A big comparison of long-short views: What is the future trend of the market?

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

Author: Michael Nadeau

Compiled by: Deep Tide TechFlow

Hello Readers and friends, we conducted some polls on X and LinkedIn last week and many of you would like to see more data/analytics about the current cycle.

So, our focus this week will be on answering these questions: Is there still a bull market for cryptocurrencies in 2025? Why do I still feel pessimistic when there are many positive factors now? How should we think about the periodic state dialectically?

Let's go!

Bearish view

Before starting to analyze on-chain data, I would like to share some qualitative analysis of how we view cryptocurrency cycles.

Early bull market stage

It is about January 2023 to October 2023.

This is a period when the market bottomed out after the FTX crash. This was a very quiet time (sluggish transaction volume and almost silent cryptocurrency Twitter). Then the market began to rise again.

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

However, no one calls this stage a bull market. During the "early bull market" phase, most market participants are still on the wait-and-see state.

Wealth creation stage

It is about November 2023 to March 2024.

At this stage, we saw a sharp rise in the currency price and a significant wealth-making effect. For example, SOL rose from $20 to $200. Jito's airdrop (December 2023) created an amazing wealth effect within the Solana ecosystem and repriced Solana's DeFi projects (such as Python, Marinade, Raydium, Orca, etc.). The VC market also peaked at this stage.

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

Bonk's market value rose from $90 million to $2.4 billion (26 times). WIF's market value rose from $60 million to $4.5 billion (75 times). This stage also sows the seeds for a larger “Memecoin season”.

But even so, this period is still relatively "quiet". Your "regular friend" may not have started asking you questions about cryptocurrencies.

Wealth distribution stage

It is about the period from March 2024 to January 2025.

This stage is the "peak of attention". We often see “WAGMI” (We're All Gonna Make It, fast rotation, new hot spots (although quickly fade), and blind investments that get rewards. Celebrities and other "cryptocurrency passers-by" often enter the market at this stage. This stage may see sensational news such as “Tesla buys Bitcoin” or “Bitcoin Strategic Reserves.”

Why?

Because new investors will enter the market because of these news. They fear they "missed the party".

This is the second wave of the “Memecoin season” that then evolved into the “AI agent season.” At this stage, the market turns a blind eye to many apparently problematic behaviors. No one wants to point out the problem because everyone is making money.

Then we came to what we are today.

The stage of wealth destruction

We believe that this stage has arrived shortly after Trump took office.

This is a period when the market enters immediately after a top sell-off. The catalyst for the bull market has become a thing of the past. The seemingly positive news triggered a bearish price trend.

In the current market environment, political actions regarding the "Bitcoin Strategic Reserve" have not had an impact on the market - this is an important signal. At this stage, market rebounds tend to meet key resistance levels and ultimately fail (we saw the market reaction after Trump’s tweet about crypto reserves last week).

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

• Clearing and “panic” events that disrupt the market, but still fail to fully sober the market – we see similar situations in the DeepSeek AI panic and tariff uncertainty.

• Investors still have "fantasy". We see a lot of discussion today about the decline in the US dollar and the growth of global M2 (broad currency) (details later in the report).

• "Speculators" enter the market. More people send private messages to us "Look at their projects", more advertisements flow in the market, and well-funded projects at major conferences are spending unnecessary expenses and more PvP. And the entire industry exudes a more "dirty" atmosphere. During the "wealth destruction", bad actors began to show their strengths.

At this stage, hidden problems gradually emerge—usually after liquidation. The last cycle started with Terra Luna, which then led to the explosion of Three Arrows Capital. Then there was the bankruptcy of BlockFi, Celsius, FTX, etc., which eventually led to the collapse of Genesis and the sale of CoinDesk.

We have not seen any explosions yet. The explosion in this cycle should be reduced — simply because the number of CeFi companies has decreased, meaning that lows may be higher when the market officially bottoms out.

Where did the explosion come from?

No one knows, but I think there are some "suspects" that need attention:

• Exchange: Pay attention to hidden leverage and/or potential fraud in some overseas “B and C” exchanges.

• Stablecoins: We are focusing on Ethena/USDe – the current stablecoins in circulation are worth nearly $5.5 billion. It maintains its anchorage and gains through cash-to-future arbitrage trading (holding spot, shorting futures) - a pattern that was the main source of leverage in the previous cycle (via Grayscale). Ethena's reliance on centralized exchanges adds additional counterparty risk. In addition, MakerDAO also invested part of its reserves in USDe, further increasing the chain risks in DeFi.

• Protocol: Be wary of frequent hacker attacks and potential liquidation ripple caused by collateral for crypto assets on platforms such as Aave – Aave still has more than $11 billion in active loans (although it has fallen from its peak of $15 billion).

• Strategy: We think Strategy does a good job of managing debt with a large portion of its debt being long-term unsecured or convertible bonds (BTC positions do not trigger margin add-ons). In addition, they were able to withstand a 75% price drop in BTC in the last cycle. But that being said, if BTC prices drop sharply, it could force Saylor to sell a lot of BTC at its worst moments.

The best time to re-enter the market is the end of the wealth destruction phase. We think this moment has not come yet.

Bearish data

Decentralized exchange (DEX) trading volume

Solana's decentralized exchange's trading volume has fallen by 80% compared to the peak reached after Trump launched its Memecoin. Meanwhile, the number of active independent traders has also dropped by more than 50%. This shows us that the market's speculative enthusiasm is waning.

Data: The DeFi Report, Dune

Token Issuance

The number of token issuances on Solana fell by 72% from its peak. Nevertheless, over 20,000 tokens are created every day in the chain.

Data: The DeFi Report, Dune

BTC Long-term Holder MVRV Ratio

Data: Glassnode

MVRV, a long-time Bitcoin holder, (Bitcoin’s “smart money”), peaked at 4.4 in December last year. This is only 35% of the 2021 cycle peak of 12.5, which is 35% of the 2021 cycle peak.

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.

Bitcoin’s realized price (i.e., the average cost base for all circulating Bitcoins) peaked at $5,403 in the 2017 cycle, 15.1 times higher than the peak of the 2013 cycle and 4.5 times higher than the peak of the 2017 cycle. Today's realization price is $43,240, 1.7 times the peak of the 2021 cycle.

in conclusion

• From each of the data points mentioned above, it can be observed that the peaks at different periods show a decrease in symmetry. These data clearly show that the law of decreasing returns does exist.

• Bitcoin is now worth $1.7 trillion. No matter how bullish the news, investors should not expect to see sustainable parabolic growth as they did in the past—the amount of funds needed to drive assets up are too large.

• When Bitcoin loses momentum, the rest of the tokens on the market will also be hit hard.

• Solana’s speculative enthusiasm is waning, and given that 61% of DEX trading volumes so far this year involve Meme coins, we are worried that Solana’s “recovery story” is built on a “house of cards.” Additionally, less than 1% of Solana users contributed over 95% of Gas fees over the past 30 days. This is worrying, as it suggests that a small number of Solana’s users (“big fish”, i.e. whales) are plundering other users (“little fish”, i.e. retail investors). So if the “little fish” get tired of losing money and choose to exit temporarily (we think they are doing this), we may see Solana’s fundamentals deteriorate rapidly.

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

• Long-term Bitcoin holders have taken profits twice in the past year. Their realized price (i.e. cost base) is currently around $25,000. Short-term holders who buy at highs are currently at an average cost base of $92,000, which is in a loss state. We believe that as the market realizes that the top of Bitcoin has already appeared at $109,000, this short-term holder may continue to sell at lower highs.

Data: Glassnode

When all information is listed like this, we think it is undeniable that the "typical" cycle has been completed, and this is not the so-called "laws" at work.

In our opinion, the best way to process this information is to accept reality and assign a probability to the possibility that the cycle has hit the top. We think this probability is obviously more than 50%.

After completing the basic analysis, we try to identify loopholes in our arguments and stress-test our views.

Let's get started.

See more opinions

I still see quite a lot of objections to the shorts’ views in the market, and the bulls won’t let go of their weapons easily.

This begs the question: Does the bulls' view further prove that we have entered the "wealth destruction phase"? Or are we too bearish and ignore the possibility of another wave of rise?

In this section, we will sort out some of the observed "broad perspectives".

Global M2/Liquidity

Data: Bitcoin Counter Flow

The green box on the right shows: When global M2 starts to rise, BTC is falling. Some point this out and mention the correlation between BTC and M2 and the lagging response of BTC to M2 changes usually exists for 2 to 3 months.

The green box on the left shows that a similar dynamic appeared at the end of the previous cycle: M2 rose while BTC fell. In fact, M2 didn’t peak until early April 2022 — 5 months later than BTC hitting the top.

Since mid-January, global M2 has grown by 1.87%, mainly due to central banks moving from austerity to easing.

This is beneficial to liquidity conditions.

However, we also need to consider the following issues:

1. What drives the growth of M2? We believe this is mainly due to the decline in the US dollar (down 4% since February 28!), which means an increase in foreign currencies denominated in US dollars, driving global M2 growth. In addition, the reverse repo facility has been drained recently, and China is also stimulating its economy through loose policies.

2. Will this trend continue? We believe the dollar will continue to decline as investors move their funds overseas, but the decline in the coming weeks may not be as fast as it has been recently. We expect China to continue to implement loose policies against the backdrop of a lower dollar. However, the Fed may not take easing measures in the near term, as they say reserves are still "adequate". Furthermore, we believe the Fed is still concerned about inflation.

3. What are the current liquidity conditions compared to last year? We believe that current liquidity conditions should be considered headwinds compared to last year. Remember, the key is the rate of change, not just nominal growth. We strongly believe that the Fed and the Treasury Department promoted the market last year through "shadow liquidity" (not-QE, QE) and "not Yield Curve Control, Yield Curve Control) to help Biden/Harris re-election. 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 above-mentioned "secret stimulus" increased by $5.7 trillion to the U.S. market in early 24 years. This is achieved by depleting reverse repurchase + issuing new bonds in the notes in advance.

Finally, we think investors should pay close attention to Treasury Secretary Bessent's statement last week in an interview with CNBC: "The market and the economy are already 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 indicate the beginning of a new business cycle. We also recorded strong data on capital expenditure (Capex) procurement and small business confidence. We think these data are real, but it also clearly shows that growth is slowing down. The data we observed last month may be distorted by some manufacturers’ “advance purchases” before expected tariffs. Since then, we have seen some signs of weakness in the service industry and new order data, with the February manufacturing PMI reading of 50.3, down from 50.9 in January.

Strategic Bitcoin Reserves

Until last Friday, we still saw Aboriginals in the crypto space have hope for discussions about strategic cryptocurrency/bitcoin reserves – although the market has repeatedly ignored the news in the past six weeks.

I think we can agree now that this is a "buy expectations, sell facts" event.

The flaws of "periodic thinking"?

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

• BTC hit an all-time high before the halving for the first time.

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

• The “altcoin season” has performed very differently, with Bitcoin dominance rising step by step since the beginning of 2023.

• Bitcoin is now fully integrated into the financial system and has been supported by the U.S. government.

If there are flaws in "periodic thinking", then we may not have reached the top yet. Instead, we may just enter the pause/adjustment/consolidation phase before the next wave of gains, rather than entering a year-on-year bear market where prices may fall 75%-80% as they did in the past.

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

Summarize

To sum up our views:

1. We believe that we are currently in the “complacency” stage of the cycle shown in the above figure.

2. All the bullish catalysts that could be identified a few years ago have been cashed out.

3. The economy may be heading for recession. We think the Trump administration’s statement is very clear. They are actually telling us that the economy needs a "retreat period". We should believe their statement. This is very similar to what Powell said in early 2022 that “pain is coming” before the rate hike. Our current idea is that cryptocurrencies are canaries in coal mines. Traditional financial markets will slowly decline/fluctuate accordingly.

4. Given the extreme pessimistic market sentiment, we may see the market rebound to the lower $90,000 range of BTC in the near term. However, we believe that this rebound will be suppressed by a fierce sell-off – which could kill any hope of resuming the bull structure.

5. As always, we are open to possible mistakes. Our analysis is based on the information we have at present. As new information emerges, we will update our views.

What will make us bullish again? We will pay attention to the following points:

1. Reversal of fiscal austerity/DOGE (Ministry of Government Efficiency) efforts.

2. The Fed's sharp interest rate cut/quantitative easing (QE).

3. The Fed (not just China) is driving a massive influx of global liquidity.

4. Major adjustment/surrender-style sell-off for the S&P 500/Nasdaq.

One issue we are worried about is that the view of the bear market is becoming a consensus. This makes us worry. But for now we still need to stick to all other factors - because all signs indicate that the top of the cycle has been formed and a bear market is coming.

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

Cryptocurrencies have truly entered their "turning point" period. Now it’s finally time to rebuild the financial system on top of the public blockchain.

Not to mention, we like the bear market. When the tide recedes, noise from past cycles will be more easily removed, leaving a real signal – which will prepare us for the next bull market.

This is the time for us to do all the best work and the time when we create the greatest value for our readers.