December 20, 2024
Another Rally Lies Beyond This Correction
Dear Subscriber,
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| By Juan Villaverde |
Volatility is ahead for us as crypto investors.
But I hope it’s not enough to shake you out of this market. Because the long-term bull is still running.
This week’s announcement by the Federal Reserve of another rate cut was entirely expected.
And yet, somehow, it still managed to stir debate about the path forward.
As things stand, the markets are pricing in three rate cuts in 2025 — down from initial expectations of four. That may seem like a subtle shift.
But it reflects broader uncertainty about what the Fed’s really up to.
After all, the U.S. economy isn’t falling apart. Sure, there are weak spots. The housing market, for example, is under pressure due to high borrowing costs.
But the overall picture is hardly dire.
Stock markets are at record highs.
Crypto continues its bull market.
And unemployment, while ticking up slightly, remains near historic lows.
Inflation is still stubbornly above the Fed’s 2% target. But nowhere near the double-digit levels of 2022.
This is arguably why the Fed’s policy remains notably tight compared to where it’s been since the turn of the 21st century. And why, during this week’s Federal Open Market Committee press conference, the Fed reiterated its hawkish stance.
Since the crypto bull market began in November 2022, the Fed has cut interest rates just once. That was back in September 2024. And it has resisted turning on the monetary spigots in the way we saw during the previous four-year cycles.
This restraint has led to a slower, less aggressive crypto bull market, marked by two multi-month consolidations since it began.
A look at the broader liquidity picture explains why …
Global Liquidity and the Price of Bitcoin
Figure 1. Source: LSEG Datastream, Global Macro Investor.
Click here to see full-sized image.
This chart, courtesy of Raoul Pal, overlays aggregate global liquidity with Bitcoin’s price.
The relationship is unmistakable: Where liquidity flows, Bitcoin (BTC, “A”) follows. And while liquidity has been increasing in recent months, the pace remains measured.
Not only that, but liquidity is taking a noticeable dip around early January, pointing to a likely correction by then, if not earlier. My Crypto Timing Model suggests the same thing, also warning we will see a correction in crypto markets by January.
Now, let me be clear: According to my model, this will likely be a mere 80-day-cycle correction.
As such, it will not mark the end of the bull market.
The larger correction to watch for comes in late March or early April 2025. If this sounds familiar, it’s because we’ve seen similar patterns in both 2023 and 2024.
That correction could be more pronounced, and it ties back to the Fed and global liquidity. Or, more precisely, their limits.
Yes, liquidity injections will continue. And they’ll fuel the crypto bull for months to come.
But unlike in previous cycles, these injections aren’t so much driven by a desire to stimulate the economy. Instead, they’re being forced by mounting pressure in the U.S. bond market.
Consider, for example …
10-Year Treasury Yields
As you can see, yields have gone up considerably despite Fed rate cuts. They surged again in the aftermath of yesterday’s FOMC rate cut.
This signals a deeper issue: a growing liquidity crisis in the U.S. Treasury market.
Simply put, demand for U.S. government debt has largely dried up after years of ballooning deficits. And now the market is clamoring for more liquidity … but the Fed is unwilling to give in.
The Fed may speak of inflation and employment mandates, but their unspoken mission is clear: keep the U.S. government funded. Whether through direct purchases or by nudging private investors back into Treasuries with lower rates, the Fed must act to stabilize the bond market.
This creates a delicate, back-and-forth balancing act. The Fed injects liquidity when absolutely necessary to prop up Treasuries … but then pauses to maintain credibility on inflation.
For crypto, this means a choppy bull market.
It means price action marked by sudden injections of liquidity that spark rallies, followed by stretches of stagnation as the market waits for the next round of stimulus.
As we approach 2025, this pattern is likely to continue.
Bitcoin and the crypto markets are going to stay on an upward trajectory, driven by periodic liquidity boosts.
But it won’t be the kind of parabolic, pedal-to-the-metal, bull market we’ve seen in the past — and remember with such fondness.
Instead, it’s going to be more of a stop-and-start variety, where patience and timing will be key.
While the current environment may lack the unbridled excitement of past cycles, it’s important to remember the bigger picture: The path of least resistance for crypto remains up.
Whether driven by reluctant liquidity injections or the underlying strength of decentralized assets, the crypto market’s upward trend shows no signs of reversing.
As we head into the new year, your challenge is clear: stay the course and not losing your nerve through the pauses — like the one we’re seeing now.
But I have no doubt you’ll rise to it. After all, with your Weiss Crypto Daily updates, you know that the next leg higher in this bull market is coming.
It is only a matter of time.
And if you’re interested in hearing what ALL the opportunities our crypto experts see in this bull market, you should watch our Crypto All-Access Summit.
It’s only online for a few more days, so I urge you to watch it now while you can.
Best,
Juan Villaverde
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