Author: Michael Nadeau, The DeFi Report; Compiled by Tao Zhu, Golden Finance

The cryptocurrency market is at a turning point.

Just as many market participants didn't fully appreciate the impact of interest rate hikes on risky assets in early '22, we think the market may have underestimated the impact of interest rate cuts in 24/25.

For most of this year, our view was that the market would continue to climb to a wall of concern before peaking in 25 years.

In this week's report, we shared our thoughts on how this might unfold and how you can position yourself in a risky environment.

Has ETH/BTC bottomed out yet?

We think ETH/BTC may have hit the bottom of the cycle.

6 reasons:

• Since 2016, ETH/BTC has been hitting higher lows. The ratio bottomed out in early 2017, just below 0.01. The ratio bottomed out at the end of 2019, slightly below 0.02, before bottoming out again during the March 2020 crash. Fast forward to September 2024, and ETH just fell below 0.04.

To me, this shows that the market's confidence in ETH is growing over time. Let's see if it can stay at 0.04.

• In the previous cycle, when ETH/BTC gave in, it hit a low shortly thereafter. The ratio appears to have yielded over the past few months, falling from 0.057 to 0.038.

• In the past cycle, ETH bottomed out after cutting interest rates. The Federal Reserve began cutting interest rates a few weeks ago.

• The same goes for the Federal Reserve's balance sheet — we moved from net tightening to net expansion last cycle, and ETH/BTC bottomed out. As liquidity conditions improve, we expect similar developments in the current cycle.

• Historically, Bitcoin's dominance declined as liquidity conditions improved. It is currently 57% (close to the cycle high).

• From an emotional standpoint, ETH has just gone through a period of disillusionment we haven't seen in a long time (“the roadmap is a mess” due to falling fees due to EIP4844). It's market mentality and the impatience of crypto Twitter. The reality is that Ethereum continues to implement its roadmap. Kyle Samani's “Why SOL Flips ETH” speech on Token2049 appears to mark the bottom of ETH/BTC.

If we correctly think that ETH/BTC has bottomed out, that means the altcoin season has officially begun.

catalytic

It's very interesting to watch the sentiment on crypto Twitter over the past few months. It seems like crypto natives are trying to lead the liquidity cycle by jumping to the furthest end of the risk curve (meme coins).

I'm sure many did well between October and March, but most were late and at the same time entered the altcoin season early. After all, historically, the altcoin season began after interest rate cuts. So my feeling is that most markets returned gains in Q4 2023/Q1 2024. As the market declined, many sold off. Others are being reallocated.

“Retail investors will never come back.”

This is exactly what we need to see from an emotional standpoint. Now that the Federal Reserve has begun a cycle of interest rate cuts, there are several catalysts pointing to another explosive peak in the market:

• Relaxation is permitted. The Federal Reserve's interest rate cut actually allows all other central banks in the world to cut interest rates. We have already seen a ripple effect from this in China — China is currently vigorously stimulating the economy. It appears they are waiting for the Federal Reserve's green light. What needs to be clear is that when the Federal Reserve cuts interest rates, the dollar will depreciate, thereby reducing the risk of Chinese capital flowing to the US dollar — this gives China more flexibility to lower interest rates while maintaining the stability of its national currency. This dynamic can be applied to all central banks around the world.

• politics. I hate talking about politics. But we have to fix this because it really matters. At least in the short term. The key point here is that I believe Democrats have realized that cryptocurrencies are not going away. Just look at what happened in '23 and you'll see. The year began with “Operation Kill Point” — an unconstitutional attempt by the Biden administration to cut off cryptocurrency businesses from entering banks. It failed. Bitcoin, on the other hand, rose 187% this year.

What happens if we elect a president who supports cryptocurrencies? What would happen if banks were allowed to keep cryptocurrencies? What will happen if we get a stablecoin bill? What would happen if the CFTC became the main regulator for digital goods and crypto assets?

Has the market absorbed this factor? Probably not yet. Even if Trump loses, we would like to see progress in these areas.

• ETF. Is this a cycle where your average TradFi friend surrenders and buys some BTC/ETH? We think it's possible. I remember having a conversation in 2020 with a friend of mine who was adamantly against Bitcoin. I remember telling them to keep an open mind, and added that I think not holding any Bitcoin in the near future could actually become risky.

This sounded ridiculous at the time. But my question is: How many coping cycles do people need to observe before they surrender? If you consider yourself a serious investor, then you've seen BTC/cryptocurrency in 2013, 2017, 2021, and now 2024 (into 2025?) rising.

• Innovate. While cryptocurrency natives debate whether Solana's “extension” is L2 and whether we should include L2 in Solana's Ethereum version, if you take a look, you'll find a lot of cool things happening.

• Bitcoin is starting to become more like Ethereum, and the DeFi and L2 ecosystems are showing some promise.

• Ethereum is expanding and implementing its roadmap. BlackRock has an on-chain money market fund, and Visa just announced the launch of a tokenized platform on Ethereum.

• Solana's Firedancer is now on the testnet. Citigroup and Franklin Templeton announced plans to tokenize assets on Solana at Breakpoint. Paypal and Société Générale have launched stablecoins on Solana.

• Speaking of stablecoins — the issuer is now the 16th largest holder of US Treasury bonds. We now have stablecoins that do not require a license and generate revenue.

• emotions. At the beginning of August, the mood turned to extreme fear. This is exactly what we need to see before the next big move, which we think is underway.
  

Altcoin season?

As mentioned before, we think ETH/BTC may have bottomed out. This means that the altcoin season may have officially begun — when long-tail risk assets outperform major assets.

The market has shown strength. Here's the 7-day industry performance provided by Artemis, with memecoins leading the way.

Some thoughts and/or predictions on how the cycle will unfold:

• ETH has clearly outperformed BTC, and BTC's dominance is far below 50%.

• SOL clearly outperformed ETH, and SOL infrastructure outperformed ETH infrastructure + Solana memecoins outperformed Ethereum memecoins.

• TIA and SUI are currently the best-performing “new L1” on the market (keep an eye on Berrachain and Monad — expected to launch later this year).

• More than 10 memecoins will reach valuations above 10 billion dollars (there are 2 today). In fact, we might see more than $100 billion worth of memecoins in this cycle. *I'll be sharing my full in-depth thoughts on memecoins in November.

• AI Coins and DePin are likely to perform as well as NFTs from the previous cycle.

• The stablecoin supply grew to $500 billion ($160 billion today).

Needless to say, I have to say: I don't have a crystal ball. I'm just using pattern recognition as someone who's been watching these markets for a while. Risk opening = central bank relaxation = dollar inflows into risky assets. If this were to happen, then excellent performers should be at the furthest end of the risk curve (cryptocurrency). Everything else is instinctive, used to identify industries, teams, communities, cycle dynamics, risks, etc.

conclusions

Is it possible that the market has strayed from our idea of falling back into the same fervor as it was in '21?

That's the question I've been asking myself right now. why? Because cryptocurrencies are indeed a unique asset class, a bull market can be as volatile as a sharp decline.

Bear markets often leave a psychological shadow on market participants. As a result, it's easy to forget how volatile a potential bull market could be.

Of course, there are plenty of bear markets. They are calling for a recession. But we can't see that in the data. Credit spreads are very low. Banks are lending. The central bank is relaxing its policy. Inflation is falling. The Ministry of Finance is spending. The unemployment rate fell last month.