Is the Market Up or Down Since Trump Took Office? Decrypting the Post-2025 Crypto Market

First, let's review the trend in 2024.

2024 can be said to be the year when cryptocurrency made an impact on the U.S. political scene. We must admit that BTC has not disappointed anyone's expectations for so many years, just as Mr. Xu Mingxing, the founder of OKX, said. For so many years, he has not seen any fund outperform BTC. In early 2024, with the approval of the U.S. Securities and Exchange Commission, the BTC ETF was launched. After a brief redemption sell-off, the price of BTC dropped from around $49,000 to near $38,000, kicking off a bull market fueled by funds flowing into the BTC ETF far beyond expectations, soaring to nearly $73,000. As U.S. investors' brief novelty for the BTC ETF waned and international turmoil unfolded, BTC fluctuated widely in the range of $50,000 to $70,000 for 6 months. The narrative during this period mainly revolved around the Fed rate cut, Trump's run for the U.S. presidency, and his participation in a Bitcoin conference.

As Trump's election approached, BTC surged again but stopped near the previous high of $73,700, failing to break through. It then underwent an oscillating adjustment under the circumstance of fund hedging, dropping to around $66,000. Following the juxtaposition of the red and blue parties in the U.S., confirming Trump's election as U.S. president, BTC surged again, breaking the previous high of around $73,700. Independent of the U.S. stock market, a strong bull market emerged, with gains of nearly 50%, reaching a high of nearly $108,000.

On January 7, as U.S. job data exceeded expectations, the market lowered its expectations for a Fed rate cut in 2025, causing BTC to resonate lower with U.S. stocks and gold from $102,000. Subsequently, as non-farm data continued to be bearish for rate cuts, there were even discussions in the market about the Fed raising rates again. BTC fell to a low of $89,000, "benignly" but "terrifyingly" retracing to a heavily liquid region, creating a strong V-shaped reversal. During this V-shaped reversal, there was also a double positive for CPI and PPI. The market once again increased its pricing for a Fed rate cut in 2025, with BTC rising by over 15,000 points. As of the time of writing, BTC did not hit a new high but paused around $106,000. Subsequently, with Trump issuing the official Meme coin on the Solana network, BTC experienced a "vampire" decline, while Solana surged by over 50%.

Next, let's observe the dynamics of some on-chain whales:

A well-known ETH swing trader with an 84% win rate, a swing whale, is heavily shorting BTC and ETH with high leverage. The average short price for BTC is $103,155.8, and for ETH is $3,442. The main wallet health is currently at 1.61;

During the LUNA/UST crash, a smart money shorted $BTC to earn $5.16 million at an average price of $103,872, bought 31.17 WBTC and cbWBTC worth $3.19 million, unsure if they will continue to add to the position;

Over the past six months, smart money has made $4.92 million through $PEPE swings, liquidated 5.882 trillion PEPE ($10.99 million), and made a profit of $1.053 million.

To generalize a bit, some whales have chosen to liquidate their positions to avoid risks; some whales have chosen to believe in Trump's next grand narrative, buying part of BTC; and some aggressive whales have chosen to heavily short with leverage, betting $10 million on Sell The News, believing that Trump's inauguration will have a strong impact on the cryptocurrency market, turning good news into bad news.

If we interpret this from a technical chart perspective, BTC has already broken through the downtrend line and received strong support in a former liquidity-heavy area, which can be seen as a bottom "golden pit," forming a V-shaped reversal. It has also broken the lower high and lower low downward structure, forming a higher high and higher low upward structure. From the angle of many people recognizing the 4-hour EMA200 as the "bull-bear dividing line," BTC's current price is still above the 4-hour EMA200, indicating that the bull market for BTC may not be over yet.

And as we look back at the moment when the BTC ETF narrative just passed, we can see that the structures of the two are actually very similar, breaking through the downtrend line and creating a "golden pit" with a V-shaped reversal. After breaking the downtrend line, the BTC ETF consecutively surpassed the previous high, entering the second half of the bull market. Will the Trump narrative also reach such a climax this time?

There can be two perspectives here:

The first perspective is that the BTC ETF, after approval, saw a small price increase in the first half of the bull market, with only a rise of less than 20%. In contrast, the Trump narrative has already led to an almost 50% surge from around $70,000 to near $100,000, which may have exhausted the bull market. In other words, the market has already fully priced in the Trump narrative. Some direct evidence includes: first, in the early hours of January 18, BTC was very close to its all-time high but experienced a pullback without reaching a new ATH; second, after Trump released an official meme coin, it had a vampiric effect on BTC, leading to a 20% surge in SOL/BTC and SOL/ETH exchange rates. In the cryptocurrency market, liquidity improvement comes at the cost of reducing liquidity elsewhere, and there is no independent increase in liquidity.

The second perspective is that the BTC ETF narrative and the narrative of Trump's election are not at the same level. The BTC ETF narrative only brings about an influx of stock market capital into the cryptocurrency market, whereas the narrative of Trump's election, establishing a BTC national strategic reserve, brings in funds from more national markets and increases the attention of stock market capital to the cryptocurrency market. Therefore, the capital inflow will be larger, and the narrative will be more grandiose.

Next, let's interpret this from a macro narrative perspective.

Currently, two narratives are significantly impacting BTC. The first one is the macro environment, represented by the Fed's interest rate cut decision and Japan's interest rate hike decision, which affects the operation of the global financial markets. The second one is the Trump narrative.

The Nikkei Index also has a profound influence on the cryptocurrency market because of the Yen Carry Trade, an FX trading strategy. Due to Japan's long-standing low-interest-rate policy, investors can borrow Yen, convert the borrowed Yen into other high-yield currencies (such as AUD, NZD, etc.), and then invest in these high-yield currencies, such as buying bonds of high-yielding currency countries or investing in the local stock market, to earn the interest rate differential. A Yen interest rate hike will have a significant impact on the Carry Trade, reducing global financial market liquidity. BTC's flash crash in mid-2024, dropping from around $70,000 to near $49,000, was precisely due to the effects of the Yen interest rate hike.

Image Source: @Crypto_Painter

The Bank of Japan (BOJ) will hold a monetary policy meeting on January 23-24, 2025. In terms of inflation, Japan has maintained its inflation level above the 2% policy target since April 2022. For example, based on June 2024 data, the year-on-year growth of the Consumer Price Index (CPI) excluding fresh food was 2.6%, higher than May's 2.5%; in November, Japan's core CPI rose by 2.7% year-on-year, up 0.4 percentage points from October, and the core CPI excluding energy also showed improvement, reaching 2.4%. Fitch Ratings has raised its forecast for Japan's CPI at the end of 2024 and expects the potential inflation rate in the first quarter of 2025 to remain around 2%, with the core inflation rate excluding fresh food reaching 2.2% in 2025, close to or above the Bank of Japan's set 2% target. The employment and wage sectors are showing a similar trend. In November 2024, Japan's unemployment rate remained at a low level of 2.5%, and the labor market continued to be tight, putting upward pressure on wages. In 2024, wage hikes in Japan exceeded 5%, significantly higher than the inflation level, driving up real wage growth for residents. Specifically, in November 2024, base wages grew by 2.7% year-on-year, the fastest pace since 1992, while nominal wages increased by 3%, surpassing economists' expectations. Reuters' latest survey results show that the expected wage growth rate in this year's labo(u)r negotiations in Japan is 4.75%, up from 4.70% in the December survey last year, so the market expects a high probability of a rate hike by the Bank of Japan in this meeting.

On the other hand, the Federal Reserve's rate cut decision has been somewhat wavering: the US's December core CPI rose by 3.2% year-on-year, with a month-on-month increase slowing from 0.3% last month to 0.2%, both below market expectations. In December, the core Producer Price Index (PPI) rose by 3.5% year-on-year, below the expectation of 3.8% and the previous value of 3.4%. Overall, the slowdown in inflation has somewhat alleviated concerns in the market about the Fed not cutting rates or cutting them very late. If future inflation data can continue to maintain this moderate downward trend and approach the Fed's 2% target, the Fed's concerns about inflation will gradually diminish, increasing the possibility of a rate cut. In December 2024, the unemployment rate in the US dropped to 4.1% month-on-month, with nonfarm payrolls adding 256,000 jobs, the highest since March last year, demonstrating the resilience of the labor market. Strong employment data has led to the widespread expectation that the Fed will not cut rates easily in the short term. Boston Fed President Susan Collins mentioned that due to strong employment data and persistent inflation, the rate cut magnitude would be lower than previously expected, and the Fed may only cut rates twice this year.

Finding the reasons behind the drop on January 7th is not difficult, as the current narrative in the cryptocurrency market is not only related to Trump. Of course, we cannot rule out the strong connection between Trump's absolute support for cryptocurrency and his actions after taking office, but we still need to be vigilant against the potential risk of a global financial market earthquake.

Now, let's look back at Trump's promises and actions after he was elected. Since Trump's confirmation of his election and up to now, there has not been a completely empty period in the Trump narrative. We've seen the introduction of the World Liberty strict selection module for presidents: ENA, LINK, ONDO, AAVE; the U.S. Cryptocurrency Reserve (Alternative Edition): XRP, SOL; although not actively removing SEC Chairman Gary Gensler, Gary Gensler's voluntary resignation had the same effect, and his resignation was uniformly interpreted by the industry as a shift from strict to lenient cryptocurrency regulation. Additionally, it was confirmed that Paul Atkins has been selected as the new SEC chairman, known as the most cryptocurrency-savvy SEC chairman, who has served as an advisor to Reserve Protocol in the past few years.

Related Reading: "Is it a continued advance or a sneaky development? Things you need to know about the cryptocurrency industry after the 2024 election."

Undoubtedly, Trump is the most pro-cryptocurrency president in American political history, and his contribution is groundbreaking. However, his promises and actions before taking office still do not allow BTC to operate independently of the broader macroeconomic environment. With his consolidation of power after taking office, can he make BTC independent of the U.S. stock market and gold, even "sucking" gold, making BTC a new strategic reserve? We still cannot conclude.

Next, let's look at the data perspective.

On-chain Data:

From the chart above, we can see that we have already passed the "dangerous period," and the low point of the blue line is continuously rising. This means that even if the price retraces from its current position, the lowest point has risen to around MVRV 2.16, corresponding to a BTC price of around $90,000. However, this is not guaranteed to occur. In the short term, once the CPI data is released, if BTC manages to surpass $100,000 in this rebound, the momentum will be greater than the rebound to $102,000 on January 6th. When the price is lower but the "NUPL (Net Unrealized Profit/Loss)" is higher, it indicates that after this period of repeated consolidation, the high-level chips have basically changed hands at a low level, thus lowering the average cost of active chips. Therefore, the market can create more net profits during the rebound. From this perspective, BTC has the conditions to continue to rise in the short term, and this possibility is high. When we divide short-term holders into three different groups: 1d-1w, 1w-1m, and 1m-3m, their average chip holding costs have started to converge.

Multiple Line Adhesion indicates that the cost of both ultra-short-term and slightly longer-term chips has become almost the same. In this way, the market enters a relatively balanced state, where in this balanced state, there is no chip with particularly high cost in short-term chips, nor is there anyone with particularly low cost, everyone is about the same. Therefore, when facing market fluctuations, overall sentiment will also become relatively stable.

From the perspective of stablecoins:

Removing other stablecoins that most people do not use, only considering USDT and USDC, USDT's supply has decreased by $4 billion from its peak in December, while USDC's supply has increased by $6 billion compared to three months ago. To some extent, this can indicate that the most influential investors in the crypto space, American investors, remain optimistic about the upcoming market.

Looking at the futures open interest, the position suddenly drops, and the funding rate quickly drops to a negative value. The recent long positions in the futures market have experienced a significant liquidation, with shorts chasing the price. Interestingly, a negative funding rate often signals a bottom. Undoubtedly, when Trump officially takes office, it will be a bloody battleground for longs and shorts.