Crypto update - Feb 12, 2025 (Patreon)

For the past month the Bitcoin failed to breakout of its trading range. The market has bifurcated even more into two distinct segments: Bitcoin and Altcoins. This can be seen from the fact that Bitcoin is slightly up 1% MoM while ETH is down a whopping 20% MoM. While both face challenges, Bitcoin's position remains relatively stronger.

Given the recent pullback from $107,000, it seems Bitcoin is still in a sideways pattern (purple box). Which direction it'll go next will be influenced by actions and inactions of President Trump, both in the crypto space and broader macroeconomic landscape.

Market Dynamics Shift

From Expectation to Execution

Crypto's fundamentals and liquidity are currently facing headwinds due to a lack of new positive catalysts. The market's reaction to good news has noticeably dampened compared to the enthusiasm seen in late 2024. This shift reflects a transition from trading on expectations to demanding tangible results post-inauguration. Unfortunately, the delivery of campaign promises has been underwhelming thus far.

Deteriorating Liquidity

The liquidity situation in the crypto market is rapidly worsening:

1.       Bitcoin: Trump's inconsistent trade war policies have injected significant uncertainty into the macro markets, reducing risk appetite across all asset classes. Even corporate Bitcoin buyers, such as MicroStrategy, are also experiencing slowdowns.

2.       Altcoins: The launch of TrumpCoin has severely impacted altcoin liquidity. Initially celebrated by crypto enthusiasts, TrumpCoin's meteoric rise to a $50 billion market cap has drained liquidity from even the strongest narrative-driven projects. The draining of existing liquidity was not replaced by new retail liquidity, as Trump has tried to distance himself away from the token. The subsequent decline in Trumpcoin itself further damaged sentiment in the altcoin space.

3.       Overall Market: The combination of these factors, along with prevailing uncertainty, triggered the largest liquidation event in crypto history, wiping out over $10 billion in positions.

Potential Catalysts for Optimism

To shift the outlook to a more positive stance, we would need to see:

• Implementation of pro-crypto policies, such as the Strategic Bitcoin Reserve (SBR)

• Normalization of trade policies

• Restoration of lost liquidity

Given the time required for policy implementation, there is a chance we turn more bullish in the second half of 2025 compared to the first half, aligning with time required to push through governmental changes.

Lack of Execution on Crypto Policy

Out of all of Trump’s campaign promises, the Bitcoin reserve would have been the one that would’ve had the most short-term price impact on price action. The market has not gotten what it was looking for. Firstly, Trump’s crypto executive order was very soft with no substance, and became even more bearish when combined with the recent David Sacks presser where he said the keyword of “evaluating” the idea of SBR. In government speak, this is at best 50/50 after a few month to year of deliberations.

Trumpcoin Marked Top for Altcoins

The weekend before his inauguration, Trump launched a namesake memecoin that reached USD50bn market cap. It was a pivotal moment where there was a chance that memecoins and the general crypto culture could finally reach broader appeal. Alas, that was not the case. Trump distanced himself away from the token and did not even talk about crypto at all in his first few days of inauguration, despite launching the token two days beforehand. When finally asked, he said he doesn’t know much about it.

This was damaging from a price action point of view as the Trumpcoin drained away billions of liquidity away from the hottest altcoin narratives at the time. Trump basically reduced crypto land liquidity without bringing new liquidity from tradfi/retail land. Hence if the POTUS token cannot even bringing in new users and liquidity into the altcoin space, then it’s hard to imagine a even stronger catalyst that would bring in more capital. Without new capital inflow and new supply of tokens being launched, then the altcoin space peaked.

Max Uncertainty

Trump has delivered his campaign promises of trade tariffs and has strike terror and confusion in allies and competitors alike. The impact of uncertainty results in a general flight to safety for capital, which would disadvantage higher risk asset like crypto as long as the uncertainty persists. Safe haven assets like Gold (all time high) are benefiting immensely from the uncertainty.

Liquidations

The culminations of all the above factors led to one of the largest liquidations in crypto. A total of more than USD10bn was liquidated on Feb 2 as disclosed by CEO of Bybit.

A USD10bn dollar liquidation is no joke. It is structural. When people who had USD10bn dollars in aggregate is wiped out, it completely changes market psychology. There will be people who are now completely out of the game and won’t have money to invest ever again. It will take time to replenish the lost capital. It’s very unlikely that speculators can re-lever up USD10bn dollars in the short term, which means that there’s a lost of liquidity in crypto land.

Using ETH as a proxy for overall Alts, OI dropped from USD30bn on Feb 2 to current USD21bn.

To sum it up

Fundamental development is indeed happening but will be slow as it makes it’s way through the government. Liquidity is significantly harmed by 1. Trumpcoin draining liquidity 2. Uncertain trade policy and macro 3. The recent USD10bn dollar liquidation.

It will take time for fundamentals to be delivered, and for lost liquidity to be replenished. We may need to wait for a while longer before prices make a new high.

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