Author: Michael Nadeau, The DeFi Report; Translator: Baishui, Golden Finance
Many of you would like to see more data/analysis on the current state of the cycle.
So that's our focus this week.
Is there still a bull market in crypto in 2025? Why am I so bearish despite many positive developments? How can we find holes in my analysis?
Our goal is to answer these questions and more.
Before we discuss on-chain data, I want to share more qualitative analysis on how we view cryptocurrency cycles.
This is roughly the period from January 23 to October 23.
This is the period after the market bottomed out after FTX. Things got very quiet (low trading volume, crypto Twitter was silent). Then we started to rise again.
During this period, BTC went from about $165k to $33k.
However, no one is calling this a bull run. Most of the market remained on the sidelines during the “early bull run”.
This is roughly the period from November 2023 to March 2024.
This is when we saw some big moves and some major wealth creation. SOL went from $20 to $200. Jito’s airdrop (Dec’23) created additional wealth effects in Solana and repriced Solana DeFi (Pyth, Marinade, Raydium, Orca, etc.). The venture capital market reached a fever pitch during this period (which is pretty typical).
BTC went from $33k to $72k. ETH went from $1,500 to $3,600.
Bonk went from $90M to $2.4B (26x). WIF went from $60M to $4.5B (75x). The seeds for a bigger “Memecoin Season” were planted.
But it was still pretty “quiet” during this period. Your “regular friends” probably haven’t been asking you about crypto yet.
This is roughly the period from March ’24 to January ’25.
The “peak attention” period. We tend to see “WAGMI” type sentiment, rapid rotation, new meta (which quickly fades), and blind risk taking that pays off. Celebrities and other “crypto transients” tend to enter during this period. Crazy headlines like “Tesla Buys BTC” or “Bitcoin Strategic Reserve” tend to appear during the wealth distribution phase.
Why?
New investors enter the market driven by these headlines. They don’t know they’re late.
This was the second wave of “Memecoin Season” which then morphed into “AI Agent Season”. During this period, the market ignored a lot of obviously problematic behavior. No one was willing to call it out. People were making money.
Now. Which brings us to where we are today.
We believe we entered this period shortly after Trump took office.
This is the period immediately following the top of the breakout. The bullish catalyst is now a thing of the past. Seemingly positive news has been met with bearish price action.
In its current state, the executive action regarding the “Strategic Bitcoin Reserve” has not moved the market – a significant sign. During this period, reversals tend to run into key resistance periods and die down (we saw this last week after Trump’s tweet about crypto reserves).
Some other signs we look for during the Wealth Destruction phase:
Liquidations and “panics” have roiled the market but have yet to fully sober it up. We saw this with the DeepSeek AI panic and tariff uncertainty.
Investors are “hopeful”. We’re seeing a lot of talk today about a falling dollar and rising global M2 (more on this later in this report).
“Scammer” types are entering the market. More people are sending us private messages asking to “see their project”. More advertising capital is circulating. Well-funded projects are being spent haphazardly at conferences. More PvP/competition/infighting. The industry is generally giving off a worse vibe. Bad actors start to be named during “wealth destruction” periods.
Losing investors also start to surface during this period – usually after liquidation. The last cycle started with Terra Luna. This led to the bankruptcy of Three Arrows Capital. This led to the bankruptcy of BlockFi, Celsius, FTX, etc. This ultimately led to the demise of Genesis and the sale of CoinDesk.
We haven’t seen any blow-ups yet. We’ll note that this cycle should see fewer — simply because there are fewer CeFi companies. Time will tell. Fewer blowups could lead to higher lows when we officially hit bottom.
Where might these blowups come from?
No one knows, but my guess is to look at the usual culprits.
Exchanges. Keep an eye out for hidden leverage and/or potential scams on some of the “B and C grade” exchanges abroad.
Stablecoins. We’re watching Ethena/USDe — the stablecoin with nearly $5.5 billion worth of current circulation. It maintains its peg and earns from cash and carry trades (holding spot assets, shorting futures) — which were the main source of leverage in the last cycle (via Greyscale). Ethena’s reliance on centralized exchanges adds additional counterparty risk. Additionally, MakerDAO has invested part of its reserves in USDe, creating additional cascading risk for DeFi.
Protocols. Watch out for an increase in hacks and potential liquidation cascades due to crypto collateral on platforms like Aave — which still has over $11 billion in active loans (down from a peak of $15 billion).
MicroStrategy. We think they have done a good job of prudently managing their debt, as much of it is long-term unsecured or convertible debt (no margin calls on BTC holdings). Additionally, they were able to withstand a 75% drop in BTC over the last cycle. That being said, a significant drop in BTC price could put pressure on Saylor, forcing him to sell a large amount of BTC at the worst possible time.
The best time to re-enter the market is the end of the wealth destruction phase. We believe this is not here yet. Of course, we will let you know when we think we are back in the “buy zone”.
Solana DEX trading volume is down 80% from the peak after Trump launched the memecoin. At the same time, the number of independent traders has dropped by more than 50%.
Token issuance on Solana is down 72% from its peak. Despite this, the chain still creates more than 20,000 tokens per day.
The MVRV of long-term holders (Bitcoin’s “smart money”) peaked at 4.4 in December last year. This is 35% of the 21-year cycle peak of 12.5, and 35% of the 2017 cycle peak.
Bitcoin rose about 80 times from trough to peak in the 2017 cycle. It rose about 20 times in the 2021 cycle. It rose about 6.6 times in the current cycle.
The realized price of Bitcoin (a proxy for the average cost basis of all circulating Bitcoins) peaked at $5,403 in the 2017 cycle, 15.1 times higher than the peak of the 2013 cycle. It reached $24,530 in the 2021 cycle. This is 4.5 times higher than the peak of the 2017 cycle. Today, the realized price is $43,240, 1.7 times higher than the peak of the 2021 cycle.
With each of the data points above, we can observe a symmetry of peak-to-cyclical declines. We think this data clearly tells us that the law of diminishing returns is quite real.
Bitcoin is a $1.7 trillion asset today. No matter how bullish the headlines, investors should not expect to see sustainable parabolic moves like we have seen in the past. It takes too much capital to move an asset at this point.
When BTC loses momentum, the rest of the market loses everything.
Solana is weakening. We have been watching this because we are concerned that Solana’s “comeback story” is built on a seemingly “house of cards” – considering that 61% of DEX volume year-to-date involves memecoins. Furthermore, less than 1% of Solana users account for over 95% of gas fees in the last 30 days. This is concerning because it highlights that a small percentage of Solana users (the “big fish”) are preying on everyone else (the “small fish” trading memecoins). So if the “minnows” get tired of losing money and take a break (which we think they will), we could see Solana’s fundamentals slide quickly.
Data: DeFi Report, Dune (Base Fee + Priority Fee + Jito Tips on Solana)
BTC long-term holders have made profits twice in the past year. Their realized price (a proxy for cost basis) is currently around $25k. Meanwhile, short-term holders who bought at the top are currently losing money (with an average cost basis of $92k). We believe this group may continue to sell at lower levels as BTC price peaks at $109k.
When you lay it all out, we think it is undeniable that the "typical" cycle has ended. To deny this is to deny reality.
Of course, there is no "law" at work here.
We believe the best way to process this information is to accept reality + assign a probability that the cycle has peaked. We think this probability is clearly higher than 50%.
After the foundational work is done, we try to find holes in the paper and stress test our view.
Let's do this.
I still see considerable resistance from the bears. The bulls are not going to lay down their arms quietly.
This begs the question: are the bulls providing more evidence that we have entered the "wealth destruction, i.e. denial" phase? Or are we perhaps getting too pessimistic at local lows before moving higher again?
In this section, we will cover some of the main "bull cases" I see.
The green box on the right shows BTC falling as global M2 begins to rise. Some have pointed this out, citing the correlation with BTC and how BTC typically responds with a lag (2-3 months).
That being said, the green box on the left shows the same dynamic at the end of the last cycle: M2 rose when BTC fell. In fact, M2 didn’t peak until early April 2022 — 5 months after BTC peaked.
Since mid-January, global M2 is up 1.87% as central banks have largely switched from tightening to easing.
This is good for liquidity conditions.
However, we should also ask the following question:
What’s driving the increase in M2? We think it’s mostly due to a weaker dollar (down 4% since Feb 28th!) — when denominated in USD, that means more foreign currency. That’s a boost to global M2. Additionally, the reverse repo facility was recently exhausted and China is easing policy to boost its economy.
Will this continue? We think the dollar will continue to fall as investors move money offshore, but not as much as it has in the past few weeks. We think China will continue to let the dollar weaken. However, we don’t think the Fed will ease policy anytime soon as they say reserves remain “ample.” We believe they are still concerned about inflation.
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, this is more about the rate of change than nominal growth. We feel strongly that the Fed and Treasury “stimulated” the market last year to help the Biden/Harris reelection. This was done through “shadow liquidity” – or as Michael Howell of Cross Border Capital puts it, “non-QE, QE” and “non-YCC, YCC.” The chart below shows us the impact on the rate of change after the new Trump administration removed these policies.
The aforementioned “secret stimulus” is estimated to have injected $5.7 trillion into US markets in early 24. This was achieved by draining reverse repos + front-loading new bond issuance.
Finally, we think investors should pay close attention to what Minister Bessant said in an interview with CNBC last week:
“The markets and the economy have become addicted. We have become addicted to this government spending. There will be a detox period. There will be a detox period”.
We have previously noted that the ISM data indicates the start of a new business cycle. We also recorded strong data on capex purchases and small business confidence. We think this is real, but the slowdown in growth is also evident. The data we saw last month was likely distorted by some manufacturers “frontloading” purchases in anticipation of tariffs. Since then, we have seen data on both services and new orders weaken. The February manufacturing PMI reading was 50.3, down from 50.9 in January.
Until last Friday, we continued to see crypto natives hopeful about the strategic cryptocurrency/bitcoin reserve talks – even though the market has shrugged off this news multiple times over the past 6 weeks.
I think we can all agree that this has been a “buy the rumor, sell the news” event.
We should also acknowledge that this “cycle” is different than past cycles.
For example:
BTC hit its first all-time high before the halving.
This cycle was much shorter, with only a two-year bull run.
The “altcoin season” has been very different, as BTC dominance has been gradually rising since the beginning of 23 years.
Bitcoin is now fully integrated into the financial system, with the support of the US government.
If “cycle thinking” is flawed, then we may not have reached the top yet. Instead, perhaps we are entering a pause/adjustment/consolidation phase before the next leg up, rather than a year-long bear market where prices may fall 75-80% (as we have seen in the past)?
Our view is that yes, cycles are evolving. That being said, we still expect that the bear market may take 9-12 months to end.
To summarize our views:
We believe we are currently in the "complacency" phase of the cycle as shown in the above chart.
All of the bullish catalysts that one could identify a few years ago have already played out.
The economy may be heading for a recession. We think the message from the Trump administration is very clear. They are actually telling us that the economy needs to detox. We should take their word for it. This is very similar to Powell saying "pain is coming" before the rate hike in early 22. Our current thinking is that crypto is the canary in the coal mine. Traditional financial markets will slowly bleed/fall with it.
Given the extremely bearish sentiment, we could see the market rally to the low $90,000s for BTC in the short term. However, we think this will be sold off aggressively - which could kill any hopes of restoring bull market structure.
As always, we are open to being wrong. Our analysis is based on the information we have today. We will update our view as new information becomes available.
What would it take to get bullish again?
We would be watching for the following factors:
A reversal of fiscal tightening/DOGE efforts.
A significant tapering of the Fed/QE.
A massive influx of global liquidity driven by the Fed (not just China).
Big pullback/capitulation in the S&P 500/NASDAQ.
What worries us is that the bear market narrative is starting to become the consensus. This gives us some pause. But there are other factors to consider at this point - because the cycle top is coming and the bear market is coming.
Of course, there are many things to be optimistic about in the long run.
Crypto has indeed entered a "turning point" period. Now is the time to rebuild the financial system on public blockchains.
Not to mention, we love bear markets. As the tide recedes, it becomes easier to separate the noise from the signal of past cycles - which will prepare us for the next bull market.
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