🔥 Gate.io Launchpool $1 Million Airdrop: Stake #ETH# to Earn Rewards Hourly
【 #1# Mainnet - #OM# 】
🎁 Total Reward: 92,330 #OM#
⏰ Subscription: 02:00 AM, February 25th — March 18th (UTC)
🏆 Stake Now: https://www.gate.io/launchpool/OM?pid=221
More: https://www.gate.io/announcements/article/43515
How will global macroeconomic trends affect the Cryptocurrency market in 2025?
Author: Michael Nadeau, The Decentralized Finance Report; Translation: Wu Zhu, Golden Finance
We have said many times: if you don't understand the macroeconomic trends, you don't understand cryptocurrencies. Of course, the same goes for on-chain data.
This week, we will explore how macroeconomic trends will impact the cryptocurrency market in 2025.
Inflation
Inflation data is on the rise. After bottoming out at 1% in September, we have accelerated to over 3% calculated by Truflation.
Data: Truflation
We like the data from Truflation because it uses real-time web scraping data from various online sources. In addition, its update frequency is more frequent than traditional government indicators such as PCE.
However. The focus of the Federal Reserve is on PCE. Therefore, we use PCE as a way to predict Federal Reserve policies, and use Truflation to have a more real-time understanding of the economic situation.
This is personal consumer expenditure:
Data: FRED Database
Currently at 2.3% (data from October), and is also increasing - which is difficult to see in the chart (September was 2.1%). We will obtain data for November on December 20th.
View on Inflation
Energy costs and housing costs are the main driving factors for growth. However, the price of crude oil is at a cyclical low.
Data: Trading Economics
The question is whether they will stay here, or may further decline.
Considering the seasonal impact + Trump's plan to increase supply through deregulation in the United States, it is difficult to see why oil prices would skyrocket quickly.
On the other hand, geopolitical conflicts, unforeseen natural disasters, or OPEC production cuts (expected increase in US supply) may cause oil prices to rise.
We haven't seen these events happen yet.
In addition, our position is that the inflation since the 21st century is mainly caused by supply shocks + fiscal spending and stimulus checks - we do not see it as a threat today.
Therefore, we expect oil prices to fluctuate within a range, with inflation/growth declining.
Dollar
Data: Trading View
Since October 1st, Bitcoin has risen by 58%. Meanwhile, the US Dollar Index has risen from 100 to nearly 108. Today's ranking is 107.
This is a special behavior. Normally, a strong US dollar is unfavorable for risk assets such as Bitcoin (see 2022). But now we see a strong correlation between the two.
So what's going on? Should we be worried?
We believe that due to the global market's pricing of Trump's victory, the dollar is showing strength. Trump's policies are favorable to business. This means they are favorable to the market.
After Trump's victory in 2016, we saw the same dynamic. The US dollar rose. Why? We believe that foreigners are digesting the impact of the "Trump skyrocket" and are buying dollar-denominated assets as a result. **
View on the US Dollar
We believe that growth is slowing/normalizing. This is reducing inflation, albeit with some delay. Interest rates may fall.
Therefore, we expect the US dollar to fluctuate within a range in the medium term, possibly falling to 100.
ISM Data (Economic Cycle)
Data: MacroMicro
From the perspective of economic cycles, we can see that the blue line (manufacturing) seems to be bottoming out. Historically, readings below 50 indicate that the economy is in a contraction phase. Continuously below 50 indicates a slowdown in the economy.
This is where we are now - the service (red line) is doing slightly better.
These levels often coincide with rising unemployment rates. This typically leads to the Fed adopting an accommodative monetary policy.
Once again. This is exactly what we are seeing today.
View on the Economic Cycle
We believe that the slowdown in growth is leading to an increase in unemployment. This may ultimately manifest as downward pressure on inflation.
This led to a rate cut. This brought downward pressure on the US dollar.
**In the medium term, we think these dynamics should support risk assets/cryptocurrencies. **
Credit Market
Data: FRED
Credit spreads continue to be at historical lows, indicating that investors have a relatively low requirement for compensation for additional risk units.
This could mean two things: 1) market complacency, mispricing of risk. Or 2) market participants are optimistic about the economy, with loose monetary and fiscal policies.
We believe it is the latter.
Next, let's take a look at the trend of bank loans.
Data: Fred Database
Since the end of 23, the proportion of banks tightening loan standards has been decreasing. Ideally, this KPI will remain stable as the Fed cuts rates.
That being said, historically, we have seen a negative correlation between interest rate cuts and banks tightening loan standards. Why? Interest rate cuts often signal an economic slowdown or recession - making it harder for banks to lend.
Views on credit markets
No signs of pressure. At least not for now.
Labor Market
The unemployment rate in November rose to 4.2% (previously 4.1%). Below we can see the recent increase in the number of people applying for unemployment benefits.
! [h8likEpw8wZInfpZ3Nlxz9N6NfNrt4J2wrbojfL4.jpeg] (https://img.jinse.cn/7334449_watermarknone.png "7334449")
Data: Forex Factory
We believe that the weakness in the labor market has now captured the full attention of the Federal Reserve. The continuously rising unemployment benefit data tells us that it is becoming increasingly difficult for those who are unemployed to find jobs.
This is another sign of slowing/growth normalization. That being said, the stock market is still at historic highs. Corporate profits are strong. This is the reason for keeping the labor market intact.
But my sense is that the Fed is watching this like a hawk. After all, the Sam rule was already triggered in July.
View on the labor market
It's softening. But it's not fast. We expect the Fed to (try) to act before the data weakens (as they had already cut rates by 50bp in September after the July Sam data).
Treasury and Fiscal Expenditure
Data: U.S. Department of the Treasury
The US government's spending this year exceeded tax revenue by 1.83 trillion dollars. In November alone, its spending was twice its revenue.
The $1.83 trillion printed and pushed into the hands of the economy/Americans is the main driving force behind the financial markets this year (which we believe is also the main driving force behind inflation).
Now. Trump is coming. We also have a new institution called the Government Efficiency Department, led by Elon Musk, which is called 'DOGE'.
Some people believe that excessive spending will decrease as a result. Maybe it will. But which departments will be cut? Health insurance/social security? The military? Interests?
This equates to 65% of the budget – which seems untouchable.
At the same time, the Treasury will have to refinance more than 1/3 of its debt next year. We don't think they can do that by raising interest rates.
Views on the national treasury/fiscal expenditure
We believe that significant cuts in fiscal expenditure are unlikely in the short term. DOGE may reduce expenditures by $10 billion. But it will not substantially change the situation. This will take some time.
At the same time, the Ministry of Finance needs to refinance 1/3 of all outstanding debts next year. We believe they will do so at a lower interest rate.
Taking these views into account, we are optimistic about the prospects of risk assets/cryptocurrencies.
Federal Reserve Policy
The next FOMC meeting will be held on December 18th, and the market currently expects a 97% chance of a rate cut. We believe this may also give the green light to China's easing policies.
Why?
We believe that China wants to continue its accommodative policy. But when the Fed doesn't cut rates, it's hard for them to cut rates because the renminbi will depreciate against the dollar, making Chinese imports more expensive.
Views on Fed Policy
It seems unlikely to raise interest rates in the short term. Interest rate cuts in December are almost certain, with market pricing paused at 76% in January. There is no FOMC meeting in February.
Therefore, the next policy decision will not be made until March. We believe that the labor market may show more signs of weakness, and the Fed may further cut interest rates in the mid-to-late 2025, ultimately to about 3.5%.
Will lowering interest rates exacerbate inflation? We don't think so - this is a non-consensus view. In fact, we believe that raising interest rates is causing inflation (as well as other fiscal expenditures) to rise.
Why?
Because interest payments now exceed $1 trillion. This money is printed and passed on to Americans holding bonds, and it seems to be invested in the economy. Of course, the rise in interest rates did not lead to banks stopping lending (see chart above).
Therefore, we believe that with the Fed rate cut, inflation may decrease (assuming oil prices remain low and we do not see further increases in fiscal spending). Please remember, we have had zero interest rates in low inflation for 10 years. Japan has been implementing a 0% interest rate for 30 years, with a low inflation rate.
Trump Policy
The market knows what Trump's presidency will bring:
Reduced taxes. This should boost corporate profits and could lead to an increase in share prices. It could also lead to increased income inequality and increased deficits. More deficits = more dollars in the hands of Americans. **Tariffs/"America First". **This may result in higher domestic prices. We think that AI/automation may actually offset this to some extent. Deregulation. This is good for businesses, as it is likely to lead to higher profits in the energy, technology, and financial sectors. Stronger borders. This could lead to labor shortages and rising wages (inflation).
Views on Trump's Policies
We believe that Trump is generally favorable to business, free markets, and asset prices. The cost is that we may see some inflationary impulses. This is where things get interesting because if inflation returns, the Fed will seek to pause rate hikes or tighten monetary policy.
Of course, we believe that Trump will try to impose his will on Jerome Powell. Ultimately, we believe that Trump wants to promote economic growth in the next four years and eliminate some debt through inflation. This means that inflation must exceed nominal interest rates, but that is not the case today.
Finally, given Trump's support for the digital asset industry (as well as the incoming SEC chairman), we believe that cryptocurrency will benefit from his administration.
Not to mention the potential for favorable regulations from Congress in the coming years and the strategic reserve potential of Bitcoin.
Views on Trump's Policies
We believe that the Trump administration will be in favor of cryptocurrencies from a market and regulatory perspective. **
China
Dan Tapiero, one of my favorite macro investors, said that China is currently experiencing deflation (with negative real interest rates).
China's negative interest rates have dampened inflation fears in the United States. This has strengthened the US dollar (as we have seen today).
**A U.S. rate cut could lead to a rate cut in China. **
In the end, it will bring more global liquidity.
When it comes to global liquidity.
Global Liquidity
Given that 1/3 of US debt needs to be refinanced next year, we believe the Fed may have to intervene as the ultimate buyer (QE).
**Lower interest rates in the U.S. will allow China and Europe to ease conditions in some coordinated way. **
We believe this will lead to abundant liquidity/collateral within the financial markets - with cryptocurrencies/risky assets being one of the biggest beneficiaries.
These dynamics coincide with the fourth year of the crypto cycle – the most volatile upward cycle in history.
Summary
This is the future we see.
Taking into account fiscal spending, the incoming Trump administration, and the fourth year of the crypto cycle, you can predict an explosive bull market in 2025 (with volatility expected).
Of course, we will continue to monitor the market and provide you with the latest information from an on-chain data + macroeconomic perspective.
After all, if you don't understand the macroeconomic situation, you don't know your cryptocurrency.