Crypto update - Dec 12, 2024 (Patreon)

Crypto industry had an momentous bullish month after Trump's win. We alluded to multiple drivers in the last piece and indicated that the window between the election win and inauguration, because of lack of anything real being rolled out, is a golden period for crypto. It's a time period where imagination and fomo is not capped by the realities of execution.

And indeed, we saw BTC blasting through 100k over the past month, ETH reaching back up to 4K, and altcoins spiking up 100%, in some cases. Crypto linked equities had equally impressive performance during this time period, exemplified by what happened with MicroStrategy.

The question is where do we go from here? The short answer is that it is path dependent. Let's get into the potential positive and negative catalysts:

Fundamentals

Without a doubt, fundamental improvements are extremely certain:

• The past few years has been a period where US regulators were extremely prejudiced against the crypto industry

• Yet in the past one month, we've seen an 180 degree change in attitude

• Without even waiting for Trump, Gensler voluntarily resigned by himself. In his place, Trump nominated Paul Atkins, a crypto supporter, for the SEC Chair. In fact, half of Trump's cabinet are either somewhat or strongly support crypto, with no one who is a public crypto bear.

• In addition, a landmark case where the Fifth Circuit held that US Treasury's sanctions against Tornado Cash smart contracts are unlawful. This is a historical win for smart contracts, crypto, open source technology, and individual privacy.

Some of Trump’s cabinet picks:

The trend is clearly moving in the right direction. However, to really move the needle, we are monitoring two major fundamental catalysts for crypto in the US:

• Most importantly - the establishment of a BTC strategic reserve

• Also important - the speculated elimination of capital gains tax on crypto

Any movements in these two will super charge crypto in 2025. And this is only in the US - other countries have taken notice of the change in development in the US, and there are some signs that they are trying to "front run" the US.

However, there are still fundamental risks too. The biggest risk I can imagine is "execution delay". It is possible that as prices rise, there is a misalignment between expectations and reality. The reality is that laws take time to pass, regulators take time to understand the complexity of crypto. The offline world is much messier than the online world of codes and logic. Any perceived "delay" in execution of pro-crypto policies may negatively impact prices. And given the reflexivity of crypto, declining prices may actually slow down adoption and laws, which would have a negative feedback loop.

Liquidity

The current range of 90-100k could be healthy consolidation period to prepare for the "execution phase" of Trump's presidency if it can be maintained until end Jan. As usual, the longer the consolidation period, the better it is for the breakout that occurs after. Let's look at the three sources of price driving liquidity in the market today:

• Tradfi ETF flows

• Retail flows

• Corporate (MicroStrategy) flows

Tradfi inflows is more than a billion every week:

Retail fomo is back given funding rate and leverage:

MicroStrategy is increasing its pace of BTC purchases:

So as we can see, all three flows have been significantly bullish. However, there's risks here too. The things we are monitoring:

• Macro financial conditions: Trump's policies may be inflationary and put a stop to rate cuts. This tightening of liquidity may weaken inflows into crypto or even prompt outflows

• Equity market froth: A potential equity market dump could have knock-on affect on crypto similar to what happened with Japan market in August 2024

• Corporates run out of money to buy: Eventually MicroStrategy will use up their allotted capital.

Inflation returning:

In summary: I am still bullish on the fundamental development of crypto in 2025. But in terms of price, it will be path dependent. If too much expectation is built in (pump too fast too soon), you will have the inevitable crash down the line. The ideal range is for BTC to stay between 90-100k until Trump starts to deliver the fundamental improvements that he promised. At that point, crypto prices will be driven higher based on value creation rather than simple expectations.

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Disclaimer: The content of this post is solely for entertainment and not investment advice. Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions