Bullish and bearish viewpoints comparison: What will the market direction be?

Original Title: "Still bullish? Or are we in the 'wealth destruction' phase now?"

Author: Michael Nadeau

Translation: Shenchao TechFlow

Hello, dear readers. Last week, we conducted some polls on X and LinkedIn, and many of you expressed a desire to see more data/analysis regarding the current cycle.

Therefore, our focus this week will be to answer these questions: Is there still a bull market for cryptocurrencies in 2025? Why do I still feel pessimistic despite many positive factors now? How should we dialectically think about the state of the cycle?

Let's go!

Bearish View

Before we start analyzing on-chain data, I want to share some qualitative analysis on how we view the cryptocurrency cycle.

Early Bull Market Phase

This period lasted from around January 2023 to October 2023.

This was the time when the market rebounded after hitting bottom following the FTX collapse. It was a very quiet period (low trading volume, cryptocurrency Twitter was almost silent). Then the market began to rise again.

Bitcoin's price rose from about $16,500 to $33,000.

However, no one referred to this phase as a bull market. During the "early bull market" phase, most market participants were still on the sidelines.

Wealth Creation Phase

This period lasted from around November 2023 to March 2024.

During this phase, we saw significant price increases and notable wealth creation effects. For example, SOL rose from $20 to $200. The Jito airdrop (December 2023) created an astonishing wealth effect within the Solana ecosystem and repriced Solana's DeFi projects (such as Pyth, Marinade, Raydium, Orca, etc.). The VC market also peaked during this phase.

Bitcoin's price rose from $33,000 to $72,000. Ethereum rose from $1,500 to $3,600.

Bonk's market cap rose from $90 million to $2.4 billion (26 times). WIF's market cap rose from $60 million to $4.5 billion (75 times). This phase also sowed the seeds for a larger "Memecoin season."

Yet, even so, this period was still relatively "quiet." Your "ordinary friends" may not have started asking you about cryptocurrencies yet.

Wealth Distribution Phase

This period lasted from around March 2024 to January 2025.

This phase is characterized by a "peak of attention." We often see "WAGMI" (We're All Gonna Make It), rapid rotations, new hot spots (though they fade quickly), and blind investments that yield returns. Celebrities and other "crypto tourists" often enter the market during this phase. Sensational news such as "Tesla buying Bitcoin" or "Bitcoin strategic reserves" may emerge during this phase.

Why?

Because new investors enter the market due to this news. They fear they are "missing the party."

This is the second wave of the "Memecoin season," which then evolves into the "AI agent season." During this phase, the market turns a blind eye to many behaviors that clearly have issues. No one wants to point out problems because everyone is making money.

Then we arrive at today's situation.

Wealth Destruction Phase

We believe this phase began shortly after Trump took office.

This is the period when the market immediately enters after experiencing a top sell-off. The catalysts for the bull market have become a thing of the past. Seemingly positive news triggers bearish price movements.

In the current market environment, political actions regarding "Bitcoin strategic reserves" have not impacted the market—this is an important signal. During this phase, market rebounds often encounter key resistance levels and ultimately fail (we saw the market's reaction last week after Trump's tweet about crypto reserves).

We pay extra attention to some signals during the "wealth destruction" phase:

• Liquidations and "panic" events disrupt the market but still fail to fully awaken it—similar situations were seen in DeepSeek AI panic and tariff uncertainties.

• Investors still harbor "illusions." We see a lot of discussions today about the decline of the dollar and the growth of global M2 (broad money) (which will be detailed later in the report).

• "Speculators" are entering the market. More people are messaging us to "check out their projects," more advertisements are circulating in the market, and well-funded projects at major conferences are spending unnecessarily and engaging in more PvP. The entire industry exudes a "dirtier" atmosphere. During the "wealth destruction" phase, bad actors begin to emerge.

In this phase, hidden problems gradually surface—usually after liquidations. The last cycle began with Terra Luna, leading to the collapse of Three Arrows Capital. Then came the bankruptcies of BlockFi, Celsius, FTX, ultimately leading to the collapse of Genesis and the sale of CoinDesk.

So far, we have not seen any major blow-ups. The phenomenon of blow-ups in this cycle should decrease—simply because the number of CeFi companies has decreased, which means that when the market officially bottoms, the low point may be higher.

Where will the blow-ups come from?

No one knows, but I think there are some "suspects" to watch:

• Exchanges: Pay attention to hidden leverage and/or potential fraud in some overseas "B and C level" exchanges.

• Stablecoins: We are monitoring Ethena/USDe—currently, its circulating stablecoin value is close to $5.5 billion. It maintains its peg and earns profits through cash and futures arbitrage (holding spot and shorting futures)—this model was a major source of leverage in the last cycle (via Grayscale). Ethena's reliance on centralized exchanges adds additional counterparty risk. Additionally, MakerDAO has also invested part of its reserves in USDe, further increasing chain risks in DeFi.

• Protocols: Be wary of frequent hacking attacks and potential liquidation chain reactions triggered by crypto asset collateral on platforms like Aave—Aave currently still has over $11 billion in active loans (though it has decreased from a peak of $15 billion).

• Strategy: We believe Strategy has done well in managing debt cautiously, with most of its debt being long-term unsecured debt or convertible bonds (BTC holdings will not trigger margin calls). Moreover, they were able to withstand a 75% drop in BTC prices in the last cycle. That said, if BTC prices drop significantly, it could force Saylor to sell a large amount of BTC at the worst possible time.

The best time to re-enter the market is at the end of the wealth destruction phase. We believe that moment has not yet arrived.

Bearish Data

Decentralized Exchange (DEX) Trading Volume

The trading volume on Solana's decentralized exchanges has dropped by 80% compared to the peak reached after Trump launched his Memecoin. Meanwhile, the number of active independent traders has also decreased by over 50%. This indicates that market speculation is waning.

Data: The DeFi Report, Dune

Token Issuance

The number of token issuances on Solana has decreased by 72% from its peak. Nevertheless, over 20,000 tokens are still being created daily on the chain.

Data: The DeFi Report, Dune

BTC Long-Term Holder MVRV Ratio

Data: Glassnode

The MVRV (Market Value to Realized Value) of Bitcoin's long-term holders peaked at 4.4 in December last year. This is only 35% of the 12.5 peak during the 2021 cycle, which was also 35% of the peak during the 2017 cycle.

Bitcoin rose about 80 times from low to high in the 2017 cycle, about 20 times in the 2021 cycle, and about 6.6 times in the current cycle.

The realized price of Bitcoin (the average cost basis of all circulating Bitcoins) peaked at $5,403 in the 2017 cycle, which was 15.1 times higher than the peak of the 2013 cycle; it peaked at $24,530 in the 2021 cycle, which was 4.5 times higher than the peak of the 2017 cycle. Today's realized price is $43,240, which is 1.7 times the peak of the 2021 cycle.

Conclusion

• From each of the data points above, we can observe that the peaks of different cycles exhibit a symmetry of decrease. These data clearly indicate that the law of diminishing returns indeed exists.

• Today, Bitcoin is a $1.7 trillion asset. Regardless of how bullish the news may be, investors should not expect to see sustainable parabolic growth as in the past—at this point, the amount of capital needed to drive asset prices up is too large.

• When Bitcoin loses momentum, the remaining tokens in the market will also be severely impacted.

• The speculative enthusiasm for Solana is waning, considering that 61% of DEX trading volume this year has involved Meme coins. We are concerned that Solana's "recovery story" is built on a "house of cards." Moreover, in the past 30 days, less than 1% of Solana users contributed over 95% of the gas fees. This is concerning because it indicates that a small portion of Solana's users ("big fish," i.e., whales) are preying on other users ("small fish," i.e., retail investors). Therefore, if the "small fish" get tired of losing and choose to exit temporarily (which we believe they are doing), we may see Solana's fundamentals deteriorate rapidly.

Data: The DeFi Report, Dune (base + priority fees + Jito tips on Solana)

• Long-term holders of Bitcoin have taken profits twice in the past year. Their realized price (cost basis) is currently around $25,000. Meanwhile, short-term holders who bought at the peak currently have an average cost basis of $92,000 and are at a loss. We believe that as the market realizes that Bitcoin's peak has occurred at $109,000, this group of short-term holders may continue to sell at lower highs.

Data: Glassnode

When all this information is laid out like this, we believe it is undeniable that the "typical" cycle has completed, and the so-called "law" is not at work.

In our view, the best way to handle this information is to accept reality and assign a probability to the possibility that the cycle has peaked. We believe this probability is clearly above 50%.

After completing the fundamental analysis, we will attempt to identify vulnerabilities in our argument and stress test our views.

Let's get started.

Bullish View

I still see quite a bit of opposition to the bearish views in the market; the bulls are not easily laying down their arms.

This raises a question: Does the bullish perspective further prove that we have entered the "wealth destruction phase"? Or are we being overly bearish and ignoring the possibility of another wave of upward movement?

In this section, we will outline some observed "bullish perspectives."

Global M2/Liquidity

Data: Bitcoin Counter Flow

The green box on the right shows: When global M2 begins to rise, BTC is falling. Some have pointed this out and mentioned the correlation between BTC and M2, as well as BTC's typical 2 to 3-month lag in response to changes in M2.

The green box on the left shows: A similar dynamic occurred at the end of the last cycle: M2 rose while BTC fell. In fact, M2 did not peak until early April 2022—5 months after BTC peaked.

Since mid-January, global M2 has grown by 1.87%, primarily due to central banks shifting from tightening to easing policies.

This is favorable for liquidity conditions.

However, we also need to consider the following questions:

1. What is driving the growth of M2? We believe this mainly comes from the decline of the dollar (which has fallen 4% since February 28!), meaning that foreign currencies priced in dollars are increasing, thus driving global M2 growth. Additionally, the reverse repo facility has recently been drained, and China is also stimulating its economy through easing policies.

2. Will this trend continue? We believe the dollar will continue to decline as investors shift funds overseas, but the pace of decline in the coming weeks may not be as rapid as recently. We expect China to continue implementing easing policies against the backdrop of a declining dollar. However, the Federal Reserve may not take easing measures in the short term, as they have indicated that reserves are still "ample." Furthermore, we believe the Federal Reserve remains concerned about inflation.

3. How do current liquidity conditions compare to last year? We believe that current liquidity conditions should be viewed as a headwind compared to last year. Remember, the key is the rate of change, not just nominal growth. We strongly believe that the Federal Reserve and the Treasury pushed the market last year through "shadow liquidity"—i.e., "not-QE, QE" and "not Yield Curve Control, Yield Curve Control"—to help Biden/Harris get re-elected. According to Michael Howell of Cross Border Capital, the cancellation of these policies has had a significant impact on the rate of change.

Data: Cross Border Capital

It is estimated that the aforementioned "secret stimulus" added $5.7 trillion to the U.S. market at the beginning of 2024. This was achieved by depleting reverse repos + issuing new debt in advance in notes.

Finally, we believe investors should closely monitor Treasury Secretary Bessent's remarks in an interview with CNBC last week: "The market and the economy have become addicted. We have become dependent on this government spending. This will require a withdrawal period. This will require a withdrawal period."

Business Cycle/ISM

We previously pointed out that ISM data indicates the beginning of a new business cycle. We also recorded strong data on capital expenditure (Capex) procurement and small business confidence. We believe this data is real, but it also clearly shows that growth is slowing. The data we observed last month may have been distorted by some manufacturers "front-loading" purchases in anticipation of tariffs. Since then, we have seen certain signs of weakness in the service sector and new orders data, with the manufacturing PMI reading at 50.3 in February, down from 50.9 in January.

Strategic Bitcoin Reserves

Until last Friday, we still saw hope among crypto natives regarding discussions about strategic cryptocurrency/Bitcoin reserves—despite the market repeatedly ignoring these messages over the past 6 weeks.

I think we can now agree that this is a "buy the rumor, sell the news" event.

Flaws in "Cyclical Thinking"?

We should also acknowledge that the current "cycle" behaves differently from past cycles. For example:

• BTC set a historical high for the first time before the halving.

• This cycle is shorter, with only two years of a bull market.

• "Altcoin season" behaves very differently, with Bitcoin's dominance steadily increasing since early 2023.

• Bitcoin is now fully integrated into the financial system and has the support of the U.S. government.

If "cyclical thinking" has flaws, then perhaps we have not yet peaked. Instead, we may just be in a pause/adjustment/consolidation phase before the next wave of upward movement, rather than entering a year-long bear market where prices could potentially drop 75%-80% as in the past.

We believe the cycle is evolving. However, we still expect the bear market may take 9 to 12 months to fully unfold.

Summary

To summarize our views:

1. We believe we are currently in the "complacency" phase of the cycle shown in the above chart.

2. All bullish catalysts identifiable a few years ago have already materialized.

3. The economy may be heading toward recession. We believe the statements from the Trump administration are very clear. They are essentially telling us that the economy needs a "withdrawal period." We should take their statements seriously. This is very similar to Powell's remarks at the beginning of 2022, where he indicated that "pain is coming." Our current thought is that cryptocurrencies are the canary in the coal mine. Traditional financial markets will slowly decline/oscillate as well.

4. Given the extremely pessimistic market sentiment, we may see the market rebound to the low $90,000 range for BTC in the short term. However, we believe this rebound will be suppressed by intense selling—this could stifle any hopes of restoring the bull market structure.

5. As always, we remain open to the possibility of being wrong. Our analysis is based on the information we currently have. As new information emerges, we will update our views.

What would make us bullish again? We will be watching for the following:

1. A reversal of fiscal tightening efforts/DOGE (Department of Government Efficiency).

2. Significant rate cuts/quantitative easing (QE) from the Federal Reserve.

3. A massive influx of global liquidity driven by the Federal Reserve (not just China).

4. Major corrections/selling capitulations in the S&P 500/NASDAQ.

One concern we have is that the bearish view is becoming consensus. This gives us pause. But for now, we must stick to all other factors—because various signs indicate that the cycle top has formed and a bear market is approaching.

Of course, in the long run, there are many bullish reasons to consider.

Cryptocurrencies have truly entered their "turning point" period. It is finally time to rebuild the financial system on public blockchains.

Not to mention, we love bear markets. When the tide goes out, the noise from past cycles becomes easier to filter out, leaving behind the real signals—this will prepare us for the next bull market.

This is the time to complete all our best work and to create the greatest value for our readers.