jakiro
Author: Michael Nadeau, The DeFi Report; Compilation: Tao Zhu, Bitchain Vision
The cryptocurrency market is at a turning point.
Just as many market participants did not fully recognize the impact of rate hikes on risky assets at the beginning of 22 years, we believe that the market may have underestimated the impact of rate cuts in 24/25.
For much of the year, our view is that the market will continue to climb to a wall of concern before reaching its peak in 25 years.
In this week’s report, we share our views on how this situation might develop and how you position yourself in a risk environment.
Has ETH/BTC bottomed out?
We think ETH/BTC may have hit the bottom of the cycle.
6 reasons:
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ETH/BTC has been hitting higher lows since 2016.The ratio bottomed out at the beginning of 2017, slightly below 0.01. At the end of 2019, the ratio bottomed out at a slightly below 0.02 before bottoming out again during the March 2020 crash.Fast forward to September 2024, and ETH just fell below 0.04.
For me, this shows that the market’s confidence in ETH is growing over time.Let’s see if it can maintain it at 0.04.
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In previous cycles, when ETH/BTC surrenders, it hits a low shortly thereafter.The ratio seems to have yielded over the past few months, falling from 0.057 to 0.038.
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In the past cycle, ETH bottomed out after a rate cut.The Fed began cutting interest rates a few weeks ago.
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The same is true for the Fed’s balance sheet – we moved from net tightening to net expansion last cycle, with ETH/BTC bottoming out.As liquidity conditions improve, we expect similar dynamics to occur this cycle.
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Historically, Bitcoin’s dominance will decline as liquidity conditions improve.Currently 57% (near cycle highs).
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From an emotional point of view, ETH has just gone through a period of disillusionment that we haven’t seen in a long time (“the roadmap is a mess” due to the cost drop due to EIP4844).It’s market psychology and the impatientness of crypto Twitter.The reality is that Ethereum continues to implement its roadmap.Kyle Samani’s “Why does SOL flip ETH” speech on Token2049 seems to mark the bottom of ETH/BTC.
If we correctly believe that ETH/BTC has bottomed out, it means that the altcoin season has officially begun.
catalyst
It’s very interesting to watch the emotions on Twitter over the past few months.It seems that crypto natives are trying to lead the liquidity cycle by jumping to the farthest end of the risk curve (meme coins).
I’m sure many people are doing well between October and March, but most are late and enter the altcoin season early.After all, the altcoin season historically began after interest rate cuts.So my feeling is that most markets gave up the gains in Q4 2023/Q1 2024.As the market fell, many people sold out.Others are reassigning.
“Retail investors will never come back.”
This is exactly what we need to see from an emotional perspective.Now that the Fed has begun a cycle of interest rate cuts, several catalysts point to another peak of the market:
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Looseness is allowed.The Fed’s interest rate cut is actually allowing all other central banks in the world to cut interest rates.We have seen the chain reaction of China that has caused this – China is currently vigorously stimulating the economy.It seems they are waiting for the Fed’s green light.It should be clear that when the Fed cuts interest rates, the US dollar will depreciate, reducing the risk of Chinese capital flowing to the US dollar – which gives China greater flexibility to lower interest rates while maintaining its own currency stability.This dynamic can be applied to all central banks around the world.
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politics.I hate talking about politics.But we have to solve this problem because it is really important.At least in the short term.The key point here is that I believe Democrats have realized that cryptocurrencies are not going away.Just look at what happened in 23 years.The year began with “Operation Kill Points” — an unconstitutional attempt by the Biden administration to cut off cryptocurrency businesses from entering banks.It failed.And Bitcoin rose 187% this year.
What happens if we choose a president who supports cryptocurrency?What happens if banks are allowed to keep cryptocurrencies?What happens if we get the stablecoin bill?What would happen if CFTC became the primary regulator of crypto assets in digital goods?
Has the market digested this factor?Probably not yet.Even if Trump loses, we hope to see progress in these areas.
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ETF.Is this a cycle for your regular TradFi friend to surrender and buy some BTC/ETH?We think this is possible.I remember having a conversation with my friends in 2020 who were staunchly opposed to Bitcoin.I remember telling them to stay open and adding that I think it might actually become risky to not hold any bitcoin in the near future.
It sounded ridiculous at the time.But my question is: how many coping cycles do people need to observe before surrendering?If you consider yourself a serious investor, you have seen BTC/cryptocurrency rise in 2013, 2017, 2021 and now 2024 (entering 2025?).
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Innovation.While cryptocurrency natives argue whether Solana “extends” is L2 and whether we should include L2 in Solana’s Ethereum version, if you look around, you’ll see a lot of cool things happening.
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Bitcoin is starting to become more like Ethereum, and the DeFi and L2 ecosystems show some hope.
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Ethereum is expanding and executing its roadmap.BlackRock owns an on-chain money market fund, and Visa just announced the launch of a tokenized platform on Ethereum.
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Solana’s Firedancer is now on the testnet.Citigroup and Franklin Templeton announced plans to tokenize assets on Solana on Breakpoint.Paypal and Societe Generale have launched stablecoins on Solana.
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Speaking of stablecoins – issuers are now the 16th largest holder of U.S. Treasury bonds.We now have profitable stablecoins that require no license.
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mood.In early August, the mood turned into extreme fear.This is exactly what we need to see before the next big move, which we think is in progress.
Altcoin season?
As mentioned earlier,We think ETH/BTC may have bottomed out.This means the altcoin season may have officially begun – when long-tail risk assets outperform major assets.
The market has shown strength.Here is the 7-day industry performance provided by Artemis, with memecoins leading the way.
Some ideas and/or predictions about how the cycle develops:
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ETH performed significantly better than BTC, which dominantly was much lower than 50%.
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SOL performed significantly better than ETH, and SOL infrastructure performed better than ETH infrastructure + Solana memecoins performed better than Ethereum memecoins.
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TIA and SUI are the best performing “new L1” on the market right now (watch Berrachain and Monad – expected to launch later this year).
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More than 10 memecoins will reach a valuation of over $10 billion (2 today).In fact, we may see more than $100 billion in memecoin this cycle.*I will share my comprehensive and in-depth view of memecoins in November.
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AI Coins and DePIN may perform the same as NFTs in the previous cycle.
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The supply of stablecoins has grown to $500 billion ($160 billion today).
Needless to say, but I still have to say: I don’t have a crystal ball.I just used pattern recognition as someone who has been observing these markets for a while.Risk opening = central bank relaxation = US dollar flows into risky assets.If this happens, then the one that performs well should be the farthest end of the risk curve (cryptocurrency).Everything else is instinct to identify industries, teams, communities, cycle dynamics, risks, and more.
in conclusion
Is it possible that the market has deviated from the fanatical idea we once again fell into like 21 years?
This is a question I’ve been asking myself now.Why?Because cryptocurrencies are indeed a unique asset class, bull markets may be as volatile as big drops.
Bear markets often leave psychological shadows on market participants.Therefore, it is easy to forget how volatility a potential bull market may be.
Of course, there are also many bear markets.They call for a recession.But we can’t see this in the data.Credit spreads are very low.Banks are lending.The central bank is relaxing its policies.Inflation is falling.The Ministry of Finance is spending.The unemployment rate fell last month.
