Bitcoin Analysis: Beyond the Block – January 2025

Today the Ainslie Research team brings you the latest monthly update on Bitcoin – including the Macro fundamentals, market and on-chain technical metrics and all the other factors currently driving its adoption and price. This summary highlights some of the key charts that were discussed and analysed by our expert panel. We encourage you to watch the video of the presentation in full for the detailed explanations.

Bitcoin and Global Liquidity

Bitcoin is the most directly correlated asset to Global Liquidity. Trading Bitcoin can be thought of as trading the Global Liquidity Cycle, but with an adoption curve that leads to significantly higher highs and lows each cycle. As such we look to buy Bitcoin during the ‘Bust’ phase or liquidity low, then rotate out of it during the ‘Late Cycle’ where liquidity is over-extended and downside protection is required (our preference is to rotate into Gold). When correctly timing and structuring the rotation, it is possible to significantly outperform ongoing monetary debasement. The Bitcoin cycle low was in November 2022, and since then the returns have been unmatched by any other major asset.

Where are we currently in the Global Macro Cycle?

Welcome to 2025! We are less than a month into the year and it has already been one hell of a ride. It has been two months since our last report so let’s dive right in and discuss. 

Not much has changed in terms of where we are in the Global Macro Cycle. We finished 2024 in the ‘Early cycle’ and we find ourselves in a slightly earlier part of the cycle than we thought we were two months ago. While the globe as a whole finds itself in the ‘Early cycle’, the U.S. has transitioned into the ‘Mid cycle’ with a strong U.S. dollar slowing growth throughout the rest of world’s economies. Our current view is this year will be more challenging than 2024 with the global cycle potentially finishing somewhere towards the end of this year.

U.S. economic growth, as measured by the ISM data, is a useful tool to forecast the trajectory of the economy to move forward. The factors that drive the U.S. moving into the ‘Mid cycle’ are inflation and growth. With the slight uptick in these data points, we should see both services and manufacturing start to move firmly into expansion. Note, that this is not the kind of inflation that would signal the end of a cycle, it is simply an indicator that the business cycle is picking up steam.

The official inflation numbers looked to have bottomed at the end of last year and have now pushed towards 3%. We don’t believe 3% inflation is going to be a problem for markets though we will be concerned if it starts ticking up towards 4%.

Where are we currently in the Global Liquidity Cycle?

Cross Border Capital’s global liquidity against world wealth clearly shows the degree of correlation between liquidity and financial assets. Bitcoin currently makes up only a small portion of ‘world wealth’ making the correlation more volatile. Therefore, Bitcoin can underperform and outperform global liquidity due to its speculative nature. Over time as the digital asset market matures, we believe a large portion of the speculative price action will be removed as more money is required to increase the market cap.

A historical illustration of Global Liquidity cycles since 1970 shows the ebbs and flows of liquidity and its impact, both positive and negative on financial markets. When liquidity is scarce, currency, banking and sometimes financial crises can follow. On the other hand, when liquidity is abundant, global markets experience asset booms.

Governments and central banks, rightly or wrongly try to smooth the business cycle by adding liquidity during deflationary busts and removing it during asset price booms. We would argue they are failing at their mandate of ‘smoothing’ the business cycle, though it does present opportunity when trading assets such as Bitcoin. 

Central Bank easing has continued since November 2024 which is evident in the Heat Map below. It is important to remember that the US and China are the most significant players in terms of Global liquidity and have yet to throw the full Central bank bazooka to stimulate their respective economies.

While Japan, Europe and the UK have some significance in terms of their contribution to global liquidity, they certainly play second fiddle to the FED and PBoC. A weakening dollar is the key ingredient for substantial foreign central bank liquidity expansion and we just aren’t quite there yet.

Our Global Liquidity Rate of Change continued to dip from last month after rising significantly in Q3 of 2024. We are still in an expansion phase above 0, however we are quickly approaching neutral in terms of momentum. As liquidity contracts and financial conditions tighten, risks of pullbacks in the financial markets arise which are then closely followed by Central Bank intervention. In the short term, we are cautious of a liquidity shock in the markets, Bitcoin will not be immune of course, but these kinds of dips should be seen as a buying opportunity. 

Tying in the previous 2 charts with the last 2. Liquidity itself looks as though it may be starting to turn up, though we do remain cautious as more liquidity is needed to support the recent rally in Bitcoin. From our point of view, it’s obvious what needs to happen for liquidity to start its next leg up, the US dollar needs to weaken. The USD looks as though it has been ‘priced for perfection’ based on Trump’s economic policies and may have just peaked. More on this soon.

Are we living in the memetirx?

ETF flows have slowed since the large rally into December which is expected. A net figure of 512,000 Bitcoin have now flowed into these ETFs since launch, a number that seemed like only a pipe dream just 12 months ago. Another impressive feat is Blackrock’s IBIT ETF now finds itself in the top 20 ETFs with over 45 billion dollars AUM.

Shifting gears from institutional adoption to a favourable regulatory environment, below is the likelihood of a Trump strategic Bitcoin reserve. As you can see the odds of it occurring in the first 100 days have extreme volatility and certainly play a part in driving market sentiment. Taking a step back, it does not matter much in the short term if a strategic Bitcoin reserve is created or not, the fact it’s even on the table is groundbreaking. As discussed in previous articles, this is in stark contrast to the unfavourable environment the Democrats have provided for the past four years.

Trump releasing a meme coin 2 days before his inauguration? Oh man, no one saw that coming. For scale on just how popular the launch of this coin was, the market cap of ‘Official Trump’ is now worth more than Donald Trump himself. That’s right, Trump has made more money in 2 days than he has his entire life leading up to this point.

Now there has been a lot of criticism from both inside and outside the crypto industry, to be fair, the criticism is probably warranted, but we think that misses the point. We argue what the public think of ‘Trump Coin’ does not really matter in the long run. What does matter is the favourable view the Trump administration has taken on crypto regulation or lack thereof. To our point, if anyone successfully launched a meme coin to this scale 12 months ago using a position of power and status to this degree, they would probably be in jail.

Back to macro. The recent strength in the USD has a lot of resemblance to last time Trump was in office. His hard line on closed borders, deregulation and using tariffs as a bargaining tool drove the dollar higher into his inauguration. One of the very first things he did was talk the dollar down in early 2017, kicking off a 10% drawdown in the DXY over the next 12 months.

 As we have stated before, a weakening dollar has profound effects on global liquidity. It is an easing of global financial conditions and reduces the cost of servicing dollar-denominated debt, which is a huge relief for emerging markets.

The dollar matters, A LOT! If 2025 draws any resemblance to the 2017-dollar devaluation and crypto bull run which saw BTC go from sub $1000 to nearly $20,000, we’re in for one hell of a ride.

Conclusion

We are only 1 year into the institutional adoption cycle of Bitcoin, and about to begin a 4-year period of favourable regulations within the US with other nations sure to follow. Combine those already bullish factors with the likelihood of entering the final year of the liquidity cycle which historically brings the largest speculation and gains. Overall, we maintain our bullish bias for 2025, though we will be watching our indicators closely to tell us when it’s time to exit the market.

Watch the full presentation with detailed explanations and discussion on our YouTube Channel here:

Until we return with more analysis next month, keep stacking those sats!

Joseph Brombal
Research and Analysis Manager
The Ainslie Group

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