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Welcome back to the monthly update for Comma Partners, and to 2025.
2025 is set up to be a big year.
But first, let’s talk about how 2024 ended.
And, of course - NONE OF THIS IS FINANCIAL ADVICE, DO YOUR OWN RESEARCH, ETC.
State-of-the-union
December was a much less explosive month than November.
For the month of December:
Crypto:
BTC (-2%)
ETH (-9%)
SOL (-19%)
Equities:
S&P 500 (-3%)
NASDAQ +0%
Waiting for Trump
The election drove November.
In a sense, it also drove December.
All eyes have been on the Trump camp. DOGE. Cabinet appointments. Tariffs. Strategic Bitcoin reserves.
DOGE still plans on DOGE-ifying the government
Cabinet appointments are very pro-business and pro-crypto
The party line on heavy-handed tariff implementation has been held
Support for a strategic Bitcoin reserve has continued
So why were markets red for the month?
I believe it’s because the optimism post-election was so thick you could scoop it with a spoon. Price movements in November reflected the step-change in possibilities for business and crypto. High expectations were priced in.
It’s easy to forget how green everything was for November:
Crypto:
BTC +38%
ETH +44%
SOL +42%
Equities:
S&P 500 +5%
NASDAQ +5%
If November was a step-change in possibility and optimism, December was a month of wait-and-see. We’re waiting to see to what extent Trump and his administration carry out the stated pro-business, pro-crypto, pro-US, and anti-bureaucracy intentions.
Aside from any material change in tune from Donny T, the only thing that was going to move the market was macro.
And move the market it did.
An oxymoron: a hawkish rate cut for the Fed
The other major factor in December was the Fed meeting on the 18th.
They cut the Fed funds rate by 25 bps (to 4.25%-4.5%), and in response, guess what the market did?
Dumped.
BTC dove ~15% from $108K to just below $92K in 2 days. BTC ranged between $92K and $99K for the remainder of the month, ending 2024 somewhere in the middle - right around $94K.
The yield on the US 10-year increased by ~0.2% over those 2 days as well. Its yield ended the year at ~4.6%, ~0.5% higher than it started the month.
This is all in response to the Fed signaling a slower pace of rate cuts for 2025 (calling for 2 cuts instead of 4) in response to persistent inflation and a generally strong economy.
Oxymoron?
The USD and liquidity
As you’ve heard me say before, I believe liquidity is the most important factor for crypto’s future.
And in this ‘24-’25 winter season, I believe the strength of the USD is the most important factor for liquidity’s future. I believe it best encapsulates all that’s going on at the moment.
So, what is the USD telling us?
It’s at its highest point since over 2 years ago. This is rough for liquidity, and therefore risk assets.
Global liquidity shrank by almost $1T last week, with Fed liquidity growth slowing and the People’s Bank of China withdrawing liquidity at an increasing pace since mid-December in a bid to support the yuan against the strong USD.
Remember our favorite quote from last month, courtesy of RealVision:
...a weaker dollar isn’t just about a lower DXY. It’s about improving global liquidity. As dollar-denominated debt becomes easier to service, it unlocks a massive pool of liquidity that can then, in theory, be financialized.
The dollar’s movements set the tone for global liquidity, unlocking or tightening the flow of capital, shaping the macro landscape, and setting the stage for what comes next.
Why is it so high?
High longer-term rates (due to sticky inflation, fewer Fed rate cuts signaled despite a downward trend, continued federal budget deficits & increased federal debt load despite DOGE) + threat of tariffs + relative US strength vs. other parts of the world (Europe, China, etc.).
Let’s take each of these in turn
High longer-term rates
Let’s look at some business cycle metrics, shall we?
Latest readings are looking quite strong, with PMI and job openings for the last several weeks materially above forecasts (manufacturing PMI also came in strong), and jobless claims materially below.
Unemployment rate is incoming on the 10th, and is expected to remain flat at ~4.2%, though still above the Fed’s median estimate of 4%.
Strong business health and employment → decreased odds of a rate cut → bad for liquidity & risk assets (next meeting at the end of January).
That said, just the other day, Trump came out publicly and explicitly said that he thinks rates are too high. The Fed supposedly acts independently from the political arena, but we’ll see how this plays out.
In fact, we’ve already started seeing signs that this may not be completely true. See the below snippet from Joe McCann’s recent update on behalf of Asymmetric:
Threat of tariffs
Trump is loudly touting how he’ll crack down on the entire world with tariffs, but we see this often. Trump comes out very aggressively in public, early. Then, come the time to negotiate, those early aggressive stances serve as a negotiating tactic.
I find the argument that this is what he’s doing with the threat of tariffs quite convincing.
I believe that tariffs that the Trump administration enacts will be less dramatic than is being signaled.
Less dramatic tariffs → weaker USD → good for liquidity & risk assets.
We saw this pattern happen the last time Trump was coming into office. Strong statements drove a strong USD ahead of the inauguration, then as reality played out, the full extent of those promises wasn’t delivered, resulting in a USD that trended lower for the remainder of the 4-year term.
If this comes to pass, the DXY should come down after the inauguration.
That said, in the ~10 days until the inauguration, there is some risk the DXY ticks higher on strong December unemployment (Jan. 10) and inflation (Jan. 15) data.
Relative US strength vs. other parts of the world
China is the main player here, so let’s talk about them.
Remember above I said that they’ve been rapidly withdrawing liquidity since mid-December?
This is bad news for liquidity and risk assets.
But, it’s important to not get stuck in the last few weeks - the last few months and years tell a very different story. Let’s zoom out a bit more and look at what’s been going on over a longer time horizon.
They’re in the same trap that we are - demographic challenges, slow economy, massive and rising debt loads, etc. - and they’re handling it the same way the rest of the world has had to.
With massive liquidity injections.
Once we take all this into account, we see why the yuan has been falling relative to the USD.
So while their late-December actions tell one story, the real story is one of relative US strength.
Relative US strength = strong USD.
Strong USD = tighter Chinese policy to support the yuan.
Tighter Chinese policy to support the yuan = the more the Chinese economy suffers.
The more the Chinese economy suffers = the pressure to inject liquidity increases.
It’s a vicious cycle. And other countries are feeling it as well, beyond China.
This is why, even though the short-term liquidity signals don’t look good (strong USD, other parts of the world tighten to support their currency → lower liquidity), I still strongly believe that the entire world is in a trap with only one way out.
More liquidity. More cowbell.
Which means I want more Bitcoin.
The wildcard: immigration
Just yesterday, I devoured a fantastic report from RealVision & Raoul Pal that highlighted the linchpin that’s been holding the strength of the US economy together in the face of domestic demographic trends (aging and declining working population, lower labor force participation, etc.) that should have otherwise led to weakness.
That linchpin is immigration.
And given Trump’s promises to change the tune of immigration policy - halting it, and perhaps even carrying out massive deportations - we should take a look at what’s going on.
First, let’s look at the labor force demographics (declining), which should drive GDP lower, and the resulting need to fuel the economy with debt (higher).
This is happening. Debt is skyrocketing (~$36T). So are interest payments (~$1T annually, more than our defense budget).
So, why hasn’t Fed net liquidity been following its trend upward to cover parabolic interest payments?
And why, with a declining labor force, hasn’t GDP collapsed, therefore driving an increasingly and unsustainably high debt/GDP ratio?
One word: immigration.
Since 2020, 6M immigrants have come into the US. 6M people is ~1.8% of the population!
This has bolstered our work force, generally with lower-cost labor. It also may explain why, even with the fastest pace of rate rises in history, GDP growth only bottomed at 1.4%.
As Trump takes office and implements stronger border policy and possibly large-scale deportation, this support is threatened.
What will need to happen then to keep the economy afloat?
More liquidity. More cowbell.
As I mentioned, the rest of the world is in the same situation, but has been unable/unwilling to go into full easing mode with the USD so strong, as it would destroy their currency.
They’ve been in a bind, forced to choose between supporting their economy and supporting their currency. Thus far, they’ve chosen their currency.
Once we start easing in earnest, other countries will be free to do the same. This is when global liquidity starts running.
Lower immigration → lower labor force → weaker GDP → runaway debt/GDP → more liquidity.
We’ll keep on kicking this can down the road hoping that AI and robotics dramatically boost our productivity to make up for a declining labor force. This is still at least 5 years off.
So?
I think that, until the inauguration, we’re in for much of the same dynamic that we’ve been seeing, with the main driver of markets remaining macro until we see what actually gets implemented by the Trump administration, and when.
I think that, until the inauguration, the main risk is to the downside, as the market has already priced in the Trump optimism.
What could push us further downward? Macro. Mainly a continued trend upward in USD strength, and liquidity continuing to slide lower.
Are we in for a bigger correction?
Last time, I wrote about the fact that declining global M2 suggested that we could be in for an ~20%-30% correction for BTC down to somewhere near ~$70K.
I also wrote that we had a short several-day flush at the beginning of the month, which cleaned out a bunch of leverage from the system and in my opinion, decreased the chances we get that full ~20%-30% correction suggested by M2.
Well, we’ve had two more dives - one in the back half of December following the Fed meeting (BTC down ~15%, ETH & SOL down ~20%-25%), and one that started just this week (BTC down ~8%, ETH down ~11%, SOL down ~13%).
I still hold the belief that our odds of a dump down to $70K-$80K BTC are lower than they would have otherwise been without these smaller corrections.
In fact, that BTC has held above $90K in the face of such a strong dollar and declining liquidity keeps me bullish over the medium- to long-term.
We can see here that open interest has come down, and is at even lower levels than the ~$60B of open interest at the time of writing last month.
The funding heat map looks quite clean as well (save for Hyperliquid, but that’s its own beast, much like Microstrategy in traditional markets).
Short-term weak, long-term strong
No doubt, macro and liquidity in the short- to medium-term are weak.
But, macro and liquidity in the medium- to long-term are strong.
Not to mention the possibility of a national BTC reserve, which I think of as a built-in call option for crypto.
With crypto remaining stronger-than-feared, bolstered by a strong medium- to long-term liquidity outlook, with a national BTC reserve possibility as a cherry on top, I’m still risk-on.
Right at the turn of the new year, I rolled some profits from some AI agent positions (ai16z, Virtuals, etc.) back into majors (BTC, ETH, and SOL) on the back of their year-end rip upwards, which served as a sort of de-risking.
There’s a chance I re-allocate a bit more of my theme-specific altcoin positions back into majors, but it would be from an elevated level given their relative outperformance in December. This would serve simply to move back towards initial risk-on allocation targets, rather than shifting to a risk-off stance.
If we do get a more dramatic dump down to $70K-$80K BTC in the next month or two, I view it as a temporary one before we continue to run.
I believe 2025 is set up for another bullish year.
Where are we in the crypto cycle?
Overall, I’d still give us a green light.
None of the 6 technical/valuation metrics below are in the yellow zone.
In fact, the metrics took a step back further into the safe zone from where they were a month ago.
As I mentioned above, my eyes are on macro at the moment. These metrics will become much more important as macro gets and stays hot.
Bitcoin dominance
Currently: ~57%
Warning zone: ~45%-50% (bottomed ~40% last cycle)
MVRV & Z-score
MVRV
Currently: ~2.3
Warning zone: ~3-3.5 (topped ~3.9 last cycle)
MVRV Z-score
Currently: ~2.7
Warning zone: ~6-7 (topped ~7.5 last cycle)
NUPL
Currently: ~0.56
Warning zone: ~0.6-0.7 (topped ~0.75 last cycle)
Puell multiple
Currently: ~1.0
Warning zone: ~2 (topped ~3.25 last cycle)
Pi cycle top indicator
Currently: not near a cross
Warning zone: when blue line approaches purple line
Some things I’ve been thinking about
Interesting reads, watches, listens
The most important question of your life
Arthur Hayes on macro and crypto into the inauguration
Jared Kushner on Invest Like the Best
Anthony Scaramucci on Bankless
Best series of the most exciting developments of the last month (in my opinion): crypto x AI agents:
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