Hello readers,

We included a poll at the bottom of our last report to get some feedback from you all on assets you’d like to see us cover moving forward. I want to apologize as the poll didn’t work for technical reasons.

However, we did share a few polls on X and LinkedIn last week.

The feedback?

Many of you would like to see more data/analysis concerning the state of the current cycle.

So that’s our focus this week.

Is there still a bull case for crypto in ‘25? Why am I so bearish despite the many positive developments? And how could we poke holes in my analysis?

The goal is to answer these questions & much more.

Disclaimer: Views expressed are the author’s personal views and should not be relied upon as investment, legal, tax, business, or any other advice.

Let’s go.

The Bear Case

Before we get to the onchain data, I want to share more qualitative analysis regarding how we think about crypto cycles.

The Early Bull Period

This was roughly the period from Jan’23 through October ‘23.

It’s the period after the markets bottomed post FTX. Things got very quiet (low trading volumes, crypto Twitter goes silent). And then we started to go up again.

BTC went from roughly $16.5k to $33k during this period.

Yet, nobody was calling this a bull market. Most of the market is still on the sideline during the “early bull.”

Wealth Creation

This was roughly the period from November ‘23 through March ‘24.

This is when we saw some big moves and some serious wealth creation. SOL went from $20 - $200. Jito's airdrop (Dec. ‘23) created an additional wealth effect within Solana and a repricing of Solana DeFi (Pyth, Marinade, Raydium, Orca, etc). Venture markets hit peak frenzy during this period (which is typical).

BTC went from $33k to $72k. ETH went from $1,500 to $3,600.

Bonk went from a $90 million market cap to $2.4b (26x). WIF went from $60m market cap to $4.5 billion (75x). The seeds for a larger “memecoin season” were planted.

But it was still fairly “quiet” during this period. Your “normie friends” probably were not asking you about crypto just yet.

Wealth Distribution

This was roughly the period from March ‘24 through January ‘25.

The “peak attention” period. We tend to see “WAGMI” type sentiment, rapid rotations, new meta’s (that quickly fade), and blind risk-taking being rewarded. Celebrities and other “crypto transients” tend to enter during this period. Wild headlines like “Tesla buys BTC,” or “Bitcoin Strategic Reserve” tend to occur during the wealth distribution phase.

Why?

New investors enter the market on these headlines. They don’t know that they’re late to the party.

This was the second wave of “memecoin season” which then morphed into “AI agent season.” During this period, the market ignores lots of clearly questionable behavior. Nobody wants to call anything out. People are making money.

Now. This takes us to where we are today.

Wealth Destruction

We believe we entered this period just after Trump came into office.

This is the period immediately following the blow off top. Bullish catalysts are now in the rear-view mirror. Seemingly positive news is met with bearish price action.

In the current regime, executive actions regarding the “Strategic Bitcoin Reserve” were not moving markets — an important signal. During this period, reversals tend to meet key resistance periods and die out (we saw this last week after Trump tweeted about the Crypto Reserve).

Some additional signals that we look for during the wealth destruction phase:

Liquidations and “scares” that jostle the market, yet still do not fully sober it. We saw this with the DeepSeek AI scare and tariff uncertainty.
Investors holding onto “hopium.” We see a lot of talk about the dollar dropping and global M2 rising today (more on this later in the report).
“Grifter” types entering the market. More people DMing us to “look at their project.” More advertising capital sloshing around. Frivolous spending from well-capitalized projects at conferences. More PvP/competition/infighting. And a generally more “dirty” vibe emanating from the industry. Bad actors start to be called out during “wealth destruction.”

During this period, the dead bodies also start to surface — typically post liquidation. Last cycle it started with Terra Luna. Which led to the blow up of Three Arrows Capital. Which led to bankruptcy at BlockFi, Celsius, FTX, etc. Which ultimately led to the demise of Genesis and the sale of CoinDesk.

We have not seen any blow ups just yet. And we’ll note that there should be fewer this cycle — simply due to less CeFi firms. Time will tell. Fewer blow-ups could result in higher lows being set when we officially bottom.

Where could these blow ups come from?

Nobody knows, but my guess is to look at the usual culprits.

Exchanges. Keep an eye on hidden leverage and/or potential fraud at some of the “B and C Tier” exchanges abroad.
Stablecoins. We’re keeping an eye on Ethena/USDe — which has nearly $5.5b of stablecoin value in circulation today. It maintains its peg and gets its yield from the cash & carry trade (hold spot assets, short futures) — which was the major source of leverage (via Greyscale) in the last cycle. Ethena’s reliance on centralized exchanges adds additional counterparty risk. Furthermore, MakerDAO has also invested some of its reserves into USDe, creating additional cascade risk in DeFi.
Protocols. Look for hacks to increase and potential liquidation cascades due to crypto-collateral on platforms such as Aave — which still has over $11b of active loans (down from a peak of $15b).
Microstrategy. We think they’ve done a good job at managing debt prudently, as much of it is long-term unsecured debt or converts (no margin calls on the BTC holdings). Furthermore, they were able to take a 75% drop in BTC last cycle. With that said, a major drop in BTC price could put pressure on Saylor to sell large amounts of BTC at the worst possible time.

The best time to re-enter the markets is at the end of the wealth destruction phase. We believe this is yet to come. Of course, we’ll let you know when we think we’re back to the “buy zone.”

Bearish Data

DEX Volumes

Solana DEX volumes are down 80% from the peak just after TRUMP launched his memecoin. Meanwhile, the number of unique traders is down over 50%. This signals to us that animal spirits are starting to wane.

Data: The DeFi Report, Dune

Token Launches

Token launches on Solana are down 72% from peak. Still, the chain is seeing over 20k tokens created/day.

Data: The DeFi Report, Dune

Bitcoin Long-Term Holder MVRV Ratio

Data: Glassnode

The long-term holder MVRV (Bitcoin’s “smart money”) peaked at 4.4 back in December. This is 35% of the ‘21 cycle peak of 12.5, which was also 35% of the peak in the ‘17 cycle.

Bitcoin rose roughly 80x from trough to peak in the ‘17 cycle. It rose roughly 20x in the ‘21 cycle. And roughly 6.6x in the current cycle.

Bitcoin’s Realized Price (proxy for the avg. cost basis of all bitcoins in circulation) peaked at $5,403 in the ‘17 cycle, which was 15.1x higher than the peak in the ‘13 cycle. It hit $24,530 in the ‘21 cycle. This was 4.5x higher than the peak in the ‘17 cycle. Today, the Realized Price is $43,240, 1.7x the peak in the ‘21 cycle.

Key Takeaways:

With each data point above, we can observe symmetry in the decrease in peak value’s cycle to cycle. We think this data is clearly telling us that the law of diminishing returns is quite real.
Bitcoin is a $1.7 trillion dollar asset today. No matter how bullish the headlines are, investors shouldn’t expect to see sustainable parabolic moves as we saw in the past. It just takes too much capital to move the asset at this point.
When BTC loses momentum, the rest of the market loses its shirt.
Animal spirits are waning on Solana. We’re keeping an eye on this because we are concerned that the Solana “comeback story” was built on what appears to be a “house of cards” — given that 61% of DEX volume involves memecoins year-to-date. Furthermore, less than 1% of Solana users make up for over 95% of gas fees over the last 30 days. This is alarming as it highlights that a small subset of Solana users (the “big fish”) are preying on everyone else (the “minnows” trading memecoins). Therefore, if the “minnows” get tired of losing money and take a break (we think they are), we could see Solana’s fundamentals decline rapidly.
Data: The DeFi Report, Dune (base + priority fees + Jito tips on Solana)
BTC long-term holders have taken profits twice over the last year. Their realized price (proxy for cost basis) is roughly $25k currently. Meanwhile, short-term holders who bought the top are currently sitting on losses ($92k cost basis on average). We think this cohort may continue to sell into lower highs as reality sets in that BTC topped at $109k.
Data: Glassnode

When you lay it all out like this, we think it’s undeniable that the “typical” cycle has already played out. To deny this is to deny reality.

Of course there are no “laws” at play here.

In our opinion, the best way to process this information is to accept reality + assign a probability to the cycle having topped. We think it’s clearly higher than 50%.

With the foundational work complete, we then try to poke holes in our thesis and stress test our views.

Let’s do that.

The Bull Case

I’m still seeing quite a bit of pushback on the bears out there. The bulls aren’t going to lay their weapons down quietly.

Which begs the question: are the bull takes more evidence that we’ve entered “wealth destruction, i.e. denial?” Or is it possible that we’re getting too bearish at the local lows before another move higher?

In this section, we’ll run through some of the primary “bull takes” I’m seeing out there.

Global M2/Liquidity

Data: Bitcoin Counter Flow

The green box on the right shows how BTC is dropping as global M2 starts to rise. Some folks are pointing to this, citing the correlation to BTC, and general lag (2 to 3 months) in response from BTC.

With that said, the green box on the left shows the same dynamic was playing out at the end of the last cycle: M2 was rising as BTC was falling. In fact, M2 did not peak until early April of 2022 — 5 months after BTC peaked.

Global M2 is up 1.87% since mid-January as central banks have largely shifted from tightening to easing.

This is positive for liquidity conditions.

However, we should also be asking the following questions:

What is driving the increase in M2? We think it’s largely coming from the drop in the dollar (4% since 2/28!) — which translates into more foreign currency when priced in dollars. This is a boost to global M2. Furthermore, the reverse repo facility was recently drained + China is easing in an effort to boost its economy.
Will it continue? We think the dollar will continue to fall as investors move money abroad, but not at the rate we’ve seen over the last few weeks. We think China will continue to ease into a lower dollar. However, we do not see the Fed being accommodative in the short run as they’ve indicated that reserves are still “ample.” We believe they are still concerned about inflation as well.
How does this compare to the liquidity conditions we saw last year? We think the current liquidity conditions should be viewed as a headwind compared to last year. Remember, it’s about the rate of change more so than the nominal increase. We feel strongly that the Fed and Treasury “juiced” the markets last year in an effort to get Biden/Harris re-elected. This was done through “shadow liquidity” — or “not-QE, QE” and “not Yield Curve Control, Yield Curve Control” as Michael Howell from Cross Border Capital puts it. The chart below shows us the rate of change impact from removing these policies under the new Trump admin.
Data: Cross Border Capital

The “secretive stimulus” above is estimated to have added $5.7 trillion into US markets early in ‘24. This was done by draining the reverse repo + front loading new debt issuance in bills.

Finally, we think investors should pay close attention to what Secretary Bessent said in an interview with CNBC last week:

“The market and economy have become hooked. We’ve become addicted to this government spending. There’s going to be a detox period. There’s going to be a detox period”

Business cycle/ISM

We’ve previously noted that ISM data points to the start of a new business cycle. We’ve also documented strong data in Capex purchases and small business confidence. We think this is real, but it’s also clear that growth is slowing. It’s possible that the data we were looking at last month was skewed by some manufacturers “front-loading” purchases ahead of expected tariffs. We’ve since seen some softening data in both services and new orders. The February reading for manufacturing PMI came in at 50.3, down from 50.9 in January.

Strategic Bitcoin Reserve

Up until last Friday, we continued to see hopium from crypto natives concerning talks about a strategic crypto/Bitcoin reserve — despite the fact that the market has repeatedly shaken off the news over the last 6 weeks.

I think we can all agree that this was a “buy the rumor, sell the news” event now.

Thinking in “Cycles” Flawed?

We should also acknowledge that this “cycle” has played out differently from those of the past.

For example:

BTC hit an all-time high prior to the halving for the first time.
The cycle was much shorter, with just two bull-run years.
“Altcoin season” played out quite differently as BTC dominance has been stair-stepping higher since early ‘23.
Bitcoin is now fully integrated into the financial system, with support from the US government.

If “thinking in cycles” is flawed, it’s possible that we haven’t topped. Instead, maybe we are taking a pause/correction/consolidation phase before the next leg up, rather than a year-long bear market in which prices could drop 75-80% (as we’ve seen in the past)?

Our view is that yes, cycles are evolving. That said, we still expect a bear market that could take 9-12 months to play out.

Final Thoughts

To summarize our views:

We think we are currently in the “complacency” stage of the cycle in the visual above.
All of the bullish catalysts that one could have identified a few years ago have already played out.
The economy may be heading into a recession. We think the messaging from the Trump admin has been quite clear. They are literally telling us that the economy needs a detox. We should take them at their word. This is very similar to Powell coming out and saying that “pain is coming” prior to rate hikes early in ‘22. Our current thinking is that crypto is the canary in the coal mine. TradFi markets will follow with a slow bleed/chop.
Given that sentiment is extremely bearish, we could see the markets bouncing back into the low $90k range for BTC in the short run. However, we think this will be aggressively sold into — which could stifle any hopes at resuming the bull market structure.
As always, we remain open-minded to being wrong. Our analysis is based on the information available to us today. We will update our views as new information comes in.

What will it take for us to get bullish again?

We’ll be looking for the following:

A reversal in fiscal restraint/DOGE efforts.
Heavy cuts from the Fed/QE.
A major influx of global liquidity, driven by the Fed (not just China).
A major correction/capitulation in the S&P 500/Nasdaq.

One concern we have is that the bear case is starting to become consensus. This gives us some pause. But we still have to stick with all the other factors for now — as the probability points to the cycle top being in, with a bear market to come.

Of course, there are so many things to be bullish about in the long run.

Crypto has truly entered its “turning point” period. It’s finally time to re-build the financial system on top of public blockchains.

Not to mention, we like bear markets. As the tide goes out, it gets easier to separate the noise of the past cycle from the signal — which will prepare us for the next bull market.

This is when all of our best work is done. It’s also when we create the most value for readers.

Please stay tuned as we’ll keep you updated on:

Ongoing market views
Our “bear market shopping list” and when we think it’s time to buy again
Key learnings from the past cycle + updates with unique, proprietary data we are now sourcing ourselves

Take a Report.

And Stay Curious.

Disclaimer: Individuals have unique circumstances, goals, and risk tolerances, so you should consult a certified investment professional and/or do your own diligence before making investment decisions. The author is not an investment advisor and may hold positions in the assets covered. Certified professionals can provide individualized investment advice tailored to your unique situation. This research report is for general educational purposes only, is not individualized, and as such should not be construed as investment advice. The content contained in the report is derived from both publicly available information as well as proprietary data sources. All information presented and sources are believed to be reliable as of the date first published. Any opinions expressed in the report are based on the information cited herein as of the date of the publication. Although The DeFi Report and the author believe the information presented is substantially accurate in all material respects and does not omit to state material facts necessary to make the statements herein not misleading, all information and materials in the report are provided on an “as is” and “as available” basis, without warranty or condition of any kind either expressed or implied.

Still bullish?

Or are we in the "wealth destruction" phase now?

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