The market has been highly volatile recently, making people feel a bit uneasy. Many friends have been asking me about my views on the current market and the focus of my work in 2025. My answers are always cautious and full of hesitation. Currently, there are severe divergences in market views, with some believing we are in a bull market and others believing a bear market has already arrived. I believe the root cause of this huge gap is the disappearance of liquidity, which makes it impossible for cryptocurrencies to have a broad-based rally. After $Trump issued a coin, the fragile scene of other coins plummeting is a reflection of the lack of liquidity. So where has the liquidity gone? Has it been siphoned away by the endless Memes on pump.fun, or has it been drained by the vampire attack of $Trump+$Melania's in-law coin? I believe the deeper reason lies in the complex interweaving of macroeconomic and geopolitical factors.
Arthur Hayes' "The Ugly"
I recommend the blog post The Ugly published by @CryptoHayes in mid-January. This article is rich in content, covering everything from Trump's new policies to the 10-year US Treasury yield and geopolitics. Although the article is long, the writing is fluent and humorous, making it a worthwhile read. I first learned about Arthur's name because of GMX, then Ethena, and I have done a lot of research and learning on these two projects. The third time was when I had a brief encounter with Arthur in the second valley, and I was shocked to hear him mention skiing at the top of Denali. I even specifically asked my coach if a helicopter was needed to get there, and the coach said it wasn't necessary, but it would require a 6-hour hike with equipment. GMX + Ethena + Denali have all made me feel that this person is truly impressive.
In the article, Arthur expressed his concerns about the market and reduced the cryptocurrency holdings of Maelstrom. The current market signals remind him of the feeling before the cryptocurrency market crash at the end of 2021. Although he doesn't believe the bull market is over, he expects Bitcoin to be more likely to correct to $70,000 to $75,000 before rising to $250,000 by the end of the year. In fact, when I chatted with some friends last November, we all felt that the market would see a significant pullback after Trump took office, but the AI + meme-driven bull market in the middle made everyone let their guard down.
What happened from the raging bull market to the disappearance of liquidity?
The Trump administration may create a small economic crisis at the beginning of its term in order to shift the blame to the Biden administration, while also forcing the Fed to cut interest rates or start the money printing mode. Before that, the 10-year US Treasury yield is likely to rise to 5%, causing market deleveraging and tightening of liquidity.
The Bank of Japan raised interest rates by another 25 basis points last month. Although retail investors usually don't pay attention to the Bank of Japan's actions, historically, each time the Bank of Japan has raised interest rates, it has had a significant impact on the market. In 2000, when the Bank of Japan ended its zero-interest-rate policy and raised rates, it encountered the bursting of the US internet bubble, and Japan then returned to a zero-interest-rate policy; in July 2006, when Japan restarted its rate hike cycle, the US entered the subprime crisis in 2007; in 2024, Japan began its rate hike cycle again, and by January this year, it had raised rates twice, and the subsequent impact on the market remains to be observed. Due to the long-term low interest rates in Japan, there are a large number of arbitrage trading positions in the market. The yen rate hike has led to an increase in the cost of these arbitrage positions, thereby triggering an unwind, which has also greatly drained the market's liquidity.
Although Arthur believes that China's exchange rate stabilization policy since the Lunar New Year has also affected overseas liquidity, I personally feel that the Chinese factor is limited, unless the China-US trade war intensifies later on.
Will Bitcoin drop to $75,000?
Looking at it from a different 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, investors (such as ETFs) may sell off risk assets, including Bitcoin, due to a general risk-averse sentiment.
Technical selling: Joe McCann, the founder of Asymmetric, believes that there is a significant gap around $75,000 in the CME Bitcoin futures contract, which suggests that Bitcoin may decline in the short term. (I don't really understand this 😅)
Liquidation events: The liquidations caused by the market decline may lead to a stampede.
Looking at MicroStrategy's Bitcoin holdings, the average price is around $63,000. If the Bitcoin price corrects to $70,000, MicroStrategy's overall position, including BTC holdings, borrowing costs, and convertible bond costs, will face some pressure.
The current market is in a state of low liquidity, and even a small upward or downward force can lead to significant volatility. I personally maintain a 60/40 asset allocation. In the current market environment, it is important to be cautious, control risks, and look for opportunities to buy the dips 😃.
