Insight #30

Rising Inflation in the U.S. and China, Along with Institutional and Technological Initiatives, Support Bitcoin. A Report on the BTC Market Outlook for Q1/2025.

Macroeconomics

1. Inflationary Trends and Producer Prices

Priority: High

These figures reflect fundamental shifts in the global economy, potentially fueling demand for Bitcoin as an alternative asset to hedge against inflation risks and volatility in traditional financial systems.

China – Consumer Prices (CPI):

- Annual inflation rose to 0.5% in January 2025 (up from 0.1% in December), exceeding market forecasts of 0.4%.

- Food prices increased (0.4% vs. -0.5% in December) due to higher pork and fresh vegetable costs, while core CPI (excluding food and energy) climbed to 0.6%—its highest level in seven months.

China – Producer Prices (PPI):

- A 2.3% year-over-year decline matched the previous month and surpassed expectations of a 2.1% drop.

- Continued deflation for 28 consecutive months signals subdued demand, despite government measures aimed at stimulating the economy.

Relevance to Bitcoin:

- Amid macroeconomic uncertainty and unexpected inflation spikes, investors may increasingly turn to Bitcoin as a hedge against currency devaluation and an alternative to fiat currencies.

2. Consumer Sentiment and Inflation Expectations in the U.S.

Priority: Moderately High

Falling consumer confidence and rising inflation expectations can drive demand for safe-haven assets. For many, Bitcoin is emerging as a hedge against potential deterioration in economic conditions.

Consumer Sentiment Index (University of Michigan):

- Dropped to 67.8 in February 2025 from 71.1 in January, its lowest reading since July 2024.

- Current conditions and future expectations both weakened. One-year inflation expectations jumped to 4.3% (from 3.3%), while long-term expectations reached 3.3%—the highest level since June 2008.

Relevance to Bitcoin:

- With inflation expectations on the rise and consumer confidence waning, investors may seek alternative assets. Bitcoin’s limited supply leads some to view it as “digital gold,” offering potential protection against inflationary pressures.

3. The Labor Market and Future Economic Outlook

Priority: Moderate

Employment data and upcoming economic releases introduce short-term uncertainty, which could further drive capital toward Bitcoin as a safe-haven asset.

United States – Employment Data:

- 143,000 jobs were added in January 2025, falling significantly short of the revised December figure of 307,000 and the forecast of 170,000.

- Revised data for November and December show lower job growth in 2024 than initially reported.

Canada – Unemployment Rate:

- Unemployment dipped to 6.6% in January 2025 (down from 6.7% in the previous month), contradicting expectations of a rise to 6.8%.

- A total of 76,000 net new jobs were added, surpassing consensus forecasts.

Relevance to Bitcoin:

- Slowing job growth and uncertainty in economic outlooks can heighten volatility in traditional markets. In this environment, Bitcoin is often viewed as a vehicle for portfolio diversification and protection against systemic risks.

Conclusion:

- Inflation and production data in China offer a mixed picture, potentially boosting interest in Bitcoin as a safe-haven asset.

- Weakening consumer sentiment and rising inflation expectations in the U.S. increase Bitcoin’s appeal among investors seeking protection against worsening economic conditions.

- Employment figures and upcoming economic releases add short-term uncertainty, which may further catalyze capital inflows into Bitcoin amid global macroeconomic instability.

Consequently, while macroeconomic news does not directly drive the crypto market, it creates conditions in which Bitcoin can be seen as a strategic asset for risk hedging and portfolio diversification.

Important News from the Past Week

1. Government and Institutional Initiatives

Priority: High

These developments set the fundamental conditions for the continued evolution of the crypto ecosystem. Legislative and institutional decisions can significantly impact market regulation, investor confidence, and strategic directions in cryptocurrency development.

Bills and Initiatives in the U.S.:

- Missouri (HB 1217): A proposal to create a Bitcoin reserve fund for state investments and to require the acceptance of cryptocurrency for government payments.

- Kentucky: Became the 16th U.S. state to propose a Bitcoin reserve bill, which could serve as a basis for a federal-level strategy.

- Florida: Senator Joe Gruters has introduced a bill allowing the state to invest in Bitcoin with an investment cap of 10% of the fund.

Regulatory Changes in Europe:

- Czech Republic: Signed a bill exempting capital gains tax on cryptocurrencies held for more than three years, in line with EU regulations.

High-Level Institutional Strategy:

- U.S. (Trump Administration): David Sacks confirms that evaluating a Bitcoin reserve for a sovereign wealth fund is one of the administration’s priorities, signaling a strategic government approach to cryptoassets.

2. Major Corporate Operations and Investments

Priority: Moderately High

Corporate decisions and strategic moves by major players shape the competitive environment and influence the development of crypto market infrastructure. Such news can spur institutional investment inflows and alter market dynamics.

Launches and Rebranding:

- BlackRock: Plans to launch a Bitcoin ETP in Europe, tied to a U.S. spot Bitcoin ETF worth $58 billion, highlighting the interest of traditional financial giants.

- MicroStrategy: Rebranded to “Strategy” while retaining its Bitcoin-based treasury management, demonstrating the company’s continued commitment to cryptoassets.

Regulatory Approval and New Products:

- Coinbase: Received regulatory approval to roll out cryptocurrency services in the United Kingdom, expanding access to VASP offerings.

- Monochrome: Registers the first Australian ETFs based on Bitcoin and Ethereum in Singapore, targeting institutional investors.

Corporate Compliance and Technological Upgrades:

- Kraken: Plans to delist USDT and four other stablecoins in Europe by March 31 to comply with MiCA requirements.

- Tether: Integrates USDt with the Bitcoin Lightning Network, enabling fast and low-cost transactions and enhancing the scalability of global payments.

3. Market Dynamics and Investor Activity

Priority: Moderate

This news reflects market participants’ behavior and short-term capital flows—important for assessing sentiment and liquidity, though it has a less enduring impact than regulatory or corporate developments.

Fund Flows and Activity:

- In January, U.S. spot Bitcoin ETFs posted a net inflow of \$5.25 billion, driven primarily by BlackRock’s IBIT (\$3.23 billion) amid market volatility.

Conclusion of the Past Week:

Government and Institutional Initiatives define the strategic direction of the market and exert the greatest influence on long-term prospects.

Major Corporate Operations and Investments show how leading players adapt to a changing market and create new products, affecting infrastructure and institutional acceptance.

Market Dynamics and Investor Activity reflect current sentiment and short-term trends, critical for immediate analysis yet less decisive for the market’s overall long-term strategy.

Macro Analysis of Bitcoin's Trading Week

1. Price Range

Peak and Correction: At the start of the week, the price hit a local high of $102.5K, followed by a sharp correction down to a low of $91.1K.

Consolidation: After reaching the low, the price bounced back. In the second half of the week, it stabilized within a tight range around $96K–\$98K. The most recent recorded quote was roughly $97.2K.

2. Overall Dynamics

Recovery Attempts: Early in the week, buyers tried to regain lost ground, but no significant recovery to the previous week’s high was observed.

3. Trading Volumes

No Extreme Surges: Despite the price fluctuations, trading volumes remained relatively stable.

4. Key Levels

Resistance at $102.5K: This level has acted as local resistance, with multiple attempts to break through being followed by subsequent pullbacks.

Support at $91.1K: The low reached on February 3 remains an important support level. Buyers managed to halt further decline there, kicking off a macro bullish trend.

5. Demand Generation

- The chart highlights vertical blue bars representing “demand generation,” i.e., periods when the liquidity inflow is substantial enough to support or drive the BTC price upward.

Overall Conclusion:

Over the past trading week, Bitcoin exhibited volatility—declining from a local high to a low, then recovering and consolidating within a narrower range. The absence of notable surges in trading volume suggests that recent movements are more technically driven corrections rather than a broad shift in market sentiment. Liquidity levels remain robust enough to support demand for Bitcoin during the market’s correction phase, as stable inflows of capital continue to outpace potential selling pressure.

Cryptocurrency Market Key Data Report for Q1/2025

1. General Trends and Macroeconomic Dynamics

Institutionalization and Market Maturity:

- Growth of Institutional Participation: Cryptocurrencies are increasingly regarded as an alternative asset class. Institutional investors (BlackRock, Fidelity, Franklin Templeton, and others) are actively investing in BTC and ETH through spot ETFs, contributing to reduced volatility and strengthening fundamental indicators.

A decline in volatility and “risk premium.” Observing the orange “Risk Index” line, one can see its gradual decrease over time. This reflects a lower “risk premium” for holding Bitcoin—volatility becomes more predictable, and the potential return is less penalized by risk. For large institutional investors and corporations (operating with significant capital and strict risk requirements), reduced volatility makes entering the market easier.

- Regulatory Clarity: Regulatory changes—from support in the U.S. Congress to global initiatives (MiCA in the EU, new rules in Hong Kong, Singapore, and the Middle East)—play a decisive role. These measures foster trust and further integration of cryptoassets into the traditional financial system.

- Macroeconomic Factors: U.S. election cycles and corresponding fiscal policies, decisions by the Federal Reserve, and central bank research into blockchain applications all add further momentum for the growth of digital assets.

Shifting from Speculation to Fundamental Analysis:

- Institutional players are moving away from short-term speculation toward focusing on long-term fundamentals, as evidenced by the resilience of key metrics (e.g., the high profitability of BTC and ETH positions).

2. Performance of the Leading Cryptocurrency

Bitcoin (BTC)

- Institutional Dominance: BTC continues to hold center stage with over 60% market dominance. Spot ETFs are attracting substantial investment volumes.

- On-Chain Data: Similar to previous post-halving cycles, the data confirms recurring patterns—an initial consolidation (“sideways” movement), followed by an upswing.

- By the end of 2024, nearly 100% of BTC positions were in profit, which supported the upward trend starting in January 2023.

3. Development of Related Sectors: Stablecoins, Tokenization, and DeFi

- Growth of Stablecoins: The total market cap of stablecoins has risen (reaching \$232 billion), while settlement volumes via stablecoins hit a record \$27–30 trillion in 2024. They are becoming a key instrument for payments and cross-border transfers, linking traditional and digital finance.

Tokenization of Real-World Assets (RWA):

- A Promising Direction: Tokenization increased by 60% in 2024 and could grow to $2–$30 trillion over the next five years, indicating deepening integration between the crypto industry and traditional financial assets.

DeFi and Layer-2 Solutions:

- Growing Activity and Lower Fees: Following the Dencun upgrade, Ethereum and its Layer-2 solutions experienced a considerable uptick in transactions (activity up by 10x, fees down by 90%), underscoring the effectiveness of second-layer scaling solutions.

- TVL and Decentralized Exchanges (DEX): Total value locked (TVL) in DeFi grew by 6% in Q4 and 58% year-over-year, with DEX market share increasing from 8% to 14% of total trading volume.

4. Technological Innovations and New Directions

Integration of Artificial Intelligence (AI):

- AI is entering the crypto economy through decentralized computing networks, AI agents equipped with crypto wallets, and prediction markets. This opens up new opportunities for optimizing blockchain operations and analytics.

New Business Models (Telegram Mini-Apps):

- Telegram mini-apps are among the fastest-growing segments, outpacing traditional DeFi protocols in profitability. This indicates ongoing ecosystem diversification and the emergence of new ways to engage users.

5. Unique Conclusions and Development Prospects

1. Integration of Traditional and Digital Finance

The increasing adoption of cryptocurrencies within traditional financial systems (via institutional ETFs, government reserves, and central bank participation) heralds the creation of hybrid financial ecosystems. The tokenization of real-world assets will act as a bridge between these two realms.

2. Stabilization and Decreasing Volatility

Backed by institutional demand and regulatory support, volatility in key assets (BTC and ETH) is diminishing, making them more appealing for long-term investors and reducing their correlation with traditional markets.

3. Scaling and Technological Adaptation of Ethereum

The surge in Layer-2 activity not only lowers transaction costs but also pressures competitors (Solana, Sui, Aptos, Sei) to develop their own scalable solutions, leading to a more competitive and innovative ecosystem.

4. The Role of AI and Automation

AI integration into blockchain systems and the emergence of new business models could catalyze additional growth in the blockchain ecosystem, opening up new avenues for decentralized applications and financial services.

5. Transition to a Sustainable Financial Model

The combination of stablecoins, institutional investments, and fundamentally driven asset valuation approaches suggests that the current quarter may serve as a starting point for the market’s next growth phase.

Conclusion

Data indicates that, amid macroeconomic instability, heightened inflation, and fluctuations in traditional financial markets, investors are increasingly seeking safe-haven assets such as Bitcoin. Institutional support, expanded legislation, and stronger regulatory initiatives lay the groundwork for the long-term integration of cryptoassets into the global financial system. Meanwhile, on-chain analysis points to a likely stable consolidation and subsequent rally once this current macro phase ends.

Technological innovations and the evolving DeFi ecosystem, Layer-2 solutions, and AI integration illustrate a market shifting away from purely speculative approaches toward more fundamentally driven strategies. This underscores the crypto market’s growing maturity and resilience, where reduced volatility and rising institutional participation are shaping a hybrid financial model that merges traditional and digital assets.

Q1/2025 Forecast

My forecast for the first quarter of 2025 remains at $130K per bitcoin.

Good luck in the upcoming trading week!

AAJ