The U.S. economy ran smoothly in December, with core economic data all within expectations, but the Federal Reserve's hawkish comments intensified short-term market volatility; in the macro greenhouse, U.S. stocks and Bitcoin both broke historical highs this month, bringing investors a year-end big bonus; looking to 2025, institutions are generally optimistic, believing that Bitcoin may break $200,000 in 2025.
The newly released economic data in December in the U.S. was basically in line with expectations: Non-farm payrolls increased by 227,000 in November, slightly better than market expectations (expected 220,000); November CPI rose 2.7% year-on-year and 0.3% month-on-month, both meeting expectations. Subsequently, it was announced that the federal funds rate target range was lowered by 25 basis points to between 4.25% and 4.50%, in line with expectations. However, after announcing the rate cut, the Federal Reserve added that the expected rate cut in 2025 may narrow to 50 basis points. This undoubtedly poured cold water on the market, as it means the number of rate cuts expected in 2025 has decreased from the previously expected 4 times to 2 times, which also led to market expectations that the Federal Reserve would not cut rates in January next year. Affected by the U.S. hawkish rate cut, both U.S. stocks and the cryptocurrency market saw significant declines that day.
On the day of the rate cut announcement, the Federal Reserve also released its latest economic outlook, forecasting that the U.S. economy will grow by 2.5% and 2.1% in the next two years, an upward revision of 0.5 and 0.1 percentage points compared to the September forecast. The unemployment rate is expected to be 4.2% and 4.3% for the next two years, slightly lower than previous forecasts. The inflation rate measured by personal consumption expenditures is forecasted to be 2.4% and 2.5%, while core inflation, excluding food and energy prices, is expected to be 2.8% and 2.5%, both exceeding the long-term inflation target of 2%. This indicates that the U.S. economy is currently running smoothly, but inflation is still some distance from the 2% target.
Complementing this economic forecast is the December PMI index: The U.S. December Markit Services PMI preliminary value reached 58.5, exceeding the market expectation of 55.8 and higher than the previous value of 56.1. However, at the same time, the Manufacturing PMI preliminary value recorded 48.3, lower than the expected 49.5 and previous value of 49.7. The composite PMI preliminary value is 56.6, also exceeding the expected 55.1 and previous value of 54.9. The services economy is experiencing the fastest growth period since the lifting of pandemic lockdowns in 2021, while the manufacturing PMI falling short of expectations is due to insufficient export demand.
In the macro 'greenhouse,' U.S. stocks are inching upward, with the Nasdaq index successfully breaking the 20,000-point mark. Among the Big 7 in the U.S. stock market, Apple (AAPL), Amazon (AMZN), Google (GOOG), Tesla (TSLA), and Meta all set new historical highs in December. OpenAI's series of 12 consecutive press conferences this month has also pushed AI to another peak. When there is no crisis in the macro environment and no new narratives in the market, the market will still move along the path of least resistance, and this direction may only be the consensus strongest in AI.
Behind the Nasdaq's new highs is the 'super optimistic' investor sentiment. Bank of America’s December global fund manager survey found that investor sentiment in December was 'super optimistic.' The report states that investors' allocation to cash is at a historical low, while their allocation to U.S. stocks is at a historical high. Driven by optimistic sentiment related to Trump's second term and the Federal Reserve's rate cuts, global risk appetite is at a three-year high. Bank of America also listed several chip stocks, including Nvidia (NVDA), as top investment options for 2025. The highly optimistic market sentiment has created the current prosperity in U.S. stocks, but it has also increased the potential for a crash due to black swan events in the complex and chaotic financial system.
It is noteworthy that the Dow Jones index experienced a 'ten consecutive drops' this month, setting the worst consecutive drop record since 1974. The divergence of the Dow's performance from the Nasdaq and S&P 500 is mainly caused by the differences in constituent stocks. This month, healthcare giant UnitedHealth faced political turmoil, leading to consecutive drops in stock prices, while Nvidia, newly added to the Dow, performed poorly this month, contributing to the Dow's continuous decline.
Another event in the U.S. stock market that caught the attention of the crypto circle this month is that MicroStrategy (MSTR) was officially included in the Nasdaq 100 index. In WealthBee's November report, we analyzed that MicroStrategy's 'digital gold standard' strategy and capital operation model could become an industry pioneer in a rising market, promoting Bitcoin's recognition as a top predator of assets. This month, MicroStrategy's inclusion in the Nasdaq 100 index is undoubtedly another victory for the crypto world and a further advancement for the traditional financial world. This may just be a prelude, as there will likely be more significant events happening in the future crypto world, and we are watching closely.
On December 5, Bitcoin finally迎来了 its historic moment - officially breaking $100,000.
At the same time, Ethereum has also broken through $4000. It can be said that Bitcoin breaking the psychological barrier of $100,000 has completely ignited market sentiment.
This wave of Bitcoin's surge is mainly driven by political factors. We do not know if Trump will truly fulfill his promises regarding cryptocurrencies once he takes office, but at least the 'emotional value' aspect is genuinely filling the market. Currently, there is a serious FOMO sentiment among the general public abroad; the proportion of cryptocurrency holders in South Korea has reached 30%, equivalent to three out of ten people holding cryptocurrencies (according to Bank of Korea data), which is even higher than the proportion of stockholders in our country.
The current FOMO situation is evident to all, and institutions are giving future predictions at this critical juncture: The largest crypto fund index in the U.S., Bitwise, predicts that Bitcoin will reach $200,000 in 2025. The Bitwise team believes that Coinbase will enter the S&P 500 index, and 2025 will be even more festive than this year.
By the end of 2024, the Federal Reserve entered a rate-cutting cycle, creating a more favorable macro environment for high-risk assets, and Bitcoin also received favor from domestic and foreign institutional liquidity. Globally, 17 U.S. and Japanese listed companies have announced plans to hold or have board approval to adopt Bitcoin as a strategic asset. The market may continue to support high-risk trading in the first quarter of 2025, and funds may continue to flow into cryptocurrencies like Bitcoin.
Looking ahead to 2025, several key storylines in the crypto field have already emerged - the changing role of Bitcoin in global asset allocation, where the new incremental market lies, new price ceilings, and regulation. Each of these storylines currently also has new important clues worth continuous attention.
Currently, only 0.01% of listed companies globally hold Bitcoin, which means this is just the tip of the iceberg for the purchasing power of large institutions, and the market is still in the 'elite experimental stage.' OKX Research Institute predicts that the statistical funds entering Bitcoin in the next year will be approximately $2.28 trillion. This amount could push Bitcoin's price to around $200,000, roughly consistent with the forecasts of Bernstein, BCA Research, and Standard Chartered Bank. Wall Street's well-known investment firm JMP Securities predicts that over the next three years, Bitcoin spot ETFs could see inflows of up to $220 billion. Overall, institutions generally expect Bitcoin to reach around $200,000 by 2025, while Bitcoin is still considered a 'non-mainstream' investment, indicating that the incremental market remains unimaginably large.
During the rise in 2024, Bitcoin added value to multi-asset investment portfolios, but it remains a high-volatility, high-risk asset. Citigroup analysts state that cryptocurrency returns need to exceed stock expected returns by several percentage points to justify a 1% portfolio allocation; if the share is larger, cryptocurrency returns would need to be much higher. Therefore, the allocation of Bitcoin in portfolios may still be relatively low, but for investors seeking high risk and high returns, it may be appropriate to increase their allocation.
The regulatory environment has always been an important factor supporting the long-term trend of Bitcoin prices. With Trump taking office, regulation will become a major theme in 2025. The U.S. is about to face a crucial moment to establish regulatory clarity for the crypto industry, and bipartisan support for cryptocurrencies indicates that regulation is likely to shift from resistance to momentum. The EU's (Markets in Crypto-Assets regulation) (Mica) will come into full effect in 2025, unifying the cryptocurrency regulations across member states. Asia's Japan and South Korea are also continuing to encourage innovation while increasing regulation on exchanges and wallet service providers. Globally, regulatory clarity will help attract more institutional and individual investors into the market.
In addition to Bitcoin, institutions predict that AI and stablecoins will become new highlights in 2025. Currently, many banks are envious of the profits of Tether (USDT) and are eager to enter the market. According to Bloomberg, Société Générale, Germany's Oddo BHF, Britain's Revolut, and even Hong Kong's Monetary Authority have started to layout in the stablecoin market, hoping to get a piece of the pie in this field. Stablecoins may be the most demonstrative application tools in the cryptocurrency circle at present, which has also become a key step for the cryptocurrency circle to break the circle and form a new consensus.
In the current market's upward sentiment, even the most optimistic predictions seem quite reasonable. However, we must understand that even if the future is bright, the path remains fraught with thorns, and we must be aware of the risks brought by short-term market fluctuations. Since 2008, the crypto world has thrived for 16 years - by human age, it is about to enter 'adulthood.' At this coming of age, Bitcoin has become a consensus investment in mainstream finance, and stablecoins may soon become a true application tool. The crypto market in 2025 will be more exciting than in 2024!
