Level Setting Expectations
Level Setting Expectations
My 2024 Bitcoin price prediction was incorrect. I had targeted $120k, based on expectations of increased demand for the ETF, inflation, and higher allocations from financial advisors. BTC only made it to $108k in 2024. Most market observers write an overview of what they expect in the following year at the end of December or first week of January. I decided to wait until I had the opportunity to fully observe changes in the bond market, which stunted Bitcoin’s price along with most other risk assets.
Bitcoin hit an all-time high of $108k on December 17th. After this, there was an expectation of a Santa Claus rally, along with a run up into Trump’s inauguration. He is the first Bitcoin-supporting US President after all (Trump ’47, not Trump ’45 – that president hated Bitcoin). Here is why the rally was killed:
On December 3rd, the yield curve went from inverted to flat. Many people point to an inverted curve as a predecessor to recession, but actually, when and how a curve un-inverts is a telling harbinger. In this case, the Fed lowered short-term rates to help prevent a recession, while long-term rates rose as markets began to price in higher future risks. Higher bond yields actually drive investors away from risk assets and into a higher yielding safe haven. Within fixed income, investors will move from junk bonds to higher credit-rated bonds. This will drive risk spreads wider and yields higher.
At higher yields, lower-rated companies will have to spend more in debt service to issue debt. Those higher financing costs cause defaults to ratchet up. High Yield bonds have a high correlation to the S&P. While I do not expect a recession in 2025 or a negative year for stocks, I anticipate a lower rate of return for the S&P in 2025, around 8-12%, compared to previous years returns above 20%.
Real Estate across the board has been in a difficult position as well. Commercial properties have low occupancy rates, while building owners are selling below the principal value of outstanding debt. Residential has been suffering from both lack of disposal income and movements between homes, and of course high mortgage rates. Mortgage rates moving from 3% to 6% already doubled the cost of annual interest in a home, making them pricier. There has been hope that Fed rate cuts would reduce mortgage rates so builders could begin to offload pent up inventory. However, mortgage rates are tethered to 10 year UST rather than short end rates, so a higher 10 year drives rates up, while the spread will likely continue to widen. I expect residential real estate in most markets to continue to soften in 2025, as well as into 2026.
Mortgage rates are now at 7%, but here are my rate expectations for 2025:
Fed rate: Currently 4.5%; by end of 2025 4%
10 yr Treasuries: Currently 4.55%; by end of 2025 5%
Mortgage rates: (base) 7.25%, by end of year 8.1%
As far as other risk assets go, we focus on crypto markets. A pro-crypto Trump Administration will certainly open paths in crypto and AI, which should have a positive effect on prices. More professional money managers will make initial allocations to crypto around 1-2%, likely via ETFs and private funds. Those who are already allocated to crypto will likely increase to 3-5%.
My expectation is that higher allocations to fixed income will be paired with increased allocations to crypto and AI, which will put pressure on equities. While these allocation increases are positive, they are offset and dampened by the broader macroeconomic factors I outlined above.
I also believe we will achieve these highs early in the March-May timeframe, before we potentially begin to move into a cyclical bear market in crypto coupled with a bearish macro market.
2025 Digital Asset Market Predictions:
Bitcoin: $160k - $250k
Ethereum: $5,000 - $8,000
Solana: $250 - $400
XRP: $5.00
Litecoin: $300 - $400
Hedera Hashgraph: $0.50
Uniswap: $30
Avalanche: $80
Sui: $10
Chainlink: $50
Near: $10
Axelar: $2.50
Historically, January and the first quarter of the year has been a challenging time period for Bitcoin price, especially in a post halving year. This period of time typically brings a higher likelihood of downward volatility and a "risk-off" sentiment. Despite the near term bearish lean, we are also seeing increasing interest in Bitcoin treasuries globally, following the excellent returns of 2024.
Four key longer term charts we are watching in 2025 include; the power law price model, the two year moving average multiplier, market value relative to realized value (MVRV) and a high timeframe cup and handle chart pattern. These price models, ratios and high hit rate chart pattern have provided a reasonable ceiling expectation for Bitcoin price throughout the four year cycle. Pauses in momentum throughout the trend should be welcomed, providing a chance for new buyers to feel comfortable allocating more capital. Drawdowns as deep as 30% from ATH have been seen in previous cycles with no threat to the larger trend.
Digital assets outside of Bitcoin should also find solace in the about-face of regulatory treatment from the new Trump administration. One sector we are watching closely this year is Decentralized Finance (DeFi), which had been particularly hard hit under the Gensler SEC. Although price action for names in this sector remains rather muted, this may change dramatically with new rules of the road for how these assets are treated in the US. Leaders in this sector like LINK, UNI and AAVE, or Decentralized Exchanges (DEXs) and lending/borrowing protocols in general, may start to catch a bid. Monitoring the UNI vs COIN relative pair may also provide additional insight on sentiment for the DEX vs CEX battle in this new paradigm.
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