14 February 2025

Over the past week, the broader market has experienced significant volatility influenced by macroeconomic factors, regulatory changes, and market dynamics. Recent macroeconomic data has had a notable impact on the crypto markets. Higher-than-expected inflation figures have reignited concerns among investors, leading to fluctuations in asset prices.

Bitcoin briefly dipped below $95,000 as these inflation fears dampened expectations of a US Federal Reserve rate cut in March. Despite this dip, Bitcoin has recovered and is trading near $97,000 currently.

Altcoins have had a better week but are still way off their November highs.

We discuss the general and macro trends in today’s Hot Take.y’s Hot Take.

Top-3 stories of the week:

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The newsletter is put together by Giottus Crypto Platform. You can read all the previous issues of Cryptogram here.

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WEEKLY MACROS

• Total crypto market cap - $3.21 trillion - UP 1.9%    

• Bitcoin price - 97,030 - UP 0.2%

• The dollar index (DXY) - 107.01 - DOWN 0.6%

• Bitcoin Dominance - 60.91% -  DOWN 1.5%

• Crypto Fear and Greed Index - 48 - Market is in Neutral State

THE HOT TAKE

Crypto Market: A Tug-of-War Between Sentiment and Fundamentals

On  Feb 12, the US announced that the seasonally adjusted CPI year-over-year for January was 3%, higher than the expected 2.9%. This unexpected uptick in inflation initially sent Bitcoin tumbling below $95,000. However, the asset quickly rebounded, surging back to $97,000 within hours. Yesterday’s core PPI data showed a year-over-year increase of 3.6%, exceeding the expected 3.3%.

The short term outlook for Bitcoin and the crypto market in general has turned bearish. Let us explain the key factors behind this.

Retail traders and small wallet holders are offloading their stash

According to Santiment, Bitcoin has seen a decline of 277k non-empty wallets over the past three weeks, suggesting smaller traders are exiting the market. This drop reflects growing fear of further price declines. Historically, reduced activity from small traders often signals a period of consolidation before a stronger price rebound.

Rising Bitcoin ETF outflows

Net flows for Bitcoin ETFs have turned negative recently, with significant outflows totalling $494 million this week. Profit-taking, market volatility, and macroeconomic concerns are driving investors to reduce exposure.

Bitcoin’s MACD indicator has turned negative amid Trump’s tariff threats

Bitcoin’s MACD indicator has turned negative on the weekly chart, signalling a possible shift toward bearish momentum. This suggests the recent upward strength may be fading. Adding to the pressure, US’ tariff threats and rising inflation fears could reduce investor appetite for Bitcoin. While BTC is still holding between $90K and $100K, these signs point to potential short-term downside.

On the longer term, however, the fundamentals remain intact.

Whales continue to absorb the retail dumps

Bitcoin whales are quietly buying more coins as prices drop and volatility spikes. While many small traders, especially newer ones, are cashing out and leaving the market, larger wallets have seen a uptick. In February alone, 135 big wallets (100+ BTC) were added.

Bitcoin Strategic reserve, if introduced, could create $23 billion in demand

Proposed laws to create strategic Bitcoin reserve across several US states could drive up to $23 billion in Bitcoin demand if enacted, according to VanEck’s analysis. The asset manager reviewed 20 state-level Bitcoin reserve bills, estimating that state governments would need to buy approximately 247,000 BTC collectively. This estimate doesn’t even factor in potential Bitcoin purchases by state pension funds, which could push demand even higher. If these laws are passed, it could significantly boost Bitcoin’s market, making state-backed BTC reserves a major force in the crypto space.

Global crypto regulation heats up amidst US-friendly shift

The new US administration's apparent embrace of crypto seems to be catalysing regulatory action worldwide, pushing governments to finally address years of policy ambiguity. This momentum is leading to some potentially significant developments:

• South Korea opens doors to institutional trading: The Financial Services Commission (FSC) announced last month, through Secretary-General Kwon Dae-young, that institutions will soon be permitted to trade on local cryptocurrency exchanges. This move signals a significant step towards mainstream adoption in South Korea.

• Czech Republic explores Bitcoin reserve: National Bank Governor Aleš Michl has proposed allocating up to 5% of the bank's €140 billion reserves to Bitcoin as a diversification strategy. Following the proposal, the bank's board approved a study to assess the feasibility of such an investment, indicating a serious consideration of Bitcoin's role in national reserves.

• Japan eyes Bitcoin ETFs and tax cuts: Japan's Financial Services Agency (FSA) is reportedly considering approving Bitcoin exchange-traded funds (ETFs) and significantly reducing the tax burden on crypto gains from 55% to 20%. These potential changes aim to enhance investor protection while simultaneously fostering wider market participation.

Key takeaway for retail investors

• Don't panic sell: Emotional decision-making can lead to significant losses. Avoid making impulsive decisions based on short-term market fluctuations. If you have a long-term investment strategy, stick to it.

• DCA strategy for Bitcoin and Ethereum: For investors with a long-term outlook, a dollar-cost average (DCA) strategy may be a prudent approach to accumulating Bitcoin and Ethereum. We suggest considering DCA entries for Bitcoin below $100,000 and Ethereum below $2,700.

Despite short-term indicators suggesting a potential bearish trend driven by macroeconomic concerns and shifting investor sentiment, the long-term fundamentals for Bitcoin and the broader crypto ecosystem remain robust. Whale accumulation, potential state-level Bitcoin reserves, and the global push for clearer regulatory frameworks all point toward continued institutional interest and potential future growth. These interacting forces will likely define the market's trajectory in the coming months. Volatility is to be expected, but the underlying technology and growing adoption of crypto continue to offer compelling opportunities for long-term investors.

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If you have any questions or feedback for us, write to us at [email protected]. You can check out the previous issues here.

Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.