In December, the U.S. economy operated steadily, with core economic data generally meeting expectations. However, hawkish statements from the Federal Reserve intensified short-term market volatility. In the macroeconomic greenhouse, both U.S. stocks and Bitcoin reached historical highs this month, bringing investors a year-end bonus. Looking ahead to 2025, institutions are generally optimistic, believing that Bitcoin may surpass $200,000.
The newly released economic data for December in the U.S. largely met expectations: non-farm payrolls increased by 227,000 in November, slightly better than the market expectation of 220,000; the November CPI rose 2.7% year-on-year and 0.3% month-on-month, both in line with expectations. Subsequently, the Federal Reserve announced a 25 basis point reduction in the target range for the federal funds rate to between 4.25% and 4.50%, which was also in line with expectations. However, after announcing the rate cut, the Fed added a remark: it expects the rate cut in 2025 to narrow to 50 basis points. This undoubtedly dampened market sentiment, as it indicated that the number of rate cuts expected in 2025 dropped from four to two, leading to market expectations that the Fed would not cut rates in January. Influenced by the hawkish stance of the U.S. rate cuts, U.S. stocks and the cryptocurrency market experienced significant declines that day.
On the day of the rate cut announcement, the Federal Reserve also released its latest economic outlook, predicting that the U.S. economy would grow by 2.5% and 2.1% in the next two years, respectively, an upward adjustment of 0.5 and 0.1 percentage points compared to the September forecast. The unemployment rate is expected to be 4.2% and 4.3% for the next two years, slightly lower than previous forecasts. The inflation rate measured by the personal consumption expenditure price index is predicted to be 2.4% and 2.5%, while the core inflation rate, excluding food and energy prices, is expected to be 2.8% and 2.5%, both exceeding the long-term inflation target of 2%. This indicates that the U.S. economy is currently operating steadily, but inflation is still some distance from the 2% target.
Complementing this economic forecast is the December PMI index: the preliminary value of the U.S. Markit Services PMI for December reached 58.5, exceeding the market expectation of 55.8 and higher than the previous value of 56.1. However, at the same time, the preliminary value of the Manufacturing PMI recorded 48.3, below the expected 49.5 and the previous value of 49.7. The composite PMI preliminary value was 56.6, also exceeding the expected 55.1 and the previous value of 54.9. The service sector is experiencing the fastest growth since the lifting of pandemic lockdowns in 2021, while the manufacturing PMI's underperformance is attributed to insufficient export demand.
In the macroeconomic "greenhouse," U.S. stocks have been inching upward, with the Nasdaq index successfully breaking through 20,000 points. Among the Big 7 U.S. stocks, Apple (AAPL), Amazon (AMZN), Google (GOOG), Tesla (TSLA), and Meta all continued to set historical highs in December. OpenAI's series of 12 consecutive days of press conferences this month has also pushed AI to another peak. When there is no crisis in the macro environment and no new narratives in the market, it tends to move in the direction of least resistance, which may only be the strongest consensus around AI.
Behind the Nasdaq's new high is "super optimistic" investor sentiment. A December global fund manager survey by Bank of America found that investor sentiment was "super optimistic." The report stated that investors' allocation to cash is at a historical low, while their allocation to U.S. stocks is at a historical high. The report noted that optimism about economic growth related to Trump's second term and the Fed's rate cuts has pushed global risk appetite to a three-year high. Bank of America also listed several chip stocks, including Nvidia (NVDA), as top investment options for 2025. The highly optimistic market sentiment has created the current prosperity in U.S. stocks, but it also adds the possibility of a sharp decline due to black swan events in the complex and chaotic financial system.
It is worth noting that the Dow Jones experienced a "ten-day losing streak," setting the worst consecutive decline record since 1974. The divergence in the performance of the Dow compared to the Nasdaq and S&P 500 is mainly due to differences in constituent stocks. This month, healthcare giant UnitedHealth faced political turmoil, leading to a continuous drop in its stock price, while Nvidia, newly added to the Dow, performed poorly this month, contributing to the Dow's consecutive decline.
Another noteworthy event in the U.S. stock market this month that caught the attention of the cryptocurrency community is that MicroStrategy (MSTR) was officially included in the Nasdaq 100 index. In the WealthBee November report, we analyzed that MicroStrategy's "digital gold standard" strategy and capital operation model could become an industry pioneer, promoting Bitcoin's recognition as a top predator asset in a rising market. MicroStrategy's inclusion in the Nasdaq 100 index this month is undoubtedly another victory for the crypto world and a further advancement in the traditional financial world. This may just be a prelude to larger events happening in the future crypto world, and we will wait and see.
On December 5, Beijing time, Bitcoin finally welcomed its historic moment — officially breaking through $100,000.
At the same time, Ethereum also surpassed $4,000. It can be said that Bitcoin breaking through the psychological barrier of $100,000 has completely ignited market sentiment.
This surge in Bitcoin is primarily driven by political factors. We do not know if Trump will truly fulfill his promises regarding cryptocurrencies after taking office, but at least the "emotional value" has genuinely filled the market. Currently, there is a severe FOMO sentiment among the public abroad, with the proportion of cryptocurrency holders in South Korea reaching 30%, meaning that three out of ten people hold cryptocurrencies (according to Bank of Korea data), which is even higher than the proportion of stockholders in our country.
The current FOMO situation is evident to all, and institutions are giving future predictions at this critical moment: Bitwise, the largest crypto fund index in the U.S., predicts that Bitcoin will reach $200,000 by 2025. The Bitwise team believes that Coinbase will enter the S&P 500 index, and 2025 will be a more festive year than this year.
By the end of 2024, as the Federal Reserve enters a rate-cutting cycle, a more favorable macro environment for high-risk assets will be created, and Bitcoin will also receive favor from domestic and foreign institutional liquidity. Seventeen U.S. and Japanese listed companies have already announced plans to hold or have board approval to use Bitcoin as a strategic asset. The market may continue to support high-risk trading in the first quarter of 2025, with funds likely continuing to flow into Bitcoin and other crypto assets.
Looking ahead to 2025, several key storylines in the crypto space have already emerged — the changing role of Bitcoin in global asset allocation, where the new incremental markets are, new price ceilings, and regulation. Each of these storylines currently has new important clues worth continuous attention.
Currently, only 0.01% of listed companies globally hold Bitcoin, indicating that this is just the tip of the iceberg of institutional purchasing power, and the market is still in the "elite experimental stage." OKX Research Institute predicts that approximately $2.28 trillion of statistically significant funds will enter Bitcoin within the next year. This amount of funds could push Bitcoin's price to around $200,000, which aligns with predictions from Bernstein, BCA Research, and Standard Chartered Bank. Well-known Wall Street investment firm JMP Securities predicts that in the next three years, Bitcoin spot ETFs could see inflows of up to $220 billion. Overall, institutions generally expect Bitcoin to reach around $200,000 in 2025, while Bitcoin is still considered a "non-mainstream" investment, indicating that the incremental market remains unimaginably large.
During the rise in 2024, Bitcoin added value to multi-asset investment portfolios, but it remains a highly volatile and risky asset. Citigroup analysts state that the return on cryptocurrencies needs to exceed the expected return on stocks by several percentage points to justify a 1% allocation in a portfolio; if the allocation is larger, the return on cryptocurrencies must be significantly higher. Therefore, the allocation of Bitcoin in portfolios may still be relatively low, but for investors seeking high risk and high returns, it may be appropriate to increase their allocation.
The regulatory environment has always been an important factor supporting the long-term trend of Bitcoin prices. With Trump taking office, regulation will become a major theme in 2025. The U.S. is expected to reach a critical moment in establishing regulatory clarity for the crypto industry, and bipartisan support for cryptocurrencies suggests that regulation may shift from being a hindrance to a driving force. The EU's Markets in Crypto-Assets Regulation (MiCA) will come into full effect in 2025, unifying cryptocurrency regulations among member states. Japan and South Korea in Asia are also continuing to encourage innovation while increasing regulation of exchanges and wallet service providers. Global regulatory clarity will help attract more institutional and individual investors into the market.
In addition to Bitcoin, institutions predict that AI and stablecoins will become new highlights in 2025. Many banks are envious of the profits from Tether (USDT) and are choosing to enter the market. According to Bloomberg, Societe Generale, Germany's Oddo BHF, the UK's Revolut, and even Hong Kong's Monetary Authority in China are all beginning to lay out plans in the stablecoin market, hoping to get a piece of the pie. Stablecoins may currently be the most demonstrably applicable tools in the crypto space, which has become a key step for the crypto world to further break out and establish a new consensus.
In the current market's upward sentiment, even the most optimistic predictions seem reasonable. However, we need to understand that even if the future is bright, the road ahead is still fraught with thorns, and we must be cautious of the risks that short-term market fluctuations may bring. Since 2008, the crypto world has grown robustly for 16 years — according to human age, it is about to enter "adulthood." At this coming of age, Bitcoin has become a consensus investment in the mainstream financial circle, and stablecoins may soon become real application tools. The crypto market in 2025 will be more exciting than in 2024.
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