The evidence is conclusive, are we entering the Bear Market?

Be prepared, the next 9-12 months may all be a Bear Market.

Author: The Defi Report

Compile: Odaily Planet Daily Golem

Editor's note: On March 12, 2025, a sunny day, nothing happened in the crypto market. The elderly who experienced the big drop in the cryptocurrency market on March 12, 2020, every year would recall the days dominated by 'fear' and hope that this day could pass calmly. However, calmness may not always be a good thing. Looking at the longer timeline, despite the frequent verbal support from the Trump administration for the crypto industry, in February, Bitcoin fell by 17.67%, reaching a low of $78,258. As we enter March, the situation has not improved, with Bitcoin still hovering around $80,000.

So, the terrifying thought is whether January 2025 will be the peak of this bull market? Will the next year be greeted with endless downward trends? Despite many positive remarks in the market, researchers at The Defi Report suggest that the next 9-12 months will be a Bear Market. The full translation of their market analysis by Odaily Star Daily is as follows, condolences~

Market Review: How Did We Get Here?

Before understanding the current on-chain data, we will first conduct a qualitative analysis of the current cryptocurrency cycle.

Early Stage of Bull Market: January 2023 to October 2023

This is probably the period from January 2023 to October 2023, which is the period after the FTX crash bottomed out, the market became very quiet (low trading volume, crypto Twitter fell silent), but the market has actually started to rise.

During this period, BTC rose from around $16500 to $33000. However, no one called it a bull market, and most people are still in a wait-and-see mode during the "early bull market" period.

Wealth Creation Phase: November 2023 to March 2024

This is probably the period from November 2023 to March 2024.

At this time, we saw some big moves and some exaggerated wealth formation. SOL rose from $20 to $200, and Jito's airdrop (December 23rd) had a huge wealth effect on Solana, revaluing Solana DeFi (Pyth, Marinade, Raydium, Orca, etc.). The venture capital market reached a peak of frenzy during this period (very typical).

BTC rose from $33,000 to $72,000; ETH rose from $1,500 to $3,600; Bonk's market value rose from $90 million to $2.4 billion (26 times); WIF's market value rose from $60 million to $4.5 billion (75 times). The seeds of a larger 'Meme Season' have been sown at this stage.

However, during this time, the market is still quite 'quiet', and your friends outside the circle may not have asked you about cryptocurrency yet.

Wealth Distribution Phase: March 2024 to January 2025

This is probably the period from March 2024 to January 2025.

This is a peak period of high attention in the cryptocurrency market, where we see emotions like 'WAGMI', rapid rotations, new metadata (quickly disappearing), and blind risky actions for returns. Celebrities and other 'cryptocurrency transients' often enter during this period, with crazy headlines like 'Tesla buys BTC' or 'Bitcoin strategic reserves' often appearing in the wealth distribution phase.

New investors enter the market under the drive of these headlines, but they don't know they are already late. This is also the second wave of the 'Meme Season', which then evolved into the 'AI Agent Season'. During this period, the market ignored many obviously problematic behaviors, and no one was willing to speak out loudly because people were making money, which has brought us to the 'hell' we are in today.

Wealth Destruction Phase: January 2025 to present

We believe we entered this period after Trump took office. This is the period after the market has peaked, and the bullish catalysts are now a thing of the past, seemingly positive news has encountered bearish price action.

Under the current system, administrative actions regarding 'strategic Bitcoin reserves' have not actually driven the market up - this is an important signal. During this period, market reversals often encounter key resistance and gradually fade away (as we saw after Trump's tweet about cryptocurrency reserves last week).

Some other signals that can still be seen in the stage of wealth destruction:

Liquidation and 'panic' disrupt the market, but have not fully sobered the market yet. We see this in the panic and tariff uncertainty of DeepSeek AI.

Investors hold 'hope'. We see a lot of discussions today about the decline of the US dollar and the global M2 increase (more on this later).

More 'scammers' enter the market. More and more people are sending private messages to crypto people, asking to 'check out their projects'; more advertising capital is circulating everywhere, and well-funded projects at meetings are being spent randomly; more PvP/competition/internal strife, and a generally 'dirtier' atmosphere from the industry; during the 'wealth destruction' period, people start blaming the bad guys.

During this period, 'corpses' in the market also began to emerge - usually after liquidation. The last cycle began with Terra Luna, which led to the bankruptcy of Three Arrows Capital, triggering the bankruptcies of BlockFi, Celsius, FTX, and ultimately leading to the demise of Genesis and the sale of CoinDesk.

We haven't seen any 'bodies' yet, but this cycle should be less so just because there are fewer CeFi companies. Time will tell, and the later the fuse arrives, the higher the low point we set when we officially hit the bottom.

Where might the fuse come from? No one knows, but the common culprits are as follows:

• Exchange. Pay close attention to hidden leverage and/or potential fraudulent activities on some 'B-grade and C-grade' exchanges.
• Stablecoins. Pay attention to Ethena/USDe - with a stablecoin value in circulation close to 55 billion US dollars. Ethena maintains its peg and generates revenue from cash and arbitrage trading (holding spot assets, shorting futures) - this was a major source of leverage in the previous cycle (through Greyscale). Ethena's reliance on centralized exchanges adds additional counterparty risk. In addition, MakerDAO also invests part of its reserves in USDe, bringing additional cascading risks to DeFi.
• Protocol. Note the potential for hacker attacks and the liquidation cascade caused by encrypted collateral, such as Aave, which still has over $110 billion in active loans (below the peak of $150 billion).
• Strategy. They have done well in managing debt prudently, as most of it is long-term unsecured debt or convertible debt (BTC holdings do not require additional margin), and they were able to withstand a 75% drop in BTC in the last cycle. That being said, a significant drop in BTC price could put pressure on Saylor, forcing him to sell a large amount of BTC at the worst possible time.

The best time to re-enter the market is when the phase of wealth destruction ends, and we believe this has not yet arrived.

Some bearish data you can't avoid

DEX Trading Volume

After Trump launched the Meme coin, the Solana DEX trading volume dropped by 80%, and at the same time, the number of independent traders decreased by more than 50%. This sends us a signal that the market frenzy is starting to weaken.

Token Issuance

The token supply on Solana has decreased by 72% from its peak. Nevertheless, the chain still creates over 20,000 tokens per day.

Bitcoin Long-Term Holder MVRV Ratio

Data: Glassnode

Long-term holders MVRV (Bitcoin's 'smart money') peaked at 4.4 in December. This is 35% of the 12.5 peak in the 2021 cycle and 35% of the peak in the 2017 cycle. Bitcoin rose by about 80 times from the low to the peak in the 2017 cycle, and by about 20 times in the 2021 cycle. It has risen by about 6.6 times in the current cycle.

The actual price of Bitcoin (representing the average cost basis of all circulating Bitcoins) peaked at $5,403 during the 2017 cycle, 15.1 times higher than the peak of the 2013 cycle. It reached $24,530 during the 2021 cycle, 4.5 times higher than the peak of the 2017 cycle. Today, the actual price is $43,240, 1.7 times the peak of the 2017 cycle.

Give up the fantasy, this cycle has ended

By analyzing the data above, we can observe the symmetry of the peak values decreasing during the cycle. These data clearly tell us that the law of diminishing returns is indeed real. Bitcoin is now a $1.7 trillion asset, and no matter how optimistic the headlines are, investors should not expect to see sustainable parabolic trends as in the past, as it would require too much capital to enter at this point.

When BTC loses momentum, the rest of the market loses everything.

The frenzy on Solana is weakening. We are paying attention to this because we are concerned that Solana's 'rise from the ashes story' is built on a 'house of cards' - considering that 61% of DEX trading volume so far this year involves meme coins. In addition, less than 1% of Solana users have contributed over 95% of gas fees in the past 30 days, which is worrying because it highlights that a small number of Solana users (whales) are plundering everyone else (trading meme coins). Therefore, if the 'P little generals' get tired of losing money and take a break (which we think they will), we may see a rapid deterioration in Solana's fundamentals.

BTC long-term holders have already made profits twice in the past year. Their actual cost is currently about $25,000. Meanwhile, short-term holders who bought at the peak are currently at a loss (with an average cost basis of $92,000). We believe that as BTC reaches a peak of $109,000, this group may continue to sell at lower highs.

Data: Glassnode

When presenting these data, it is undeniable that the 'typical' cycle has ended. Denying this is denying reality. Of course, there is no 'conclusive' answer here. We believe that the best way to handle this information is to accept reality and assign a probability to the peak of the cycle, which we believe is obviously higher than 50%.

Can the bullish view still hold ground?

The Bear Market argument is still facing significant resistance in the market, and the bulls have not quietly laid down their weapons. In this section, we will introduce the untenable "bull market viewpoint".

Global M2 / liquidity

Data: Bitcoin Counter Flow

The green box on the right shows that as global M2 begins to rise, BTC is falling. Some see it as a bullish signal, citing the correlation between M2 and BTC, with BTC's performance generally lagging (2 to 3 months). However, the green box on the left shows the same dynamic at the end of the previous cycle: M2 rising as BTC falls. In fact, M2 didn't peak until early April 2022—5 months later than BTC's peak.

Since mid-January, global M2 has increased by 1.87% as central banks around the world have shifted from tightening to easing, which is favorable for liquidity conditions. However, we should also ask the following questions:

What is driving the growth of M2? We believe this is mainly due to the decline in the US dollar (down 4% since February 28) - in dollar terms, this means more foreign currency. This is a boost for global M2, in addition, the recent exhaustion of reverse repo tools + China's policy easing to boost the economy is also one of the reasons.

Will M2 continue to rise? As investors move funds overseas, the US dollar will continue to decline, but not as sharply as it has in the past few weeks. We believe that China's policies will continue to slow the depreciation of the US dollar. However, the Federal Reserve may not adopt an easing policy in the short term as they indicate that reserves are still "adequate".

How does this compare to last year's liquidity situation? Compared to last year, the current liquidity situation should be seen as unfavorable. Please remember, this is more about the rate of change rather than nominal growth. We strongly believe that the Fed and the Treasury 'stimulated' the markets last year to secure Biden/Harris re-election. This was achieved through 'shadow liquidity' - or as Michael Howell from Cross Border Capital puts it, 'non-QE QE' and 'non-yield curve control yield curve control'. The chart below shows the impact of canceling these policies on the rate of change under the new Trump administration.

Data: Cross Border Capital

It is estimated that the above 'secret stimulus' injected $57 trillion into the US market at the beginning of 2024. This was achieved through consuming reverse repurchases + issuing new bonds in advance. Finally, investors should pay close attention to what Secretary Besent said last week in an interview with CNBC: 'The market and the economy are addicted, we are addicted to this government spending, there will be a detox period.'

Strategic Bitcoin Reserve

As of last Friday, discussions among cryptocurrency natives about strategic cryptocurrencies / Bitcoin reserves are still hopeful - despite the market repeatedly shrugging off this news in the past 6 weeks, so this has become a 'buy on rumors, sell on news' event.

Is there a flaw in 'cyclical' thinking?

It must be acknowledged that this 'cycle' is different from past cycles. For example:

• BTC hit an all-time high before its first halving.
• The cycle needs to be much shorter, only two years.
• The ending of the altcoin season is completely different because BTC's dominance has been gradually increasing since early 2023.
• With the support of the U.S. government, Bitcoin has now been fully integrated into the financial system.

If there are flaws in the 'cyclical thinking', then maybe we haven't reached the peak yet. Instead, perhaps we are entering a pause/adjustment/consolidation phase before the next round of upward movement, rather than a Bear Market lasting up to a year with a potential 75-80% price drop (as we have seen in the past)?

Although the cycle is evolving, we still expect the Bear Market to take 9-12 months to end.

Final Thoughts

To sum up the points of this article again:

• We are currently in the "complacency" stage of the cycle shown in the chart, where all the bullish catalysts discussed years ago have already played out.
• The economy may be heading for a recession. The message conveyed by the Trump administration is very clear, they are actually telling us that the economy needs detoxification. This is very similar to Powell's statement before the rate hike at the beginning of 2022 that 'pain is coming.' We should heed the advice.

Given the extremely pessimistic market sentiment at the moment, it is foreseeable that BTC will rebound to the $90000 level in the short term. However, we believe that this will trigger massive selling, which could kill any hope of a recovery in the bull market structure.

But we are not always bearish. However, we can consider turning bullish again when the following factors occur:

• Fiscal tightening / Efforts by the Department of Government Efficiency (DOGE) in the United States to reverse the trend.
• The Fed's / Quantitative Easing substantial reduction.
• The massive influx of global liquidity is driven by the Federal Reserve (not just China).
• Major adjustments to the S&P 500 / Nasdaq / "surrender".

But what we must insist on at the moment is that the cycle peak has arrived, the Bear Market is coming. Of course, in the long run, this is a good thing. It is time to calm down and rebuild the financial system on the public blockchain. I like Bear Market. As the tide recedes, people can more easily distinguish the noise from the signal of the past cycles, which will prepare us for the next bull market.