Summary Bitcoin has entered its post-halving distribution cycle. Several topping indicators have occurred in recent weeks. Some altcoins have had parabolic rallies, although Bitcoin's dominance remains near all-time highs. The risk/reward in post-halving years is generally less attractive than in halving and pre-halving years. Investors managing an active portfolio should consider taking profits. An update on my positioning & recent price action Bitcoin ( BTC-USD ) rallied to a new all-time high in November 2024 and has since struggled to make significant moves to the upside or downside. The price action of Bitcoin has been exhausted several times at the $110,000 level. Similar to the Nasdaq 100 ( QQQ ), the market has rallied into the new Trump administration in anticipation of economic flourishing and failed to advance on additional positive news, which is always a bad sign. Data by YCharts After accumulating the majority of my Bitcoin position in 2023 and early 2024, I began taking serious profits after Bitcoin surged past the $100,000 mark. Currently, I still have a ~8% portfolio allocation solely to bitcoin, which is mainly a passive bitcoin allocation that I am not selling. As of today, I have essentially sold my entire active bitcoin allocation. Bitcoin positioning by Author (tradingview.com) I was late to the short altcoin outperformance in November 2024. Therefore, I did not book large profits in smaller alts and exited my position in late January 2025 with mostly neutral returns. One outlier was Solana ( SOL-USD ), which I managed to sell most of during the recent Donald Trump Memecoin pump. I still hold some of my Ether ( ETH-USD ). The Ether position protects me from left-tail risks to the upside, e.g. if Quantitative Easing unexpectedly returns with a vengeance without a failing economy. While I don't expect much of this position, the relative valuation to bitcoin (=satoshi valuation) still seems favourable. However, at the moment I personally don't want to risk having an altcoin position with no monetary debasement in sight. This could change quickly in the future, though. Ethereum Positioning by Author (tradingview.com) Bitcoin topping signals There have been several significant topping signals in my opinion. Most importantly, Michael Saylor was featured on the cover of Forbes last week. He is the CEO of MicroStrategy ( MSTR ) and managed to buy significant amounts of bitcoin with borrowed money from zero coupon convertible bond investors. Put simply, he has managed to take advantage of the volatility in the price of bitcoin by selling it to options traders at a large premium to the company's asset base (which consists mainly of bitcoin). The premium is advertised as 'Bitcoin Yield'. The business case works very well with an ever-increasing bitcoin price. However, if there is a downturn of several years, convertible bond investors will start demanding their initial price back and MicroStrategy will go out of business. This is a real risk that many underestimate. MicroStrategy bought most of its bitcoin in a rather unfortunate price range in the last quarter of 2024, when prices were already above $70,000. In November 2024 alone, the firm's holdings increased by 150,000 bitcoin. As of 27 January 2025, MicroStrategy owns 471,107 bitcoin, with an average purchase price of $62,473 per bitcoin and a total cost of $27,954 billion. MSTR BTC-Holdings (highcharts.com) MicroStrategy has a good chance of becoming the meme that goes bust during the next long bear cycle. A worthy successor to Sam Bankman-Fried, who was featured by Forbes in 2021 just before the FTX crypto platform went bust. I encourage readers to read up on the history of Michael Saylor's financial engineering tactics at MicroStrategy during the dot-com bubble. Data by YCharts In addition, a week ago, we got the Trump Memecoin ( TRUMP-USD ) and Melania Memecoin ( MELANIA-USD ) craze launched on Solana. I think the chances are high that a strategic reserve will not be implemented - at least during this cycle. The strategic reserve's main purpose was to collect presidential votes from the Bitcoin community. Long-term holders have been selling their bags to short-term holders over the past few months. Usually, long-term holders distribute their coins at new all-time highs to realize their profits. Short-term holders usually only buy if the price rises significantly in a short period of time. Once the exit liquidity of the short-term holders is used up, the price tends to fall rapidly as there is no purchasing power left. Long-term Holder Positioning (intothecryptoverse.com) Short-term Holder Positioning (intothecryptoverse.com) Typically, short-term holders tend to buy riskier assets such as altcoins. However, during this cycle, the bitcoin dominance (=market share of BTC compared to the total crypto market capitalisation) remains elevated. This may be because the Federal Reserve and other central banks around the world continue to pursue restrictive monetary policies and quantitative tightening. This attracts investors to the relatively risk-free asset bitcoin over riskier altcoins. Another reason could be that Michael Saylor decided to be the exit to liquidity for most long-term holders of bitcoin by buying an amazing amount in late 2024. I think it is unlikely that quantitative easing will return for no reason. The reason for money printing could be either bad unemployment data, other deflationary economic data, or further rising long-term yields. Whatever the case, it is likely to be bad for the stock market and crypto assets initially. Only after a correction, which is a good enough reason to print money again, can altcoins outperform. Therefore, I changed my view about Altcoins and aim to wait until money printing returns to reenter for (maybe a final?) hurrah during 2025. What Bitcoin is great for I don't think bitcoin is an alternative form of money. Bitcoin is certainly not a hedge against consumer price inflation. However, bitcoin is the perfect hedge against monetary debasement, i.e. asset price inflation. The altcoin market is the riskier little brother of bitcoin, and only leaves its room when monetary debasement reaches its extremes via excessive quantitative easing - asset purchases directly by central banks. Therefore, bitcoin is not a safe haven against economic and political turmoil. On the contrary, it thrives when the monetary system is out of balance towards the left tail, when speculative manias gain momentum and asset prices inflate sharply. When Bitcoin Maxis are stunned by the similarities between Bitcoin's price performance and that of the Nasdaq and argue that it 'should trade differently based on fundamentals', they are wrong. Bitcoin behaves like a risk asset because it is one. Bitcoin and Crypto are great for speculation on the continuation of the monetary circus. I believe it is no coincidence that the protocol released right after the great financial crisis, in early 2009, when the monetary debasement circus started. Why bitcoin could struggle in the coming months & perhaps years, Risk assets thrive in times of monetary debasement and relative economic stability with high asset price inflation and rather low consumer price inflation. Bitcoin - as one of the best risk assets in my opinion - excels in such a scenario. However, I think there is a good chance that things will change in 2025 for the following reasons: 1. The yield curve has uninverted Investors are getting tired of the talks about the yield curve just when it matters most. Historically, the inversion of the yield curve has never been the time to worry about a recession. It was only after the inversion that recessions occurred, albeit with a long lag of up to a year after the uninversion. However, the yield curve signals are quite accurate in the grand scheme of things. The current economic cycle differs from previous ones. The duration of yield curve inversion has been much longer than average. The 2Y-10Y yield curve has been inverted for 26 months and the 3M-10Y yield curve has been inverted for 24 months. US10Y-US02Y Yield-Curve (tradingview.com) Throughout the process of the inversion, there were many strong opinions about an impending recession. However, the market - as per usual - ignored the consensus and rallied despite (or because of) these concerns. Times have changed, however, as the market hit new all-time highs and investors felt they were missing out. Now, with the new Trump administration, we have the positive narrative that many have been looking for to justify changing their minds. The bearishness seems to have disappeared. This greatly increases the chances of a real recession in the coming months. 2. The unemployment rate is rising Since the process of the uninversion started, the labour market data started showing weakness. The unemployment rate tends to move up with volatility once it really gets going. There are only a few examples in the past where the unemployment rate has risen in a steady and controlled manner - i.e. where there has been a soft landing. 3. The Fed cutting cycle has begun When the Federal Reserve starts cutting rates, markets usually fall first. This is because there has to be a reason for the Fed to cut and return to ease monetary policy. That reason could be the failure of commercial banks, a deteriorating unemployment rate, or other bad economic signals. Rate cuts are only beneficial for risk assets afterwards and not immediately. Data by YCharts 4. Markets are at all-time highs Recessions and major market declines are enabled by wrong investor expectations. When they are expected by all market participants, they rarely occur. With markets at new all-time highs, the Trump economic booster narrative in full effect, and AI and other futuristic technologies enabling lofty investor expectations and fantasies, it seems we have finally got the market ready for the possibility of a surprise. Different scenarios to consider An investment strategy that bets on recessions is incredibly unreliable. The opportunity costs are too high and these events typically occur only a few times in a decade. However, active investors can and should manage their positioning and risk exposure in times of greed and fear. I typically discuss a few realistic scenarios and manage my portfolio exposure depending on the theoretical outcome. For crypto assets, and risk assets in general, I believe there are four scenarios to consider going forward: Scenario 1: Correction & a return of QE Probably the most likely scenario would be a correction sometime this year as the yield curve steepens and unemployment rises. The Federal Reserve would have every reason to stop its current path of QT and start expanding its balance sheet again. During the decline, bitcoin should significantly outperform altcoins. However, after the decline, Altcoins should outperform Bitcoin; the Bitcoin dominance should therefore fall. The cycle begins anew with a bear market in 2026. Scenario 2: Correction & no return of QE The consequences should be similar to Nr.1. However, Bitcoin dominance would never really fall and Altcoins should continue to underperform even after the decline has continued, since retail investor sentiment likely remains muted in such a scenario. Scenario 3: Continued rally without QE If the aforementioned macro indicators are wrong and the market manages a soft landing, the Federal Reserve wouldn't be under pressure to resume balance sheet expansion. In such a scenario, Bitcoin would likely continue to rally throughout the year. Altcoins would underperform relative to the performance of Bitcoin. Scenario 4: Continued rally with QE If the Federal Reserve resumes easy monetary policy without a real need to do so (political pressure wins), altcoins would likely outperform bitcoin immensely throughout 2025. It is up to each (active) investor to evaluate these - or other - scenarios and adjust their portfolio accordingly. Personally, I believe that a conservative approach is the right choice for me in the post-halving year when volatility tends to increase. Especially after having bought most of my crypto positions in 2023. Therefore, I have reduced most of my positions to the bare minimum (passive allocations). If quantitative easing returns, I'll probably reenter the altcoin market with a larger active allocation. Food for thought on Bitcoin fundamentals Currently, there seems to be a shift towards fiscal restraint and responsibility around the world: e.g. Milei in Argentina & Trump with 'DOGE' (Department of Government Efficiency) in the US, the alternative right-wing parties in Europe etc. If these political pressures remain strong and the necessity of using the printing press to finance government deficits subsides – what purpose does Bitcoin really serve, as it is only a hedge against monetary debasement? I do strongly believe that we are likely to repeat the mistakes of the past and debase again. After all, once the fiscal debt spiral has started, it's hard to return to normality or some Austrian economic hyper-paradise. Although it would probably be great for the working class and the redistribution of wealth from the current polarisation. But isn't it a bit odd that the Bitcoin Maxis, who continue to preach the doctrines of Austrian economics, are so desperate for the Federal Reserve to finally continue printing money to pump their bags? On a personal note: I will be taking the tax advisor exams this year, so don't expect too many articles on the typical topics until October 2024. I wish you all the best in dealing with the current difficult markets. Just remember that markets are always difficult. 'Es ist das Unglück der Tätigen, dass ihre Tätigkeit fast immer ein wenig unvernünftig ist.' – Friedrich Nietzsche, Menschliches, Allzumenschliches.
