The information, opinions, and judgments regarding the market, projects, and cryptocurrencies mentioned in this report are for reference only and do not constitute any investment advice.

Since the issuance of the BTC Spot ETF, the correlation between BTC prices and US stocks has become increasingly strong. This has been vividly reflected in the market trends since November.

On November 5, Trump was elected the 47th President of the United States, and both the US stock market and BTC began to rally in what is known as the "Trump Market." The trading parties had strong confidence in Trump's economic policies, which propelled this rally to continue until December 18. On that day, the Federal Reserve made hawkish statements, suggesting a possible change in monetary policy, leading the market to revise the expected number of rate cuts in 2025 from four down to two. Subsequently, both the US stock market and BTC began to undergo significant corrections.

The flow of funds also reflected this trend, with a robust inflow before December 18, which quickly turned into an outflow after that date.

Although BTC reached new highs, it maintained an upward trend before the 18th, gradually approaching $110,000. The shift in Federal Reserve policy cooled trading sentiment, and this cooling effect made BTC feel "lonely at the top," forcing it to initiate a downward revision.

EMC Labs believes that the world is still in a rate-cutting cycle, and the current cooling is merely a temporary setback. As liquidity gradually recovers, BTC will once again challenge the $100,000 mark after its high-level adjustment.

Macroeconomic Finance: US Rate Cut Expectations Revised from Four to Two

On December 18, after announcing a rate cut in December, the Federal Reserve made hawkish statements, claiming that "the risks to achieving employment and inflation goals are roughly balanced. If risks that could hinder the achievement of these goals arise, the committee will be prepared to adjust its monetary policy stance as appropriate."

The so-called "goals" refer to "achieving full employment" and "maintaining price stability." Balancing these two through federal interest rate adjustments is considered the Federal Reserve's fundamental task.

According to the November data released in December, the US added 227,000 jobs in November, indicating a robust job market; the unemployment rate remained at 4.2%, consistent with previous months, suggesting relative stability in the job market. CPI data showed that the inflation rate rose by 2.6% year-on-year, slightly higher than October's 2.4%, indicating a rebound in inflationary pressures, which has already seen two instances of resurgence.

US CPI

Since September 2024, the Federal Reserve has cut rates three times, totaling 100 basis points, bringing the federal funds rate down to 4.33%. Although still at a high level, the data has not shown any suppression of economic activity, as both job additions and the unemployment rate indicate that the US economy is in a healthy state. The two-month rebound in inflation has led the Federal Reserve to decide to pause further rate cuts to observe whether inflation data can decline.

This pause is seen as the end of the first phase of rate cuts, with a second restart requiring more economic data guidance, specifically a weakening of economic activity or a decline in CPI.

In 2024, despite experiencing setbacks and chaos, the three major US stock indices achieved significant gains for two consecutive years. Looking ahead to 2025, systemic risks remain low, with uncertainties stemming from the conflict between Trump's economic policies and monetary policies.

Due to market interconnections, if BTC wants to break out of its adjustment and conquer the $100,000 mark, it may require clear direction from US stock traders and a return to an upward trend in stock indices.

Cryptocurrency Assets: The $100,000 Mark and Market Undersaturation

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 decreased compared to November but remained at a high level, indicating significant divergence after breaking the $100,000 mark, with heavy selling pressure.

Looking back at 2024, BTC rose by 120.76% for the year, but there were four months of decline among the twelve trading months. From April to October, BTC experienced a long-term consolidation phase after reaching a historical high of $70,000, during which it faced the impact of renewed rate hikes, government sell-offs in Germany, and the collapse of arbitrage trading due to yen rate hikes, leading to significant fluctuations and risks.

This was a challenging year.

The two major smart contract platforms, ETH and SOL, rose by 46.27% and 86.11%, respectively, both lagging behind BTC, which had strong support from US stock funds. Aside from a few cryptocurrencies still in price discovery or heavily manipulated, only about 20% of the top 100 cryptocurrencies had annual gains exceeding BTC, which is a stark contrast to previous bull markets.

BTC Market Share

BTC's market share has remained above 50%, peaking at 57.53% on November 21, before starting to decline, reaching a low of 51.22% on December 8, and then rebounding again, but the trend could not be sustained. This indicates that Altcoins have not received sufficient long-term capital attention, and more often than not, they experience sharp rises and falls under short-term speculative funds or manipulation after BTC's significant increase, making it much more difficult for investors to operate.

Additionally, although various concepts and projects such as LRT, RWA, AI, Layer 2, and DePhin have emerged, none have shown the prolonged bull market trajectories of DeFi and high-performance public chains that lasted a year or even 20 months during the previous bull market. This is particularly noteworthy.

Funds: Rapid Outflow After December 18

According to the available data on funds (stablecoins, BTC ETFs, ETH ETFs), the cryptocurrency market recorded positive inflows throughout 2024, with each month showing positive inflows. This data indicates that BTC and the cryptocurrency market are in the rising phase of this cycle, with liquidity released during the rate-cutting cycle driving the market's impulsive upward movement.

Especially after the Federal Reserve began cutting rates in September, the second wave of liquidity gradually resumed, and in November, following the victory of crypto-friendly candidate Trump, it began to surge, setting a record of $26.9 billion in a single month. Throughout December, the total market inflow reached $15.7 billion, ranking as the second highest in this bull market and the fourth highest in history.

Stablecoin, BTC ETF, and ETH ETF Inflow and Outflow Statistics (Monthly)

Additionally, Microstrategy invested approximately $12.8 billion in BTC from November to December, directly driving the company's market value to surge and enter the Nasdaq 100 index.

However, after the Federal Reserve downgraded its rate cut expectations on December 18, the next day, both major ETFs and stablecoin channels quickly turned to outflows. Although there were fluctuations afterward, the overall trend remained one of increasing outflows. BTC's price also fluctuated downward, dropping from a high of $108,388.88 to a low of $91,271.19, with a maximum drawdown of 15.84%.

Stablecoin, BTC ETF, and ETH ETF Inflow and Outflow Statistics (Daily)

During this period, the three major US stock indices also experienced corrections, with the Nasdaq, Dow Jones, and S&P 500 falling by 5.13%, 6.49%, and 4.39%, respectively. The adjustment magnitude of BTC was approximately three times that of the Nasdaq.

The market momentum that began on November 4 stemmed from the speculative enthusiasm of the "Trump trade," which was quickly cooled by the Federal Reserve's downgrade of rate cut expectations on December 18. During this period, BTC adjusted alongside US stock indices, with the retracement magnitude being relatively low in the context of bull market retracements, and the volatility ratio with the Nasdaq remaining within a reasonable range.

Currently, the market still has ample funds, and there is no significant crisis. The focus going forward will be on whether the US stock market can regain its upward momentum after Trump's inauguration and whether capital will flow back into the cryptocurrency market.

However, if the US stock market continues to adjust for an extended period, leading to accumulated selling pressure, BTC may not rule out testing new lows. If this occurs, the declines in Altcoins could be even greater.

Secondary Sell-off: Liquidity and Historical Laws

According to eMergeEngine, the BTC and cryptocurrency asset market is currently in a bull market rising phase. The main market activity during this phase is characterized by long-term holders selling their chips, while short-term holders continue to accumulate, and the increasing liquidity drives asset prices to rise continuously.

The long-term holders conducted the first round of selling in this cycle between January and May of this year, returning to accumulation in June, and by October, their holdings reached 14,207,303.14. Since October, with the price rising, they have restarted 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.

Long and Short Positions, CEX, and Miners Monthly Holding Statistics

As of December 31, the long position size was 13,133,062.92, and compared to the October peak, the "selling scale" (according to on-chain UTXO revaluation statistics, greater than the actual selling volume) has exceeded 1.07 million coins.

The massive sell-off absorbed the influx of funds, and once subsequent capital inflows are difficult to sustain, prices can only be adjusted downward for the market to establish a new balance.

The behavior of long-term holders depends on the will of this group and the inflow of funds, whether the subsequent inflow is sustained or if selling is paused needs to be continuously observed.

If funds resume inflow, selling pressure may decrease, and prices could recover upward; if funds do not resume inflow or only see minimal inflows, and long-term holders continue to sell, prices will break down from the new consolidation range of $90,000 to $100,000; if funds do not resume inflow or only see minimal inflows, and long-term holders pause selling, the market will likely oscillate within the new consolidation range, waiting for larger-scale capital inflows.

Conclusion

The cyclical wheel continues to turn as usual. Time, space, and the long-short game all indicate that this phase of adjustment is triggered by the sharp cooling of bullish sentiment caused by significant price increases combined with the Federal Reserve's downgrade of rate cut expectations.

The timing and scale of the adjustment primarily depend on when mainstream funds in the US stock market resume bullish positions and the selling plans of long-term holders.

For the broader cryptocurrency market, the most pressing question is whether the second phase of the rising period has opened, but will the core sectors lead to a prolonged Altcoin Season be absent in this bull market!

EMC Labs was established in April 2023 by cryptocurrency asset investors and data scientists. It focuses on blockchain industry research and investments in the crypto secondary market, with industry foresight, insights, and data mining as its core competitiveness, aiming to participate in the thriving blockchain industry through research and investment, promoting the benefits of blockchain and cryptocurrency assets for humanity.

For more information, please visit: https://www.emc.fund

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