, the chain still sees over 20,000 Tokens created per day.

Source: The DeFi Report, Dune

Bitcoin Long-Term Holder MVRV Ratio

Source: Glassnode

The MVRV (the "smart money" of Bitcoin) of long-term holders reached a peak of 4.4 in December, which is 35% of the 12.5 peak in the 2021 cycle, and the 2021 peak was 35% of the 2017 cycle peak.

Bitcoin rose about 80-fold from the bottom to the peak in the 2017 cycle. It rose about 20-fold in the 2021 cycle. It has risen about 6.6-fold in the current cycle.

The realized price (a proxy for the average cost basis of all circulating Bitcoins) reached a peak of $5,403 in the 2017 cycle, 15.1 times higher than the 2013 cycle peak. It reached $24,530 in the 2021 cycle, 4.5 times higher than the 2017 cycle peak. Today, the realized price is $43,240, 1.7 times higher than the 2021 cycle peak.

Key points:

Through each of these data points, we can observe a symmetry in the diminishing of the peaks from one cycle to the next. We believe these data clearly tell us that the law of diminishing returns is very real.

Bitcoin today is a $1.7 trillion asset. No matter how bullish the headlines, investors should not expect to see the kind of sustainable parabolic trajectory seen in the past. It now takes too much capital to move this asset. When Bitcoin loses momentum, the rest of the market will suffer greatly.

The animal spirits on Solana are waning. We are keeping a close eye on this, as we are concerned that Solana's "recovery story" seems to be built on a "house of cards" - considering that over 61% of DEX trading volume so far this year has involved meme coins. Furthermore, in the past 30 days, less than 1% of Solana users have contributed over 95% of the GAS fees. This is concerning, as it highlights that a small group of Solana users ("whales") are preying on everyone else (the "small fish" trading meme coins). So if the "small fish" get tired of losing money and take a break (which we believe they are doing), we may see Solana's fundamentals deteriorate rapidly.

Data source: The DeFi Report, Dune (Solana base fees + priority fees + Jito tips)

Long-term Bitcoin holders have taken profits twice in the past year. Their realized price (a proxy for their cost basis) is currently around $25,000. Meanwhile, short-term holders who bought at the top are currently in a loss (average cost basis of $92,000). We believe this group may continue to sell at lower highs as they realize the reality of Bitcoin topping out at $109,000 has set in.

Data source: Glassnode

When you put all of this together, we think it is undeniable that the "typical" cycle has come to an end. To deny this is to deny reality.

Of course, there is no "law" at work here.

In our view, the best way to handle this information is to accept the reality + set a probability for a cycle top. We believe this probability is clearly above 50%.

With the groundwork done, we will try to challenge our arguments and stress-test our views.

03
Bullish Reasons

I still see many people refuting the bearish view. The bulls are not giving up their weapons easily.

This raises the question: Is the bullish view more evidence that we have entered the "wealth destruction" phase, the "denial" phase? Or is it possible that we have been too bearish at the local bottoms, and the market may rally again after that?

In this section, we will discuss some of the main "bullish arguments" that I have seen.

Global M2/Liquidity

Data source: Bitcoin Counter Flow

The green box on the right shows that as global M2 starts to rise, Bitcoin is declining. Some have pointed this out, mentioning the correlation between Bitcoin and M2, and that Bitcoin typically has a 2-3 month lag response.

However, the green box on the left shows that the same dynamics occurred at the end of the last cycle: M2 was rising while Bitcoin was declining. In fact, global M2 did not peak until early April 2022 - 5 months after Bitcoin peaked.

Since mid-January, global M2 has risen 1.87% as central banks have shifted from tightening to easing.

This is a positive for liquidity conditions.

However, we should also raise the following questions:

• What is driving the increase in M2? We believe this is mainly due to the weakening of the US dollar (down 4% since February 28th!) - foreign currencies increase in value when priced in US dollars. This is a driver of global M2. Additionally, the reverse repo facility has recently been depleted + China is easing to stimulate its economy.

• Will it persist? We believe the US dollar will continue to weaken as investors shift capital overseas, but not at the pace of the past few weeks. We believe China will continue to ease to address the weakening US dollar. However, we do not believe the Fed will ease in the near term, as they have stated that reserves remain "ample". We believe they are still concerned about inflation.

• How does this compare to last year's liquidity conditions? We believe the current liquidity conditions should be viewed as a headwind compared to last year. Remember, it's more about the rate of change rather than the nominal increase. We strongly believe that the Fed and Treasury injected vitality into the markets last year through "shadow liquidity" - or as Cross Border Capital's Michael Howell put it, "QE that's not QE" and "yield curve control that's not yield curve control". The chart below shows the impact of the rate of change of removing these policies under the Trump administration.

Data source: Cross Border Capital

The "secret stimulus" in the chart above is estimated to have injected $5.7 trillion into the US markets in early 2024, through the depletion of the reverse repo + early issuance of new debt instruments.

Finally, we believe investors should closely watch the comments made by Treasury Secretary Yellen in a CNBC interview last week:

"The markets and the economy have become addicted. We've become addicted to government spending. There will be a detox period. There will be a detox period."

Business Cycle/ISM

We previously pointed out that ISM data indicates a new business cycle is beginning. We also recorded strong data on capital expenditure purchases and small business confidence. We believe this is real, but growth is clearly slowing. The data we saw last month may have been skewed by some manufacturers "front-loading" purchases in anticipation of tariffs. We have already seen softening in the services and new orders data. The February manufacturing PMI reading was 50.3, down from 50.9 in January.

Strategic Bitcoin Reserves

Up until last Friday, crypto-native people were still hopeful about the discussion of strategic crypto/Bitcoin reserves - even though the market has repeatedly ignored this news over the past 6 weeks.

I suppose we can all now agree that this was a "buy the rumor, sell the news" event. "Cycle thinking" flawed?

We should also acknowledge that this "cycle" is different from the past.

For example:

• Bitcoin reached a new all-time high for the first time before a halving.

• This cycle is much shorter, with only a two-year bull market.

• The "altcoin season" has performed quite differently, as Bitcoin's dominance has been gradually rising since early 2023.

• Bitcoin is now fully integrated into the financial system and supported by the US government.

If "cycle thinking" is flawed, is it possible that we have not yet reached the top? Instead, we may be experiencing a pause/correction/consolidation phase, followed by another upward move, rather than the 75-80% price drop and year-long bear market we've seen in the past?

Our view is that the cycle is indeed evolving. Nevertheless, we still expect a bear market that could last 9-12 months.

04
Summary

In summary, our view is:

We believe we are currently in the "Complacency" stage shown in the chart above.

All the bullish catalysts that could be identified a few years ago have already played out.

The economy may be heading towards a recession. We believe the message from the Trump administration is very clear. They are actually telling us that the economy needs to be detoxified. We should believe what they say. This is very similar to when Powell came out at the beginning of 2022 and said "pain is coming." We currently believe that Altcoins are the canary in the coal mine. The traditional financial markets will follow with a slow bleed/chop.

Given the extremely bearish sentiment, we may see a short-term market bounce to the $90,000 BTC lows. However, we believe this will be met with aggressive selling - which could kill any hope of a recovery in the bull market structure.

As always, we remain open-minded about being wrong. Our analysis is based on the information available today. As new information comes in, we will update our views.

What would it take for us to turn bullish again?
We will be looking for the following:

• Fiscal restraint/reversal of DOGE efforts.

• Significant rate cuts/QE from the Fed.

• Significant inflows of global liquidity, driven by the Fed (not just China).

• Significant correction/capitulation in the S&P 500/Nasdaq.

One concern we have is that the bearish case is starting to become the consensus. This gives us some pause. But we still need to stick to all the other factors - as the probabilities suggest the cycle top is in, and a bear market is imminent.

Of course, in the long run, there are many things to be bullish about.

Altcoins have truly entered their "inflection point" period. It's finally time to rebuild the financial system on public blockchains.

Not to mention, we enjoy bear markets. As the tide goes out, it becomes easier to separate the noise from the signal of past cycles - which will prepare us for the next bull market.

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Source: https://mp.weixin.qq.com/s/1LKGB9fL72UEJV5JDohAqA