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2025 Unfolded for the Crypto Market

From Dollar Peaks to Policy Pivots: 2025 Unfolded for the Crypto Market

As we step into 2025, the financial world finds itself at an interesting juncture. The unparalleled strength of the U.S. economy of the last months combined with the most pro-tech and business administration ever elected (a coup of the technologist -pushing the narrative of the secular trend of tech even stronger) making America’s position as the epicentre of innovation and opportunity has pushed the US Dollars up very hard. But we know that the US dollar wrecking ball does and the year ahead will be defined by how the dollar weakens and how liquidity is managed, globally (but focused on China and the US). This current situation resembles a lot like 2016-2017, the last time Trump was elected. Once again, history doesn’t repeat but it very often rhythms. Let’s see how this plays out, but the similarities are hard to ignore. 

The Dollar’s Strength—and Its Dilemma

The dollar’s strength has been both a blessing and a curse for the US. On the geopolitical stage, a strong dollar gives Trump a decisive upper hand in negotiations on tariffs, particularly with China. Beijing, caught in a deflationary spiral and burdened by a mountain of debt, faces immense pressure to print and monetise—but a strong dollar makes this nearly impossible. China’s economy is in dire need of a reset through huge monetising programs, and new trade accords with the U.S. seem inevitable. Trump’s administration is keenly aware of this dynamic and is leveraging the dollar’s strength to negotiate from a position of dominance most probably. 

Yet, from a macroeconomic perspective, the dollar’s strength is unsustainable. Global growth is faltering, and even the U.S. economy is not immune to the drag caused by a strong greenback. A cyclical peak in the dollar is overdue, and 2025 may well be the year we see a shift toward a weaker USD, for everyone’s sake. Therefore we strongly believe that sooner or later, the Dollar needs to weaken, allowing the financial conditions to ease and propel liquidity to new highs. 

The Trump Administration’s Focus

Indeed with the Trump administration now starting its second term, it is hyper-focused on maintaining economic stability. Indeed, the last thing they can afford is a misstep that derails the recovery from the perspective of the Midterms. The administration will do whatever it takes to keep the economy humming—rate cuts, liquidity injections, and fiscal stimulus are all on the table as they need to have full control over the entire time of the presidency. 

This political imperative aligns with market needs. Liquidity isn’t just a policy tool in 2025; it’s a necessity to manage the massive refinancing needs, stabilise markets, and support global growth.

Economic Surprises and Rate Cuts

The Federal Reserve’s focus has pivoted to economic surprises, which will soon be leaning negative. Recent strength in U.S. data was probably largely a sugar high from pre-election spending, and the momentum is fading. Fears of recession, undressable deficits, and deflationary forces from China are beginning to weigh on global growth and yields.

With a smaller number of rate cuts already partially priced in, the Fed has room to act aggressively. The markets have underestimated the extent to which the Fed might ease, as the U.S. faces a massive refinancing wall of over $7 trillion in debt this year. Liquidity injections will be crucial to prevent a credit crunch and very high refinancing terms. Indeed keeping rates at these levels will only make the overall deficit and debt problem grow if not addressed. 

The Liquidity Challenge: TGA, QT, and “Not QE QE”

Liquidity will dominate the narrative in 2025. The reverse repo facility (RRP) has been drained, leaving the Treasury General Account (TGA) as the last major liquidity reserve. While the TGA will provide some relief, it won’t be enough to meet the market’s liquidity needs. The Fed will have no choice but to step in, likely ending QT and/or introducing new liquidity mechanisms. Expect a mix of aggressive rate cuts, a pivot to QE-like operations, and perhaps entirely new tools designed to flood the market with liquidity.

This isn’t just a U.S. issue. China is expected to flood its markets with liquidity in an attempt to reflate its economy, while central banks around the world are poised to cut rates and ramp up liquidity injections. Global coordination will be critical to stabilise markets and avoid systemic shocks. As illustrated in the chart below, liquidity needs will grow in 2025 and will have to be matched by global central banks and governments. If this fails to happen, refinancing tensions will arise and put under pressure the bond markets of the world. As we have already explained in our previous articles, this is something no one can afford. Indeed with refinancing tensions growing, yields rise and with yield rising, the value of the bonds declines, putting the entire financial system at risk as the entire system is collateralised by this. No central bank or government will allow this to happen. Moar cowbell (liquidity injections) will be the answer.

Conclusion: Bitcoin and the Promise of Liquidity

2025 will most probably be a pivotal year in the way the refinancing of the debt of the US will be managed (Yellen’s not QE QE, not YCC YCC trick reaching its limits), forcing Scott Bessent (the new United States secretary of the treasury) to be either creative how to handle the huge wall of refinancing coming its way or having the Fed lower interest rates to make the financing costs acceptable again. This environment is in general a good tailwind for risk assets such as Bitcoin and crypto assets in general. Once again, there are not 1000 choices here. They will be forced to roll over the debt and face monetisation, hence pushing liquidity up to face the refinancing needs and ultimately pushing asset prices here mechanically. Welcome to the next leg up of the Banana Zone. 

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