Market Panic, Bull Market Over?

GM Anon!

This week has left many investors on edge, with recent macro data painting a less-than-ideal picture for risk-on assets. Factors like tightening global liquidity, rising unemployment, and nonfarm payroll figures have added to the uncertainty. 

However, the fundamentals for crypto remain strong, suggesting that even if we experience some short-term stalling, it’s likely just a minor pause on the road to reaching the next major price targets for BTC—and the highly anticipated alt season! 🚀

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TLDR

• Tightening global liquidity, rising unemployment, and weak nonfarm payrolls are creating uncertainty for risk-on assets like crypto

• Despite challenges, crypto fundamentals remain strong, likely signaling a temporary pause before BTC reaches new highs and alt season begins

• ETFs are acquiring BTC 20x faster than miners can produce it, with issuers like BlackRock holding over 5% of Bitcoin’s total supply

• On-chain data shows sell-side liquidity at its lowest since 2018, with whales pulling BTC off exchanges and adopting a long-term HODL strategy

• Protocols like Aave and Maker are gaining traction, while Curve struggles to keep pace in terms of TVL

• AI tokens like VIRTUALS pulled back 30% this week but are up 61% for the month.

• Memecoins like SPX, KEKIUS, and DOGE are gaining attention from smart money

• SUI stood out, holding steady at $5 amidst the broader dip, showcasing resilience compared to other major tokens

• Solana dominates with nearly 6M active addresses, far ahead of Tron (2.45M) and BSC (1.36M), driven by its scalable ecosystem

• Coins like PENGU and CULT saw major outflows, though large holders remain, signaling mixed confidence in NFT-linked tokens

ETFs

Now, let’s dive into ETF activity since the start of the New Year. Leading up to Christmas, outflows were significant, reflecting broader market caution. However, BTC flows seem to be gaining momentum again, with January 3rd standing out as a notable day for inflows. That said, January 8th saw a reversal with noticeable outflows, contributing to the lingering negative sentiment.

ETH performed slightly better, but January 7th and 8th saw outflows, while January 9th and 10th recorded no significant activity. Overall, ETF flows remain relatively muted, reflecting a cautious market sentiment.

Global Liquidity & DXY

Now, global liquidity has been recognized as one of the primary drivers of risk-on assets, including crypto, according to the latest Capital Wars letter. Currently, global liquidity faces headwinds, with weak growth from major central banks such as the US Federal Reserve, People’s Bank of China, and the ECB. These central banks have been draining liquidity, keeping overall growth lackluster.

However, there are stabilizing factors. Bond market volatility has significantly decreased, improving collateral values and boosting the collateral multiplier, both of which positively impact liquidity levels. Despite a recent contraction, global liquidity remains above the year’s lows, and we are roughly one-third of the way through the current liquidity cycle, which typically lasts 5-6 years.

While challenges persist, the stabilization of bond markets and declining volatility provide some hope for a recovery in liquidity. For risk-on assets like crypto, this means that while the environment remains cautious, improving liquidity conditions could support a more favorable outlook as the cycle progresses.

The DXY (U.S. Dollar Index) has been surging since last October, reflecting dollar strength against other major currencies. This typically works against Bitcoin and other risk assets, as a stronger dollar makes them less appealing. Historically, Bitcoin's major rallies have coincided with a weakening DXY, signaling a shift in market sentiment toward high-growth assets. Keep an eye on the DXY—if it starts to decline, it could signal Bitcoin’s next big move. This inverse correlation remains a critical indicator for crypto investors.

BTC Metrics

Let’s start with the sell-side liquidity—or rather, the lack of it. On-chain data shows that sell-side liquidity has hit its lowest level since 2018. Whales are no longer dumping; they’re accumulating. We’re seeing a significant shift, with BTC being moved off exchanges as larger players lock in for the long haul. This HODL mentality, combined with the impact of the recent halving, is creating the kind of environment where rallies thrive.

This graphic breaks it down even more, accumulation levels we haven’t seen since 2021.

Here’s where it gets particularly compelling: Bitcoin ETFs are acquiring BTC at an unprecedented rate—approximately 20 times faster than miners can produce it. In just two days, ETF issuers purchased over 9,000 BTC. Leading this surge is BlackRock’s IBIT fund, with ETF issuers collectively now holding more than 5% of Bitcoin’s total supply. While concerns about centralization are valid, the sheer scale of this buying pressure cannot be overlooked, as it has a profound impact on the market.

Major DeFi Protocols

The momentum in DeFi is unmistakable and keeps gaining steam. We haven’t seen this level of activity for major protocols since the height of the 2021/2022 boom. With capital flowing back into the ecosystem and innovation driving new opportunities, it’s clear that DeFi is reclaiming its spotlight.

Protocols like Aave and Maker are capitalizing on the renewed interest in DeFi, securing larger market shares and reinforcing their positions as leaders in the ecosystem.

While most of DeFi is heating up, Curve seems to be lagging significantly behind its peers like Aave and Maker in terms of TVL. Once a dominant force in the space, Curve’s slower growth raises questions about its ability to compete in this evolving market.

Other Data Points

Stablecoins

As we enter 2025, the stablecoin supply has reached an all-time high, with the lion’s share held by USDT at just over $140B. Trailing significantly behind is USDC at $42.5B, while USDe has been making inroads, with its supply currently sitting at around $6B.

Active Addresses

Solana leads the pack with nearly 6 million active addresses, far surpassing competitors like Tron (2.45M) and BSC (1.36M). Its dominance is fueled by a robust ecosystem of 191 protocols, offering low fees and high scalability. Tron and BSC follow, supported by their focus on stablecoins and extensive ecosystems, while Base is quickly gaining traction with 917K active addresses. 

Bitcoin and Ethereum show contrasting dynamics, with Bitcoin’s simplicity attracting 739K addresses and Ethereum’s high fees limiting it to 393K, despite hosting the most protocols. Networks like Polygon, Arbitrum, and Litecoin also maintain steady activity, highlighting a diverse competitive landscape.

Funding

December witnessed some of the largest funding rounds in crypto since 2022. Such activity often coincides with heightened enthusiasm and momentum in the crypto market. Could we be on the verge of seeing similarly significant investments reminiscent of 2021 and 2022?

Majors & Memes

It’s been a relatively quiet week for major tokens, with few standouts. The one exception has been SUI, which has held its ground remarkably well during the recent dip, hovering around the $5 mark. On the other hand, AI agents have taken a hit, with VIRTUALS down nearly 30% this week. However, zooming out, VIRTUALS is still up 61% over the past month, showing that longer-term momentum remains intact.

Other notable declines include Fartcoin, which has dropped over 50% from its peak, and Zerebro, whose market cap has fallen sharply from $800 million to just under $300 million. Similarly, ai16z has declined from $2.6 billion to roughly $1.5 billion. These sharp pullbacks highlight how quickly sentiment can shift in the market, especially for tokens with high speculative interest.

Despite these setbacks, some tokens have delivered standout performances. PIPPIN, BUILD, and HIVE have each rallied nearly 100% in the past few days, defying the broader market trend and capturing attention. Meanwhile, BITCOIN has seen notable accumulation by smart money over the past week.

Newcomer LLM, part of the Solana ecosystem, has also been making waves, quickly reaching a market cap of $130 million. Smart money has been rotating into fresh opportunities like GNZ and swarms, moving away from older runners such as Fartcoin. MLG has also seen impressive accumulation, solidifying its position as one of the more promising plays.

In the NFT space, coins like PENGU and CULT have experienced significant outflows over the past month, though large holdings remain in these tokens, signaling that not everyone has exited.

Lastly, amidst the market turbulence over the past few days, memecoins such as SPX, KEKIUS, RAI, DOGE, and CRAI saw smart money buying the dip. 

That wraps up this post—we hope you found the insights valuable. See you next week, anon! 🚀