- Local Bitcoin peaks arrive within 1-1.5 years of halving, making 2025 a closely watched year
- Trump's pro-crypto stance supports a bullish narrative, but we believe it warrants further thought
- Ethereum continues to underperform Bitcoin due to the dearth of DeFi activity
- Investors should remain disciplined, paying attention to more fundamental tailwinds...
- ...related to liquidity and money supply for Bitcoin, rather than headlines on presidential policy
A time to sow, a time to reap. Cyclicality is such a common human experience that it can be found in everything from markets to mother nature. One cannot help but wonder if Satoshi Nakamoto – Bitcoin’s famed pseudonymous inventor – had cycles in mind when designing the halving mechanism to occur with seasonal regularity every four years or so. While crypto bulls strategise around this catalyst for great gain, there would eventually be a time where the bears start to sniff about for signs of fragility amid exuberance. Notably, over the last three cycles, the local all-time highs (ATH) tend to arrive within 12-17 months after the halving date. If history repeats itself, we will know what this ATH is by the end of 2025.
Figure 1: Local Bitcoin peaks arrive within 1-1.5 years of halving, making 2025 a closely watched year for profit-taking
*Performance so far, assuming peak has not yet been reached.
Source: Bloomberg, DBS
“Wen moon sky?” Muddying the picture is the fact that each subsequent ATH is a sequentially lower multiple on its price at halving, pouring cold water on more aggressive profit-taking levels. Like every other maturing market, one should not expect gains to be in the magnitude of those experienced by early adopters. That, however, will not stop traders from trying to time their exits as close to the ATH as possible, seeing as bullish momentum has continued to persist after Donald Trump’s election victory.
Trump redux. Speaking of President Trump, the markets have decided that after the 2024 (a) halving and (b) SEC approval of spot Bitcoin ETFs, his presidential policies are the next best pond to fish for catalysts that would take prices another leg upward. He is after all the first openly pro-crypto president in US history, appointing a “crypto czar” within his administration and making plans for a “Strategic Bitcoin Reserve”. Uncannily, the trajectory of Bitcoin prices in the fourth halving has thus far charted a very similar course to the path in 2016 – the year he was previously elected. From a technical standpoint however, we view such policies as less dependable catalysts compared to those in 2024, after a several considerations.
Our doubts revolve around the “strategic” and “reserve” descriptors in “strategic Bitcoin reserve”. Firstly, is it truly “strategic” to have a Bitcoin reserve? Strategic reserves are meant to stockpile critical resources that can be tapped on in times of crisis; the best-known example being the US Strategic Petroleum Reserve (SPR) created by congress in 1975 after the Arab oil embargo. Even Canada has a strategic maple syrup reserve and China a reserve of metals and grains, but these can be considered critical consumables for survival, characteristics that would be a stretch to attribute to Bitcoin. Proponents have argued that this stockpile of Bitcoin “assets” could appreciate rapidly enough to allow the US to reduce its debt liabilities, but this implicitly means a large devaluation of the dollar against Bitcoin, signaling low confidence in their own currency at a time when other countries are also weaning themselves off the greenback. Sacrificing the exorbitant privilege of having the world’s reserve currency does not seem “strategic” in our book.
Secondly, the US presently only has around 200,000 Bitcoin (c.USD21b at current market prices) obtained through seizure via law enforcement; hardly enough to constitute a “reserve”. Increasing this reserve requires surpluses; only available to countries that have savings in the likes of sovereign wealth funds, one that the US lacks but which president Trump is trying to create. Rather than sovereign wealth, the US runs a “Sovereign Debt Fund” – called the Federal Reserve – which buys Treasury debt in eye-watering amounts to ensure smooth market functioning; it would perhaps be a while before they have the savings to accumulate Bitcoin (to say the least). The next best means would be to nationalise Bitcoin mining operations, to ensure that mining rewards henceforth accrue as a majority to the US. This however, places it firmly within government control, erasing Bitcoin’s ethos as a decentralised currency that is free from government intervention.
As such, rather than technicals, we believe investors should continue to monitor Bitcoin’s fundamentals for its merits. We have previously investigated its strong correlations with global money supply (refer to CIO Perspectives article titled “The Value in Bitcoin Volatility”, published 4 Oct 2024) – so the time-tested catalysts of rising liquidity, be it through (a) Fed QE, or (b) tax cuts, are worth monitoring for those looking for a reliable signal.
A quick note on Ethereum. Many have wondered if Ethereum could be a catch-up play to the exceptional performance of Bitcoin in 2024. Alts have after all been the wave that followed Bitcoin’s halving event in prior cycles. We believe that the demand for Ethereum is very much related to demand for DeFi (decentralised finance) related activity (NFT trading, swaps, yield farming etc.) which has been on the decline. These were all the rage in 2021 – seeing as blockchain technology was the best thing since sliced bread back then. The dawn of Artificial Intelligence (AI) however, has drawn the attention of venture capitalists, leaving much less funding for innovation in DeFi in the years since. Unless DeFi activity picks up again, we believe that preference for Bitcoin would remain as the “safe haven” cryptocurrency.
The easy money has been made. The catalysts for cryptocurrency in 2024 were quite unique, seeing the confluence of rising demand and falling supply (refer to CIO Perspectives article titled “Approaching the Bitcoin Halving Cycle”, published 5 Jan 2024) creating a favourable set up for Bitcoin that is difficult to repeat. 2025 tells a different story, seeing as the catalysts are neither as predictable nor dependable. As such, we believe investors should remain disciplined, paying attention to more fundamental tailwinds related to liquidity and money supply in decision making, rather than headlines on policy and hype.
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