Original thedefireport Blockchain Daily May 19, 2025 11:02 AM USA
This is the 2037th issue of Blockchain Daily
Author | thedefireport
Translation | Blockchain Daily (ID: hellobtc)
Editor's note:
From the dramatic shift in tariff policy under the Trump administration to the recession risks hinted at in U.S. economic soft data, global markets have been fluctuating under the influence of liquidity and sentiment. Meanwhile, Bitcoin seems to be brewing new highs, and the entire market seems to sense the arrival of 'altseason.'
So, what is the current situation of the entire market, could Bitcoin's dominance be peaking? Is 'altseason' really coming? This article takes you through the data indicators.
We have been monitoring Bitcoin (BTC)'s key support zones, planning to either exit the market (expecting further declines) or redeploy funds to higher-risk assets as cash flow allows, in anticipation of a possible 'altseason' or market peak later this year.
Next, we will discuss how we manage risks in the context of improving tariffs and market sentiment.
01
Macroeconomics
Tariffs
We initially thought the Trump administration would take a tough stance on China while negotiating with other countries. When Trump raised tariffs to 145%, this view seemed correct. Of course, this actually created unsustainable trade barriers between the two largest economies in the world.
Now, we see tariffs on China being capped at 30%, with a 90-day suspension period. The market reacted enthusiastically to this news. But it is important to understand that the global effective tariff rate remains at 17.8%, compared to just 2.5% when Trump took office.
Looking ahead
We cannot predict the short-term trends of tariffs; attempting to do so is futile. But it can be said that in the past few months, traders who bought when Trump said 'buy' and sold when he said 'sell' likely made a fortune.
Long-time readers know that this is not our investment style. We look forward to returning to long-term thinking. Meanwhile, short-term views are also necessary in the later stages of the cycle.
From a long-term perspective, we strive to focus on the big picture:
Tariff rates will not return to 2.5%.
Tariffs are primarily aimed at rebalancing trade with China (power struggle), while catering to Trump's populist base (bringing manufacturing back to the U.S.). Killing two birds with one stone.
Economic recession
Before the 90-day suspension of tariffs on China, soft data (surveys) indicated an increase in recession risks:
The ISM Manufacturing Index fell to 48.7 in April (business cycle contraction), although the services sector rose to 51.7 (expansion).
The University of Michigan Consumer Confidence Index was 52.2 in April, well below the long-term average of 85 (71 during the COVID peak).
One-year inflation expectations rose to 6.5% in April (University of Michigan survey).
The March Challenger report showed layoffs reaching the highest level since the Great Recession, with a decline in April, but still 63% higher than last year.
Port data from Los Angeles shows that freight volume from China has decreased by 30%, which is expected to affect retail in May/June.
Overall, Polymarket set the probability of recession at 66% on May 1 (currently 40%).
Data source: Polymarket
We believe that soft data will eventually be reflected in hard data (actual data) — currently, hard data still shows a strong economy.
Now, with a 90-day tariff suspension, we believe that short-term recession concerns have eased.
The question is, how long can this 'wall of worry' be climbed before another wave of negative news dampens expectations.
This could happen tomorrow; no one knows, making the current situation more like a trader's market.
Nonetheless, it seems that a window of rising risk appetite may emerge in the short term, and capital allocators may need to chase the market.
02
Crypto market
Rising risk appetite is most evident in the crypto market, which is the asset class most sensitive to liquidity conditions.
The crypto market seems to sense the following trend:
U.S. government fiscal spending has not decreased, still exceeding 7% of GDP.
Government and corporate debt will face a refinancing wave of $3.5-4 trillion in Q3 and Q4.
Tax cuts, deregulation, and supplementary leverage ratio (SLR) adjustments (which may increase banking leverage/liquidity) may emerge later this year.
Inflation is decreasing (this week's CPI and PPI reports show inflation slowing), which may open the green light for the Federal Reserve to cut interest rates.
Overall, liquidity conditions are favorable, as the Federal Reserve may need to purchase some of the upcoming refinancing and new debt issuance.
These factors increase the likelihood of 'altseason,' even though the Federal Reserve is currently standing pat.
Since the fourth quarter of last year, we have observed a sustained rise in altcoins and Meme coins for the first time. At the same time, Bitcoin's dominance seems to have peaked:
Data source: Glassnode, The DeFi Report
Altseason
If we really enter 'altseason,' there is still a long way down for Bitcoin's dominance as shown in the above chart. This means that (some) altcoins will perform excellently.
But how do we confirm 'altseason'? Here are the key factors:
The final year of the cycle.
Bitcoin's dominance started at 65-70%.
Transition from quantitative tightening (QT) to quantitative easing (QE).
ETH/BTC ratio rises.
Retail investor interest and the resurgence of 'Meme.'
Currently, we are in the early stages of this process. ETH/BTC is still at 0.024, and the ETH/USD price is 46% lower than its historical high. The Federal Reserve is still implementing QT.
Nonetheless, last week's 35% rise in ETH is reminiscent of the 68% surge from January 1 to January 7, 2021 (from $729 to $1224).
At that time, the ETH/BTC ratio rose from 0.03 to 0.07 four months later, with ETH rising 370%.
This triggered a surge in altcoins, NFTs, 'metaverse' tokens, and alternative Layer 1s. There was almost no pullback from January to May 2021. The market then crashed in mid-July (ETH fell from $4000 to $1800), before hitting an all-time high in November.
Some altcoins (like Terra Luna) continued to rise after BTC and ETH peaked until the entire market crashed.
This was the case in the previous cycle.
So, how do we respond to the current situation?
03
Portfolio management
We were pleased to lock in profits from long positions last December/January. Since then, we have been monitoring the market for signals: either the market crashes into a bear phase or rebounds to form another peak.
We currently lean towards the latter.
But this does not mean we are going all out.
As many readers know, our style is to wait for 'fat pitches' (high-certainty opportunities). We do not believe the current situation is a 'fat pitch,' but we also recognize there are upside risks.
Here is our strategy:
We are not interested in BTC at the current price levels.
Instead, we are reallocating a small amount of profits to higher-risk assets.
Historically, assets that perform well in the later stages of a cycle are those that performed well early on + emerging/shiny things. Tokens with strong communities/narratives and low circulation may see the biggest gains.
DeFi projects with strong fundamentals may also perform well, and we also expect top 'blue-chip' Meme coins to perform excellently.
04
Risk
I want to be clear, we are not going all out right now. We just hope to capture some upside when the market strongly rebounds.
Risks to consider include:
Bitcoin needs to break through its historical high. If this does not happen, our view may be irrelevant.
Summer is typically a period of volatility/consolidation. Current sentiment is somewhat extreme, and further declines similar to last year may occur.
Bond market. We believe long-term yields will eventually rise. Stock markets (and cryptocurrencies) may rise during these periods, but valuations are ultimately determined by DCF calculations, and if this happens, stock markets (and cryptocurrencies) will ultimately correct.
Stablecoin legislation did not pass the Senate last week (Democrats are still blocking cryptocurrencies). This is significant; the crypto market may be underestimating its impact. If this legislation does not pass, larger crypto bills may also be stalled, creating headwinds for the asset class.
05
Summary
'Altseason' refers to over 50% of new inflows into the crypto market directed towards non-BTC assets. This does not mean that all altcoins will perform excellently.
Asset selection and timing are crucial.
Please understand that there are many other risks in addition to market risks. Yesterday we learned that Coinbase user data was recently exploited. As prices rise, hacking, hidden leverage, and social engineering scams pose additional risks for crypto investors.
We believe there will be opportunities to buy BTC and other blue-chip assets at a discount in the near future. But we also want to have fun and try to capture the remaining upside potential in the current cycle.
Original link: https://s.c1ns.cn/ANTdk
Original title: Are we heading for an "altseason" melt-up?
Original author: thedefireport
Translation: Blockchain Daily
