Currently, the market is in a state of very thin liquidity, where even a small force upwards or downwards can lead to significant volatility.

Recently, the market has been extremely volatile, causing a sense of unease. Many friends have been asking me for my views on the current market and the focus for 2025. My responses are always cautious and filled with hesitation. Currently, there is a severe divergence in market opinions; some believe we are in a bull market, while others think a bear market has arrived. Behind this huge gap, I believe the disappearance of liquidity has made a widespread rise in cryptocurrencies impossible. After the launch of the $Trump token, the fragile scene of other cryptocurrencies plummeting is a reflection of insufficient liquidity. So, where has the liquidity gone? Is it being siphoned off by the endless memes on pump.fun, or is it the bloodsucking attack of the $Trump + $Melania tokens? I believe the deeper reason lies in the complex interplay of macroeconomics and geopolitical factors.

Arthur Hayes' "The Ugly"

I recommend @CryptoHayes blog post titled “The Ugly” published in mid-January. This article is rich in content, covering everything from Trump’s new policies to the U.S. 10-year Treasury yield, and geopolitical issues, packed with knowledge. Although the article is lengthy, it is written in a fluent and humorous style, making it worth a read. I first learned of Arthur's name through GMX, and the second time was through Ethena, both of which I researched and studied extensively. The third time was when I had a brief encounter with Arthur in the second valley, where I was shocked to hear him mention skiing on Mount Yotei 😱. I even asked my coach if I needed to take a helicopter up, and he said that wasn't necessary, but I would need to hike for 6 hours with my gear. GMX + Ethena + Mount Yotei all made me feel that this person is indeed impressive.

In the article, Arthur expressed his concerns about the market and reduced Maelstrom's cryptocurrency holdings. The current market signals remind him of the feeling before the cryptocurrency market crash at the end of 2021. Although he does not believe the bull market has ended, he expects Bitcoin is more likely to pull back to $70,000 to $75,000 before rising to $250,000 by the end of the year. In fact, back in November last year, when chatting with some friends, we all felt that after Trump took office, the market would see a significant pullback, but the AI + meme bull market that occurred in between made everyone let their guard down.

What happened from a frenzied bull market to the disappearance of liquidity?

• The Trump administration aims to create a small economic crisis at the beginning of its term to shift blame onto the Biden administration while forcing the Federal Reserve to cut interest rates or initiate a money-printing mode. Before this, the U.S. 10-year Treasury yield is likely to rise to 5%, leading to market deleveraging and tightening liquidity.

• The Bank of Japan raised interest rates by 25 basis points last month. Although retail investors usually do not pay attention to the actions of the Bank of Japan, historically, every rate hike by the Bank of Japan has had a significant impact on the market. In 2000, after ending its zero interest rate policy since 1990, the Bank of Japan raised rates and encountered the bursting of the U.S. internet bubble, after which Japan reverted to a zero interest rate policy; in July 2006, Japan restarted rate hikes twice, and in 2007, the U.S. entered the subprime mortgage crisis; in 2024, Japan will again enter a rate hike cycle, having raised rates twice by January this year, with the subsequent impact on the market still to be observed. Due to the long-term low interest rates of the yen, there are a large number of arbitrage trades in the market. The yen's rate hike has increased the cost of these arbitrage trades, leading to unwinding, which has also significantly drained liquidity from the market.

• Although Arthur believes that China's stable exchange rate policy since the beginning of the year has also affected overseas liquidity, I personally think the impact of China is limited unless the U.S.-China trade war escalates.

Will Bitcoin drop to $75,000?

Looking at it from another angle, if interest rates rise and liquidity tightens further, who will sell?

• Macroeconomic factors: If market volatility and concerns about a "mini financial crisis" intensify, a general risk-averse sentiment may emerge in the market, leading investors (such as ETFs) to sell risk assets, including Bitcoin.

• Technical sell-off: Joe McCann, founder of Asymmetric, believes that there is a significant gap in Bitcoin futures contracts at the Chicago Mercantile Exchange (CME) around $75,000, suggesting that Bitcoin may decline in the short term. (I really don’t understand this 😅)

• Liquidation events: Market downturns can lead to liquidations that may cause a cascade effect.

Looking at MicroStrategy's average Bitcoin holding price, which is around $63,000, if the Bitcoin price pulls back to $70,000, MicroStrategy's overall position, including BTC holdings, borrowing costs, and convertible bond costs, will face some pressure.

Currently, the market is in a state of very thin liquidity, where even a small force upwards or downwards can lead to significant volatility. I personally maintain a 60/40 theory in my asset allocation. In the current market environment, it is important to remain cautious, control risks, and look for opportunities to buy the dip 😃.

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