Market Update January 2025: Market Resilience Amidst Fed Policy Shifts

As we enter 2025, the cryptocurrency market continues to demonstrate both resilience and volatility. Bitcoin showed modest growth of 2.18% last month, while Ethereum experienced a slight decline of 1,89%. Our Fundamentals strategy has achieved remarkable success, delivering approximately 100% returns for the second consecutive year. In the macro landscape, the Federal Reserve's revised rate cut projections have influenced market dynamics, while Europe faces structural challenges but potential opportunities ahead. This newsletter delves into these developments and their implications for the crypto market.

📈 Market Update

A brief analysis on Bitcoin, Ethereum and Blockrise Fundamentals:

Bitcoin Analysis

Bitcoin demonstrated modest growth of 2,18% in the previous month, albeit with significant market volatility. The asset maintained an upward trajectory through December 18th, at which point Federal Reserve Chairman Jerome Powell's announcement regarding reduced rate cuts for 2025 prompted a market adjustment. This December reversal has created favourable conditions for the January effect phenomenon, where in theory smaller-cap assets typically outperform their larger counterparts. Historical data indicates that presidential election cycles often amplify this January effect pattern.

Ethereum Analysis

Ethereum exhibited heightened market volatility during the previous month. While experiencing a modest monthly decline of 1,89%, the asset demonstrated significant sensitivity to the Federal Reserve Chairman's remarks, resulting in a 24% correction. Despite historical precedent suggesting favourable first-quarter performance relative to Bitcoin, outperforming in 3 out of 5 previous instances, Ethereum's 2024 performance has fallen short of market expectations. Given Bitcoin's current market prominence, it appears unlikely that Ethereum will surpass Bitcoin's performance trajectory in the near term.

Fundamentals

Our investment strategy has demonstrated exceptional performance this fiscal year, achieving approximately 100% returns for the second consecutive year. The portfolio's most significant gains materialised during the past five months, with performance accelerating by over 75% following our strategic rebalancing initiated by the yen carry trade in August. Given current market indicators, we anticipate continued asset appreciation throughout 2025, potentially mirroring the favourable conditions observed in 2024.

Following our rigorous monthly portfolio evaluation and thorough analysis of prevailing market conditions and volatility metrics, we have implemented a strategic asset allocation comprising 70% Bitcoin, 15% Ethereum, and 15% euros. This optimised portfolio structure allows us to maintain strategic cryptocurrency exposure while adhering to disciplined risk management protocols in the current market environment.

Blockrise offers comprehensive care with its asset management strategy called "Fundamentals." This strategy involves managing assets in Bitcoin and Ethereum versus a euro position, reassessing and adjusting these positions monthly.

🗞 Crypto Highlights

An overview of the most notable events in crypto:

MicroStrategy’s plunge deepens after Nasdaq-100 inclusion

MicroStrategy has experienced a significant decline, falling 35% from its November peak and an additional 8% following its Nasdaq inclusion. The company, which transformed from a traditional enterprise software firm into a prominent Bitcoin investment vehicle, has shown notable market vulnerability. As per their investor relations documentation, MicroStrategy maintains its position as a leading Bitcoin Treasury Company, utilising both equity and debt financing for its operations.

Michael Saylor, serving as executive chairman, has maintained a consistent public presence regarding the company's direction. As Bitcoin gained increased institutional recognition in 2024, Saylor's communication strategy evolved to emphasise the Bitcoin-derived yields through MicroStrategy's holdings. Despite achieving substantial growth since initiating Bitcoin acquisitions in late 2020, the company experienced a 30% valuation decrease within two weeks of its Nasdaq-100 inclusion. Analysis indicates a divergence between MicroStrategy's stock performance and Bitcoin's price movement as the latter approached $108.000.

Following MicroStrategy's achievement of record valuations, the company's future trajectory remains subject to market interpretation. The critical question remains whether this represents a temporary market adjustment or if continued Bitcoin acquisition strategies will influence future price movement.

The first bond ETF

Strive Asset Management has introduced a pioneering financial instrument with their first-of-its-kind Bitcoin bond ETF. This investment vehicle is strategically designed to focus on corporate bonds specifically issued for Bitcoin acquisitions. The ETF employs a sophisticated active management approach, utilising both direct investments and derivative instruments such as swaps and options, to gain exposure to convertible securities from companies that Strive anticipates will allocate substantial proceeds toward Bitcoin acquisition. According to Strive's investment framework, approximately 80 percent of the New York-listed ETF's notional exposure will be allocated to these "bitcoin bonds".

🏦 Macro Economy

An overview of relevant global economic events:

The interest rate cycle of the Fed in 2025

The Federal Reserve implemented a 25 basis point reduction in interest rates to 4.00%. However, market concerns emerged when the projected rate cut schedule was adjusted from three to two cuts in 2025. This revision in expectations led to significant market movements, with the Nasdaq experiencing a 3,6% decline and Bitcoin falling 6,1%. Subsequently, Bitcoin underwent further correction, reaching a cumulative decline of 14% as market participants adjusted their positions. While the Fed's revised 2025 rate cut projections contributed to negative market sentiment, the primary factor driving this substantial correction was the previously excessive bullish positioning among investors. It is worth noting that market reactions of this magnitude to annual forecasts, which are subject to quarterly revisions, are relatively uncommon.

Will Europe surprise investors in 2025?

As we conclude 2024, the European economic landscape presents significant challenges. The region faces notable political uncertainty, with Germany anticipating governmental transitions until post-February elections, while France maintains its current leadership structure until President Macron's term concludes in 2027.

The economic environment exhibits several structural challenges. Growth momentum has decreased concurrent with projected employment challenges. Key factors constraining economic performance include regulatory frameworks, elevated energy costs, demographic trends, intensifying market competition, and technological advancement disparities compared to Chinese and American counterparts. Additionally, sovereign debt levels remain elevated while defense expenditure requirements continue to increase.

Market sentiment reflects these circumstances. Despite European equities approaching historic valuations, their performance notably trails U.S. markets. Investment managers maintain reduced European equity exposure, with limited expectations for outperformance in 2025, particularly considering historical performance during previous U.S. administrations.

However, this prevalent cautious outlook may create opportunities for positive developments. Several potential catalysts emerge. First, the ECB may pivot towards growth-supportive policies through significant rate adjustments. Second, diplomatic resolution in Ukraine could substantially improve regional stability. Third, potential modifications to Germany's fiscal policies could stimulate economic activity. The increasing political support for debt brake reforms suggests potential fiscal expansion, particularly in defence spending. These factors position 2025 as a potential inflection point for European markets.

The information provided in our articles is intended solely for general informational purposes and does not constitute (financial) advice.