January 10, 2025
My Model Says This Crypto Correction Is Running Out of Time
Dear Subscriber,
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| By Juan Villaverde |
Bitcoin’s (BTC, “A”) historic breach above $100,000 released an enormous burst of energy and enthusiasm in early December.
But all too soon, this epic rally stalled. Six-figure excitement gave way to spirited selling. And since then, the market has been stuck in a frustrating holding pattern.
Today, the No. 1 crypto has bounced between $93,000 and $94,000, not far from levels seen almost 50 days ago.
This stagnation has left crypto traders restless.
While this is understandably frustrating, it is expected. That’s because we are in a severe liquidity drought.
Here’s the good news: I don’t expect it to last for long.
I’ve said before that global liquidity is the lifeblood of financial markets.
And beyond the regular dip we expected to see over the holiday season, global liquidity is running dangerously low.
That’s unsurprising considering the world’s two biggest providers of money and credit — the U.S. Federal Reserve and the People’s Bank of China — have both been holding back recently.
While their situations differ, the root cause is the same: politics.
Both central banks are caught between economic realities and the political optics of their decisions.
In America, Fed Chair Jerome Powell is still haunted by the Fed’s "transitory inflation" misstep of 2021. To compensate, he has implemented a policy of draining liquidity to keep a lid on inflation.
But behind the scenes, the Fed has been using backdoor channels to quietly reinject liquidity.
I’ll put it more plainly: Tough talk about inflation has become a political game. And Powell appears unwilling to pivot publicly, even as cracks begin to form in the financial system.
(You can read more about how the Fed is pulling this off here.)
Naturally, this has ripple effects globally. A strong U.S. dollar, for example, presents significant challenges for China.
That’s because Beijing faces a massive deflationary collapse, driven by a real estate crisis that dwarfs America’s 2008 housing bubble.
To keep it afloat, the People’s Bank of China needs to inject liquidity on a massive scale.
But doing so risks devaluing the yuan at a time when President Xi Jinping’s grand ambition is to elevate it as a global reserve currency. In China’s face-conscious halls of power, public embarrassment like that can be politically devastating. Which leaves Beijing stuck in a dilemma.
What this all adds up to is a global economy starved of liquidity, with central banks unwilling — or politically unable — to act decisively. This is the fundamental issue facing markets today.
The 21st-century global economy has become dependent on a steady flow of newly printed money to service its growing mountain of debt. Without it, deflationary pressures take hold, threatening financial stability.
For crypto markets, this dynamic is both a curse and a promise. The lack of liquidity has stalled the bull market for now.
But history shows that central banks always return to the printing press — when faced with the alternative.
It’s not a question of if, but when.
As the Fed and the People’s Bank of China face mounting pressures to act, the conditions for the next leg of the crypto bull market are quietly falling into place.
When liquidity returns, it’s not just going to stabilize world markets.
It’s going to send crypto surging to new historic heights.
In the meantime, my Crypto Timing Model has also indicated this latest correction is running out of time.
If you’re waiting for the end of the bull market, we’re not there yet. So, keep holding.
And if you’re interested in learning about crypto income strategy that leaves TradFi yields in the dust, I encourage you to save your seat for my colleague Marija MatiΔ’s Superyield Income Summit this coming Tuesday, Jan. 14 at 2 p.m. Eastern.
In it, she’ll explain how she has targeted yields as high as 101%, 912% and 1,168% and tell you how you can do the same.
It’s free to attend. Just be sure to reserve your spot now.
Best,
Juan Villaverde
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