As the bear market looms, has the crypto bull bubble really burst?

The recent plunge in Bitcoin and a number of altcoins has put the entire market sentiment into a state of "extreme panic" . In just one month, investors' emotions have fluctuated like a roller coaster, from the expectation of a violent bull market to having to accept that "maybe the bear market is really coming" , and their confidence has been ruthlessly crushed in the violent price fluctuations.

Is there still reason to be bullish on cryptocurrencies in 2025? Is this bull market cycle really over? Michael Nadeau, founder of The DeFi Report, gave his analysis and opinions. The following is the full text:

Review of this cycle

Before I get into the on-chain data, I want to share some qualitative analysis of how we think about cryptocurrency cycles.

1. Early bull market stage

This is approximately the period from January 2023 to October 2023.
This was the period when the market bottomed out after the FTX incident. The crypto market became very quiet (low trading volumes, crypto twitter silent). Then we started to rise again.

Bitcoin (BTC) rose from approximately $16,500 to $33,000 during this time.

However, no one calls this a bull market. During the “early bull market”, most market participants remain on the sidelines.

2. Wealth creation stage

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

This is a period where we see some big moves and significant wealth creation. Solana (SOL) goes from $20 to $200. Jito’s airdrop (Dec 2023) creates additional wealth effect within Solana and reprices Solana’s decentralized finance (DeFi) projects (Pyth, Marinade, Raydium, Orca, etc.) . The venture capital market reaches a mania peak during this period (which is typical).

Bitcoin rose from $33,000 to $72,000. Ethereum (ETH) rose from $1,500 to $3,600.

Bonk went from a $90 million market cap to $2.4 billion (26x). WIF went from a $60 million market cap to $4.5 billion (75x). The seeds for a larger “memecoin season” were sown during this period.

But it’s still pretty “quiet” during this period. Your “regular friends” probably haven’t started asking you questions about crypto yet.

3. Wealth distribution stage

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

The “peak attention” phase. We tend to see “WAGMI” (We’re All Going to Make It) type sentiment, rapid rotation, new trends (which quickly fade), and blind risk-taking that pays off. Celebrities and other “crypto short-termers” often enter the market during this phase. Crazy headlines like “Tesla Buys Bitcoin” or “Bitcoin Strategic Reserve” tend to appear during the wealth distribution phase.

Why?

New investors enter the market based on these headlines. They don’t realize they are late to the party.

This was the second wave of “memecoin season,” which then morphed into “AI agent season.” During this time, the market ignored a lot of clearly problematic behavior. No one wanted to point out any problems. People were just making money.

Now, this brings us to today.

4. Wealth Destruction Stage

We think we entered this phase shortly after Trump took office.

This is the period immediately following a market top. The bullish catalyst is now a thing of the past. Seemingly positive news is accompanied by bearish price action.

In the current environment, executive actions regarding “strategic bitcoin reserves” have failed to move the market — an important sign during which rallies tend to encounter key resistance periods and fade (we saw this last week after Trump’s tweet about crypto reserves).

Some additional signals we look for during the wealth destruction phase include:

• Liquidations and “panics” are events that shake up the market but still don’t fully sober it up. We saw this with the DeepSeek AI panic and tariff uncertainty.

• Investors are “hopeful.” We’ve seen a lot of discussion today about a falling dollar and rising global M2 (more on that later in this report).

• “Scammer” types enter the market. More people PMing us to “check out their project.” Increased advertising capital flowing through the market. Thoughtless spending at conferences by well-funded projects. More player-vs-player (PvP) competition/infighting. The industry as a whole gives off a more “dirty” vibe. Bad actors start getting named during “wealth destruction.”

During this period, failed projects will also begin to surface - usually after liquidation . The last cycle started with Terra Luna. This led to the collapse of Three Arrows Capital. This was followed by the bankruptcy of BlockFi, Celsius, FTX, etc. It eventually led to the collapse of Genesis and the sale of CoinDesk.

We haven’t seen any explosive events yet. We note that this cycle should see fewer explosions – simply because there are fewer CeFi companies. Time will tell. Fewer explosions could lead to higher lows when we officially bottom.

Where might these explosions come from?

No one knows, but my guess is to focus on the usual suspects.

• Exchanges: Be aware of hidden leverage and/or potential scams on some of the “B and C grade” exchanges abroad.

• Stablecoins: We are watching Ethena/USDe - with nearly $5.5 billion worth of stablecoins in circulation. It maintains its peg and captures yield through cash and carry trades (holding spot assets, shorting futures) - a major source of leverage in the last cycle (via Greyscale). Ethena's reliance on centralized exchanges adds additional counterparty risk. In addition, MakerDAO also invests part of its reserves in USDe, creating additional cascading risks in DeFi.

• Protocol: Watch out for increased hacking and potential liquidation cascades due to crypto collateral on platforms like Aave — which still has over $11 billion in active loans (down from a peak of $15 billion).

• Microstrategy: We think they have done a good job of managing their debt as most of it is long-term unsecured debt or convertible bonds (BTC holdings have no margin calls). In addition, they were able to withstand a 75% drop in Bitcoin in the last cycle. Nevertheless, a significant drop in Bitcoin prices could put pressure on Saylor, forcing him to sell a large amount of Bitcoin at the worst time.

The best time to re-enter the market is at the end of the wealth destruction phase. We don’t think that’s here yet. Of course, we’ll let you know when we think we’re back in the “buy zone”.

Bearish arguments

DEX Trading Volume

Trading volume on Solana’s decentralized exchange (DEX) is down 80% from its peak after Trump’s memecoin launch. At the same time, the number of unique traders has dropped by more than 50%. This suggests to us that animal spirits are waning.

Data source: The DeFi Report, Dune

Token issuance

Token issuance on Solana has dropped 72% from its peak. Still, the chain is seeing more than 20,000 tokens created per day.

Data source: The DeFi Report, Dune

Bitcoin long-term holder MVRV ratio

Data source: Glassnode

The MVRV of long-term holders (the “smart money” of Bitcoin) peaked at 4.4 in December. This is 35% of the 2021 cycle peak of 12.5, which in turn was 35% of the 2017 cycle peak.

Bitcoin rose about 80 times from bottom to peak in the 2017 cycle. It rose about 20 times in the 2021 cycle. It rose about 6.6 times in the current cycle.

Bitcoin’s realized price (a proxy for the average cost basis of all circulating Bitcoin) peaked at $5,403 in the 2017 cycle, 15.1x higher than the 2013 cycle peak. It peaked at $24,530 in the 2021 cycle, 4.5x higher than the 2017 cycle peak. Today, the realized price is $43,240, 1.7x higher than the 2021 cycle peak.

Key Takeaways:

With each of the above data points, we can observe that the peaks decrease symmetrically from one cycle to the next. We think this data clearly shows us that the law of diminishing returns is very real.

Bitcoin is a $1.7 trillion asset today. No matter how bullish the headlines, investors should not expect to see sustainable parabolic moves like they have in the past. It takes too much capital to move this asset right now. When Bitcoin loses momentum, the rest of the market loses big.

Animal spirits on Solana are waning. We are keeping an eye on this as we are concerned that Solana’s “recovery story” appears to be built on a “house of cards” – considering that 61% of DEX volume so far this year involves meme coins. Furthermore, less than 1% of Solana users have contributed over 95% of GAS fees over the past 30 days. This is concerning as it highlights that a small percentage of Solana users (the “big fish”) are preying on everyone else (the “small fish” trading meme coins). Therefore, if the “small fish” get tired of losing money and take a break (which we think they are doing), we could see Solana’s fundamentals deteriorate rapidly.

Data source: The DeFi Report, Dune (base fee + priority fee + Jito tip on Solana)

Long-term Bitcoin holders have taken profits twice in the past year. Their realized price (a proxy for cost basis) is currently around $25,000. Meanwhile, short-term holders who bought at the top are currently losing money (average cost basis is $92,000). We think this group may continue to sell at lower highs as they realize the reality of Bitcoin's top at $109,000 has arrived.

Data source: Glassnode

When you lay it all out, it is undeniable that the “typical” cycle we think of is over. To deny that is to deny reality.

Of course, there are no "laws" at work here.

In our opinion, the best way to process this information is to accept the reality + set a probability for the cycle top. We think this probability is clearly higher than 50%.

Once the groundwork is done, we try to challenge our arguments and stress-test our ideas.

Bullish case

I still see a lot of people refuting the bearish view. Bulls will not lay down their weapons easily.

This begs the question: is the bullish view more evidence that we have entered the "wealth destruction" phase, the "denial" phase? Or are we perhaps too bearish at the local lows and the market will rise again later?

In this section, we will discuss some of the main “bullish arguments” that I see.

Global M2/Liquidity

Data source: Bitcoin Counter Flow

The green box on the right shows that Bitcoin is falling as global M2 begins to rise. Some people point this out, mentioning Bitcoin's correlation with M2 and how Bitcoin usually reacts with a 2 to 3 month lag.

However, the green box on the left shows that the same dynamics occurred at the end of the previous cycle: M2 was rising, while Bitcoin was falling. In fact, M2 did not peak until early April 2022 - 5 months after Bitcoin peaked.

Global M2 has risen 1.87% since mid-January as central banks have shifted from tightening to easing.

This is positive for liquidity conditions.

However, we should also ask the following questions:

• What is driving the increase in M2? We think it’s mainly from the falling USD (down 4% since Feb 28th!) – foreign currencies increase when denominated in USD. This is a driver of global M2. Also, the reverse repo facility was recently exhausted + China is easing to stimulate its economy.

• Will it last? We think the dollar will continue to fall as investors move money overseas, but not at the pace of the past few weeks. We think China will continue to ease in response to a lower dollar. However, we don’t think the Fed will ease anytime soon as they say reserves remain “ample.” We believe they are still concerned about inflation.

• How does this compare to liquidity conditions last year? We believe current liquidity conditions should be viewed as headwinds compared to last year. Remember, this is more about the rate of change than nominal increases. We strongly believe that the Fed and Treasury injected liquidity into the market last year through "shadow liquidity" - or, as Michael Howell of Cross Border Capital puts it, "QE that is not QE" and "yield curve control that is not yield curve control." The chart below shows the rate of change impact of removing these policies under the new Trump administration.

Data source: Cross Border Capital

The “secret stimulus” in the above chart is estimated to have injected $5.7 trillion into the US market at the beginning of 24. This was done by exhausting reverse repo + issuing new debt notes in advance.

Finally, we think investors should pay close attention to what Finance Minister Bessant said in a CNBC interview last week:

"The markets and the economy have become addicted. We have become addicted to this kind of government spending. There will be a detox period. There will be a detox period."

Business Cycle/ISM

We have previously noted that the ISM data indicates the start of a new business cycle. We have also recorded strong data on capital expenditure purchases and small business confidence. We believe this is real, but clearly growth is slowing. The data we saw last month may have been skewed by some manufacturers "front-loading" in anticipation of tariffs. We have seen some softening in the services sector and new orders data. The manufacturing PMI reading for February was 50.3, down from 50.9 in January.

Strategic Bitcoin Reserve

Until last Friday, crypto natives were still holding out hope on discussions of a strategic cryptocurrency/Bitcoin reserve — despite the market repeatedly shrugging off the news over the past six weeks.

I think we can all agree by now that this was a case of “buy the rumor, sell the news.” Is “cyclical thinking” flawed?

We should also acknowledge that this “cycle” is different from past ones.

For example:

• For the first time, Bitcoin hits a new all-time high before its halving.

• This cycle was much shorter, with only a two-year bull run.

• The “altcoin season” has behaved quite differently, as Bitcoin’s dominance has been gradually rising since the beginning of 2023.

• Bitcoin is now fully integrated into the financial system and is backed by the U.S. government.

If “cycle thinking” is flawed, is it possible that we haven’t reached the top yet? Instead, we may be experiencing a pause/correction/consolidation phase followed by the next leg up, rather than a year-long bear market where prices fell 75-80% as in the past?

Our view is that cycles do evolve. Nevertheless, we still expect a bear market that could last 9-12 months.  

summary

To summarize our views:

We believe we are currently in the “Complacency” phase in the above diagram.

All the bullish catalysts that could be identified a few years ago have already played out.

The economy may be heading for a recession. We think the Trump administration’s messaging has been pretty clear. They are actually telling us the economy needs to be detoxified. We should take their word for it. This is very similar to Powell coming out and saying “pain is coming” before a rate hike in early 2022. We currently believe that crypto is the canary in the coal mine. Traditional financial markets will follow with a slow bleed/shock.

Given the extremely bearish sentiment, we could see the market rally towards lows of $90,000 for Bitcoin in the short term. However, we believe this will be sold aggressively – which could kill any hopes of resuming the bull market structure.

As always, we remain open to error. Our analysis is based on information available today. We will update our views as new information becomes available.

What do we need to be bullish again?
We will be looking for the following:

• Fiscal constraints/reversal of DOGE efforts.

• The Fed’s massive rate cuts/QE.

• Major inflows of global liquidity, driven by the Fed (not just China).

• Big correction/capitulation in S&P 500/Nasdaq.

One thing we are concerned about is that the bearish scenario is starting to become the consensus. This gives us some pause. But we still need to stick with all other factors for now - because the probability suggests that the cycle top has been reached and the bear market is coming.

Of course, there is a lot to be bullish about in the long run.

Cryptocurrency has truly entered its “tipping point” period. Now is finally the time to rebuild the financial system on public blockchains.

Not to mention, we love bear markets. As the tide recedes, it becomes easier to separate the noise from the signal of past cycles — which will prepare us for the next bull run.