EMC Labs December Report: US interest rate expectations lowered, BTC will retest $100,000 after high-level adjustment

Author: 0xWeilan

The information, opinions, and judgments mentioned in this report regarding markets, projects, currencies, etc. are for reference only and do not constitute any investment advice.

Since the issuance of BTC Spot ETF, the correlation between BTC price and US stocks has become increasingly strong. This has been clearly demonstrated in the market since November.

On November 5th, Trump was elected as the 47th President of the United States. The US stock market and BTC simultaneously started the 'Trump market'. The confidence in Trump's economic policies from all parties pushed this market to continue to rise until December 18th. On that day, the Federal Reserve made hawkish remarks, suggesting a possible change in monetary policy. The market expects the number of interest rate cuts in 2025 to be reduced from 4 to 2. Since then, both the US stock market and BTC have undergone significant downward adjustments.

The same is true for the flow of funds, which was in a strong inflow state before December 18, and quickly turned into an outflow state after the 18th.

Although hitting new highs, before the 18th, BTC maintained an upward trend, gradually approaching $110,000. The shift in Fed policy triggered a cooling of trading sentiment, and the cooled sentiment forced BTC to initiate a downward revision from the 'high ground'.

EMC Labs believes that the world is still in an interest rate cut cycle, and the current cooling is only a temporary setback. With the gradual recovery of liquidity, BTC will once again hit the $100,000 mark after the high-level adjustment.

Macroeconomic finance: The 2025 US interest rate cut expectation has been reduced from 4 times to 2 times.

On December 18th, after announcing the interest rate cut in December, the Federal Reserve made hawkish remarks, stating that 'the risks to achieving employment and inflation goals are roughly balanced, and the committee will be prepared to adjust the monetary policy stance on a discretionary basis if risks emerge that could impede the achievement of the goals'.

The so-called "goals" are "achieving full employment" and "maintaining price stability". Adjusting the balance between the two through the federal interest rate is seen as an essential part of the Fed's work.

According to the November data released by the United States in December, there were 227,000 new jobs added in November, indicating a stable job market; the unemployment rate remained at 4.2%, the same as the previous few months, indicating a relatively stable job market. The CPI data shows that the inflation rate rose by 2.6% year-on-year, slightly higher than the 2.4% in October, indicating that inflation pressure has rebounded slightly and has occurred twice.

US CPI

Since September 2024, the Federal Reserve has cut interest rates three times by a total of 100 basis points. The current federal rate has been lowered to 4.33%. Although it is still at a high level, the data does not indicate any restraint on economic activity, as both the increase in employment and the unemployment rate suggest that the U.S. economy is in a benign state. However, the rebound in inflation over the past two months has led the Federal Reserve to decide to temporarily postpone interest rate cuts in order to observe whether inflation data will fall back.

This pause is seen as the end of the first phase of rate cuts, and a second restart would require more economic data guidance, namely, a weakening of economic activity or a decline in CPI.

In 2024, despite twists and turns, and chaos, the three major US stock indexes have all achieved significant gains for two consecutive years. Looking ahead to 2025, systemic risk is still not significant, and the variable lies in the conflict between Trump's economic policy and monetary policy.

Due to market linkage reasons, if BTC wants to break through the adjustment and reach the $100,000 mark, it may need clear direction from the US stock market, with stock indexes returning to an upward trend.

Cryptocurrency: $100,000 Threshold and Unsaturated Market

In December, BTC opened at $96464.95 and closed at $93354.22, down 3.23% for the month, with a volatility of 17.74%. The trading volume decreased compared to November but still remained at a high level, showing significant divergence after breaking through the $100,000 mark, with significant selling pressure.

Looking back at 2024, BTC rose by 120.76% throughout the year, but there were 4 months of decline out of the 12 trading months. Among them, from April to October, a total of 7 months, BTC experienced a long period of consolidation after reaching a historical high of $70,000, during which it faced challenges such as interest rate hikes, the German government's sell-off, and the collapse of arbitrage trading caused by yen rate hikes, resulting in a turbulent and precarious situation.

This has been a challenging year.

The two major smart contract platforms, ETH and SOL, rose by 46.27% and 86.11% respectively, both lagging behind BTC, which is strongly supported by US stock funds. Except for a few coins that are still in the price discovery or have strong manipulative nature, only about 20% of the top 100 coins by market value have an annual increase exceeding BTC, which is very different from the previous bull market.

BTC Market Share

BTC's market share has remained above 50% in the long term, reaching a high of 57.53% on November 21st, after which it began to decline. The lowest point was 51.22% on December 8th, after which it rebounded again, but the trend has not been sustained. This shows that altcoins have not received sufficient long-term funding, and have instead been subject to short-term speculation and manipulation by market players following BTC's significant increase in value, making it much harder for investors to operate.

In addition, although various concepts and projects such as LRT, RWA, AI, Layer2, and DePhin have emerged one after another, they have failed to create a bull market track for DeFi and high-performance public chains like the last bull market, which lasted for a year or even 20 months. This is particularly noteworthy.

Funds: rapidly turned into outflow after December 18th.

According to the statistics of funds (stable coins, BTC ETF, ETH ETF), the entire encryption market recorded net inflows throughout 2024, with net inflows recorded every month. This data shows that BTC and the encryption market are currently in the up phase of this cycle, and the liquidity released during the interest rate reduction cycle is driving the market upward in a pulsating manner.

Especially after the Fed began to cut interest rates in September, the second wave of liquidity began to gradually recover. In November, with the election of crypto-friendly candidate Trump, an excited inflow began, setting a historical record of $26.9 billion in a single month. In the entire December, the market inflow reached $15.7 billion, ranking second in this round of bull market and fourth in history.

Stablecoin, BTC ETF and ETH ETF fund inflow and outflow statistics (monthly)

In addition, Microstrategy invested about $12.8 billion in BTC from November to December, directly driving the company's market value to soar and enter the NASDAQ 100 index.

However, after the Federal Reserve's interest rate cut expectations were lowered on December 18th, the two major ETFs and stablecoin channels quickly turned to outflows the next day. Although there were fluctuations afterwards, the overall trend remained outflows. The BTC price also fluctuated downward, from a high of 108388.88 to a low of 91271.19, with a maximum drawdown of 15.84%.

Stablecoin, BTC ETF, and ETH ETF fund inflow and outflow statistics (daily)

During this period, the three major U.S. stock indexes also experienced downward revisions, with the Nasdaq, Dow Jones, and S&P 500 falling by 5.13%, 6.49%, and 4.39% respectively. The adjustment of BTC is approximately three times that of the Nasdaq.

The phase market momentum that started on November 4th is driven by the speculative enthusiasm of the 'Trump trade', which was quickly cooled down by the Fed's lowered expectations of interest rate cuts on December 18th. During this period, BTC adjusted along with the US stock index, and the retracement level was at a relatively low level as of the previous deadline in the bull market retracement record, which also falls within a reasonable range compared to the Nasdaq volatility ratio.

Currently, there is still ample liquidity in the market, and there is no major crisis. The focus in the future is whether the U.S. stock market can regain momentum after Trump takes office, and whether funds in the cryptocurrency market will flow back in.

However, if the US stock market continues to adjust for a long time and selling pressure accumulates, BTC may revisit new lows. If so, the decline in Altcoins may be even greater.

Secondary Sale: Liquidity and Historical Patterns

According to eMerge Engine, the current BTC and cryptocurrency market are in a bull market phase. The main market activity in this stage is long-term selling of chips, while short-term holdings continue to increase, and the continuous increase in liquidity drives the continuous rise in asset prices.

The long-sought-after group made the first wave of sell-offs during the period from January to May of this year, and began to accumulate again from June. By October, the position reached 14,207,303.14. Starting from October, with the price rising, the second wave of sell-offs in this cycle resumed. Historically, this wave of sell-offs will continue until the conversion period, which is the top of the bull market.

Long and short positions, CEX and monthly miner holding statistics

As of December 31, the long position scale is 13133062.92, which is more than 1.07 million coins higher than the high point in October, according to the on-chain UTXO revaluation statistics for the "selling scale" (greater than the actual selling amount).

The massive sell-off absorbed the surging inflow of funds, and once the follow-up funds could not continue to flow in, the price could only be lowered and the market could establish a new balance.

The behavior of the long hand depends on the will of this group and the inflow of funds, and it is necessary to continue to observe whether the follow-up is continuous or temporarily delayed for sale.

If the inflow of funds resumes and the selling pressure decreases, the price may resume its upward movement; If the inflow of funds fails to resume or a small amount of inflow, and the long hand continues to sell, the price will break the new consolidation range of 9~100,000 US dollars and revise downward; If the inflow of funds fails to resume or a small amount of inflows, the long hand will suspend selling, and the market will most likely fluctuate in the new consolidation range, waiting for a larger inflow of funds.

Conclusion

The cycle wheel is running as usual. The time, space, and long-term game all show that the adjustment at this stage is triggered by the sharp rise in prices and the sudden cold of long sentiment caused by the Fed's interest rate cut expectations.

The adjustment time and scale first depend on when mainstream funds in the US stock market resume buying, as well as the selling plans of long-handed groups.

And for the broader cryptocurrency market, the most pressing question right now is whether the second phase of the upward trend has begun, but will the core leader, Altcoin Season, which has lasted for a long time, be absent from this bull market!