Mario Natella, Author at Investment Minutes

Where are we in the 2025 crypto cycle?

Where Are We in the Crypto Cycle?

The crypto market has once again entered a phase of intense speculation and debate. Some believe the cycle top is already in, while others argue that the most bullish phase is yet to come. But where exactly are we in the cycle, and what can we expect moving forward? To understand this, we must analyze both crypto-specific factors and the broader macroeconomic landscape that influences liquidity and risk appetite in financial markets.

The 4-Year Crypto Cycle

Historically, the crypto market has followed a four-year cycle, primarily driven by Bitcoin’s halving event, which reduces the supply of new BTC issued to the market. This supply shock, coupled with consistent demand, has typically led to a price surge, followed by a period of price discovery in the broader crypto market.

This cycle consists of:

A bull market (typically lasting 1-2 years), where Bitcoin and altcoins experience rapid price appreciation due to increased speculative interest and institutional adoption.
A bear market (lasting 2-3 years), characterized by prolonged drawdowns, investor capitulation, and a reset in valuations.

The last Bitcoin halving occurred in April 2024, which historically signals the beginning of the most speculative and parabolic phase of the bull cycle. The peak has historically been reached around 550 days after the halving. If history repeats itself, we could expect significant upside potential in the coming months, with a peak in September – October 2025, with Bitcoin leading the charge before capital rotates into altcoins.

The Role of Liquidity in Crypto Cycles

Beyond crypto-specific factors, global liquidity plays a crucial role. Institutional debt refinancing cycles, which occur every 4-5 years, force central banks and governments to inject liquidity into the financial system to prevent economic slowdowns. According to global liquidity expert Michael Howell (Managing Director at CrossBoarder Capital), this liquidity cycle should continue rising until late 2025, further supporting asset price growth, including crypto.

However, in the short term, liquidity fluctuations due to import tax threats, interest rate adjustments, and policy decisions can lead to temporary market corrections. We have already seen some volatility in the crypto market driven by central bank actions and fiscal policies.

Macroeconomic Trends and Their Impact on Crypto Liquidity

To fully understand the crypto market’s trajectory, it is essential to examine broader macroeconomic trends that affect liquidity and investor sentiment. One of the most critical factors shaping global liquidity today is the ongoing debate over the U.S. debt ceiling. As the U.S. government navigates fiscal policy challenges, the availability of liquidity in the financial system can significantly impact risk assets, including cryptocurrencies.

The US Debt Ceiling Discussion

The U.S. debt ceiling sets a legal cap on how much the government can borrow to fund its operations. When this ceiling is reached, the government cannot issue more bonds unless Congress approves an increase. In January, the U.S. hit its debt limit, forcing the government to rely on cash reserves in the Treasury General Account (TGA). While tax revenues in April and May may provide temporary relief, the looming question remains: what happens when the TGA runs out?

If the debt ceiling is not raised in time, the government may face significant financial constraints, forcing drastic spending cuts or triggering a default scenario. Conversely, if Congress approves an increase, the U.S. Treasury will be forced to issue more bonds, which could lead to a surge in bond yields and impact liquidity conditions across financial markets. This dynamic is critical for crypto investors, as liquidity contractions often lead to risk-off behavior and price corrections in speculative assets.

The Trump Administration’s 333 Plan

The Trump administration’s economic strategy, known as the 333 Plan, aims to:

Achieve 3% real GDP growth per year
Reduce the annual budget deficit to 3% of GDP
Increase U.S. oil production by 3 million barrels per day

This plan is designed to keep long-term interest rates low by manipulating supply and demand dynamics in the U.S. bond market. By cutting government spending, the administration hopes to reduce the need for excessive bond issuance, which in turn could help lower yields and sustain liquidity in financial markets.

However, the U.S. currently runs a budget deficit of 6.3% of GDP (nearly $2 trillion per year), meaning that reducing this to 3% would require over $1 trillion in spending cuts. The administration has tasked Elon Musk’s Department of Government Efficiency (DOGE) with identifying cost-saving measures, but it remains uncertain whether these efforts can be implemented quickly enough and overall unlikely that it can realise anywhere near $1 trillion in cuts.

Bitcoin vs. Altcoins’s Performance

One of the most debated topics this cycle has been the performance divergence between Bitcoin and most altcoins. Historically, Bitcoin rallies first, followed by an explosive move in altcoins during the final leg of the cycle. However, in the current cycle, many altcoins remain stagnant or continue to trend lower despite Bitcoin’s upward trajectory. Some analysts speculate that institutional investors have favored Bitcoin due to its growing status as a macro asset, leaving altcoins behind.

However, if previous cycles are any indication, altcoin momentum could be delayed rather than absent. Many altcoins, particularly those with strong narratives and institutional interest, may still see significant gains in the final months of the cycle. This can also be seen in the altcoins trend line still moving up when looking at the 200-day moving average, with prices moving between the two main relevant trend lines based on the previous cycles.

Market Structure & Institutional Adoption

Unlike previous cycles, the current crypto market has evolved significantly. Institutional involvement has grown, regulatory scrutiny has increased, and retail investors have shifted towards decentralized finance (DeFi) rather than centralized exchanges.

The introduction of Bitcoin spot ETFs was a significant milestone, attracting traditional financial players into the market. The potential approval of Ethereum and altcoin ETFs could bring additional liquidity into the space, though past events have shown that ETF approvals don’t necessarily lead to immediate price surges.

The Catalyst for the Next Major Move

While market structure and liquidity set the foundation for growth, a key catalyst is often needed to trigger mass adoption. In past cycles, major corporate Bitcoin acquisitions (e.g., MicroStrategy’s purchases) kicked off the bullish cycle.

This time, potential catalysts include:

Foreign central banks adding Bitcoin to their reserves, legitimizing it as a global asset
Expansion of tokenized real-world assets on blockchains like Ethereum and Solana, bringing new capital into the ecosystem
Institutional integrations of stablecoins and crypto payments, such as PayPal’s PYUSD on Solana, driving mainstream adoption.

Final Thoughts

As always, market sentiment swings wildly in both directions. When prices are up, greed takes over. When prices are down, fear dominates.

Despite short-term uncertainties, the broader crypto cycle remains intact. Both historical patterns and macroeconomic conditions suggest the market is still on schedule for a final bullish phase. However, investor sentiment, global liquidity flows, and regulatory developments will determine the speed and magnitude of the next move.

The Last Trigger For The Upcoming Bull-cycle

Bitcoin could reach $100,000 before the end of 2024, causing a handful of altcoins to surge in value.

A bull-cycle is a period of time where assets raise in price because of a high demand from investors, relative to the available supply. This approach, despite being very simplistic, can guide us to a few valuable insights in preparation for the upcoming bull-cycle in crypto.

The recent Bitcoin halving on April 23, 2024, was a very important moment for our discussion. Not because it would magically increase Bitcoin’s price. But because it lowered the supply far below the demand we see right now. To put things in perspective, the inflow into the largest Bitcoin ETF funds is on average 3.500 BTC per day. After the halving, only 450 new BTC per day are being issued!

This brings me to my second point: Bitcoin ETFs and institutional investors. Despite the potential implications of Bitcoin being used as a store of value rather than a currency, as initially intended, the Bitcoin ETF were the second big thing in the supply & demand balance.

Why? They opened the doors to large institutional investors who, for the first time in Bitcoin history, have access to the market through their traditional channels. Obviously Grayscale Bitcoin Trust facilitated this already for a number of large investors. However, this is now available at a scale we have never seen before. At the current BTC/USD rate, a stunning $2,1 billion a day is flowing into Bitcoin through the ETF funds.

These two factors could already kick-start the upcoming bull-cycle. But I think there is one missing element to it: new retails investors. As long as crypto assets are not available for retail investors, we will not see the exponential growth we have seen in all the post-halving bull-cycles. And for retail investors to get in, we need to take a look at what is happening with interest rates and inflation. As long as the average Joe is worried about their mortgage or their groceries getting more and more expensive, not a single cent will go into crypto assets, stocks, or any other asset for that matter.

So, here’s what I see happening at macro level that could help understand what is next for interest rates and inflation: the last triggers for the upcoming bull-cycle.

Interest Rate Cut

For most of March and April, investors were exceptionally risk-conscious. Inflation consistently ran higher than expected, sparking fears that the Fed would not cut interest rates this year. Some investors even began to worry that the Fed might raise rates again. As a result, expected interest rate cuts for 2024 dropped from 100 basis points at the beginning of March to just 25 basis points by the end of April.

With this sentiment, cryptocurrencies faced challenges.

However, over the past week, several developments prompted the market to expect more interest rate cuts again.

Firstly, Fed Chairman J. Powell stated on Wednesday at the post-FOMC press conference that the central bank maintains its preference for interest rate cuts. He did not sound overly concerned about recent inflation trends. Moreover, Powell stated that the Fed is not considering rate hikes and that if things unfold as expected, the Fed would need to lower rates in the future.

These comments alleviated market concerns about a rate hike, increased the chances of interest rate cuts, and improved risk sentiment.

Furthermore, April’s job figures released on Friday showed weakening labor market conditions and decreasing wage inflation, giving the Fed even more reason to cut rates.

On the same day, the April ISM Services Report revealed that the US service sector entered contraction territory last month for the first time since December 2022, providing further support for the argument for interest rate cuts.

Overall, last week’s data impressively supports the idea that the Fed will cut rates multiple times this year. That is why expectations for interest rate cuts surged stronger in the last two days of the week with the first cuts expected as early as September 2024.

Consumer Inflation

After reviewing recent earnings reports from major consumer companies, it has become clear to me that consumers are fed up with ‘paying top dollar’ for goods and services.

Nearly every consumer company reporting earnings in the past two weeks mentioned something related to consumers becoming more price-sensitive or value-seeking and that they are sacrificing margins. Moreover, these companies have all expressed willingness to accommodate consumers and have broadly stated that they are done raising prices and will instead begin lowering them.

With that said, my expectation is high that inflation will decrease this summer.

If this happens, the market will increase expectations for interest rate cuts in 2024. This will lead to a significant drop in government bond yields. When government bond yields fall, Bitcoin usually performs very well.

Final Thoughts

I feel there might be a small window of opportunity with the Fed temporarily lowering interest rates in a market where we ‘got used’ to a relatively high level of inflation.

This means that the upcoming bull-cycle might be short-lived. It will all depend on how long we can sustain these levels of inflation in our daily lives and at what point central banks have to take stronger measures to set the foundation for recovery and ‘new growth’.

In the meantime, if you are positioned correctly in the market, investors can take advantage of the upcoming bull-cycle, however short it might end up being. A good indicator that times are changing is typically when you either start seeing ‘way too many’ commercials inviting the average Joe to invest in crypto or a taxi driver asks you about ‘yet another hot meme coin’ he might have missed. In both cases, it might be time to take profits. #notfinancialadvice

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Disclosure

These are unqualified opinions, and this newsletter, is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor, and do your own research.