This Is A Bear Market! Why We Could Be Heading Lower | Markus Thielen

"We could potentially see this next year in the midterm election cycle. I think there's a very high chance that the Democrats are going to win and then probably like 70,000 should be like a lower level in the sense."

"No, altcoins are going to continue underperform in Bitcoin in terms of the Bitcoin dominance continue to go up."

"I think unfortunately it's pretty straightforward. I think there's no debate. We are in a bare market. The only question is how long this bare market is going to last."

"I think there you know when you look at everything from you know from technicals from market structure from onchain analytics from macro even from from the fed so I mean I'm giving you a lot of discussion points here but whatever you look at I think you can spin a bearish narrative unfortunately"

"And I think the the other aspect is of course people pointing to the you know treasury general account but here also of course it has been refilled from you know 300 billion to 900 billion and any moment I think people were initially expecting as soon as the the government in the US reopens after the shutdown that is going to be depleted and suddenly you know there's all this liquidity that's going to that's going to you know pump bitcoin up but I think we had this similar aspect in February um this year where it actually took two months to really, you know, deplete, you know, really just release all the liquidity from the, you know, Treasury General account. And it really took from February until April, you know, until really, you know, it was, I think also from like 800 billion to around 250 300 billion. So there was suddenly liquidity coming in. But if you remember during this time actually Bitcoin fell. So despite the liquidity from the TGA coming into the market, Bitcoin fell and Bitcoin only started to rise after the whole Trump tariff tantrum basically."

"So the Fed cut for the third time. Powell actually talked more hawkishly. Paul suddenly indicated of course with Trump's election that there's going to be tariffs and the inflation it's going to be avoided and of course that's sort of when we when we peaked out of course we bumped around a little bit until the Trump inauguration on January 20th but then we quickly sold off because there were no rate cuts coming and we had to wait again until this year September and of course we have a very similar playbook now where when are the next rate cuts when is the next liquidity injection I don't think there is going to be a lot of liquidity injection right now but my my biggest worry is of course that the unemployment rate is above the 12 months moving average and every time this has happened in the past and it only happened now the fourth time in the last 30 years. So it doesn't really happen that often but usually you will get a recession down the line and I think the question really is at one point do we accelerate in that level in that unemployment rate and if it does I think it's a little bit boring also for risk assets you know of course stimulus will come but usually there's first some more pain so that's how kind of how we look at from a macro perspective"

"So there's only one cut priced in in terms of the dot plot for next year and you know two over two years so that's in that's true in terms of like the impact on liquidity there and then I'm curious though so you say employ un unemployment should be a concern now whereas a lot of the fed officials and it's seem to have a concern around on the inflation side do you not think that they would if you point to the fact that they consern should be concerned about unemployment. They should be more dovish and be more accommodative to rate cuts next year than now where they kind of a bit more hawkish."

"So I think the biggest tailwind for risk assets is really when we having this you know change in inflation expectations. For example, we came out actually with a really bullish uh report in end of October 2022, literally like a week before FDX blew up. And it was built on the argument that based on our models, inflation in the US should fall from back then from 8% to 3% in a year's time. And of course, Wall Street, basically all the Wall Street economists for 2023 expected a recession because of the permanently high inflation rate as people expected. But of course, inflation came lower. We had this big bull market and that was really like an inflection point. But I think here the question really is I mean you know where's the inflection point? If you're cutting in twice next year or once or three times, it's not you know at the margin it doesn't really make a much difference. And I think that's really the problem with risk assets. they really need this big shift where it's going from, you know, from bearish to, you know, to bullish, from, you know, from hawkish to dovish versus right now we're going, you know, it's kind of like the stop and go. And I think that's why we had this Bitcoin run this cycle as a stopandgo cycle because, you know, the Fed cut three times and they didn't do anything for six months, then they cut for three times, and then maybe don't do anything for six months. So, it's very difficult, I think, for for Bitcoin itself to find its footing because there's not a natural buyer in the market for equities. equities have all these insurance funds, pension funds that are always buying versus Bitcoin. You know, Bitcoin depends more on those micro factors, but the micro factor is not a massive tailwind."

"And I think the other aspect really is that the employment rate historically once we have started to ramp up in the unemployment rate that it actually has really you know spiked a little bit out of control until there was a recession and I think if you just look at a chart from you know 20 30 years history I think it indicates we are sort of like at this you know bottoming period right now and as long as we are above the one-year moving average I think it's sort of like quite a negative sign and yes you know there will be more stimulus if goes a little bit out of control but it will also come with pain in terms of risk assets first."

"I think crypton native liquidity you know is a lot more relevant for the crypto market. I think the other aspect is really sort of like hypothetical you know if I mean you know people like to look at for example like M2 before but you know they they confused you know money supply you know with with real liquidity hitting hitting the the crypto market and I think you know when we look at you know onchain data how much money really goes into Bitcoin I think that's a lot more relevant and I think that's kind of like that's kind of the data point we actually feel most comfortable with because I think the the other aspect is sort of Like I think it's almost like um you know a misconception right I mean you mentioned before that also you know the $40 billion that the Fed is going to start buying now in short-term bills but you know to be really QE it needs to be be longer term treasuries right it needs to be 10 years plus to keep really the the longer bond yields anchored because a lot of let's say corporates you know if they make interest rate decisions it's really on the longer terms right it's not really on the short-term borrowing that really that really matters because the short term is already very low right the the twoear is at 3.6. So if the Fed buys more of those or even shorter, it's not going to really I think move the liquidity needle. It's really more more the longer term things."

"But I think it's interesting when you look at a year ago in December on a 30-day window, there was a hundred billion was moved into crypto. This was around of course, you know, post the Trump election. You know, this summer we have seen around $60 billion. You know, this is of course around the, you know, the Genius Act. There was of course a lot of you know hype of course with the circle IPO and a lot of positive momentum a lot of stable coin issuance also and that was like 60 billion as I said but right now the last 30 days we have seen 4 billion so we're coming from 100 billion being moved into bitcoin a year ago to 60 billion during the summer and now we only have four billion so I think we can easily explain by those flows by real flows you know that are literally you know we we can of course detect how you know, money goes into Bitcoin and and out of Bitcoin. But we can easily, you know, explain why we are here and not not higher versus when you just follow, for example, the global liquidity, it seems to go like up and up and up. So, Bitcoin should also go up and up and up."

"And I think it has really failed to to explain once Bitcoin has reached this, you know, call it, you know, escape velocity above like 90 trillion. And above 90 trillion, as I was saying, it's more kind of like like a power regression where, you know, we can be like literally anywhere. we can explain any level you know from 30,000 per BTC to literally you know 500,000 or a million uh because there's no kind of you know it's escaped velocity really right it's almost like you know flying into orbit but I think what really matters for Bitcoin is the actual money that's being moved in and out and I think we we have shown for example that also the Bitcoin ETFs they really depend on on sort of like like a dobbish uh guidance so it's not just the cut itself is that beyond the cut there also needs to be the prospect of probably another cut and only then the Bitcoin ETO ET the Bitcoin ETF flows come."

"I think one of the the you know the most you know people of course look at the ETF flows day by day but I think the most interesting aspect is when you aggregate them and look at them really based on a lot of these central bank meetings you know since the October 29th FOMC meeting Bitcoin ETFs have seen around 4 I think 5 billion of outflows versus you know yet to date we have seen $22 billion of inflows so it's almost like you know once power shifted to a more hawkish tone own at the October meeting the Wall Street investors have started to sell and I think that's why yes it's all very positive if the Vanguards of the world and you know the Morgan Stanley's and so on they can all buy now or their clients can buy but what we have seen with the real flows on the ETF side is actually Wall Street investors have been selling since the October FOMC meeting and this is why Bitcoin actually sold off it didn't sell off because of the you know October 10's crash it didn't sell off because of you know something else it sold off because of you know the hawkish FMC meeting and that kind of kept Wall Street investors away and Wall Street investors were the ones that were buying from the OGs and there was this balance going on as long as you had both parties um you know sort of like matching matching off each other's flows but then suddenly these ETFs also turn sellers and I think that's why we sold off from you know 120,000 to sort of like 90,000 and we really struggle to kind of rebound here because ETFs are still not buying."

"2026, another thing obviously in 2026, apart from all the other factors you mentioned is is it's an election year. And in a recent CoinDesk interview, you warned that um in previous cycles of Bitcoin or previous election years, Bitcoin experienced a 60% draw down. We could potentially see this next year in the midterm election cycle."

"So I mean we sort of like are around already like 30% down we can argue but I think what's interesting is you know of course we have you know used the having cycle we have of course used you know all these models from from stock to flow to liquidity and try to understand what what really works and I think there is really this this somehow this this concept and this is why again we had this um you know CoinDesk actually you know since you mentioned CoinDesk but they wrote this story you know on October 28th 2022 when we came out with a really bullish estim estimate and it was mid of the bare market nobody wanted to hear it right everybody was really depressed but it indicated that 15 months before the havinging it's usually the time where you know where bitcoin bottoms"

"but I think the the aspect is that actually is more relevant is sort of like the US midterm elections and it the US midterm elections is every four years in November and almost by clockwork around 12 months before Bitcoin tends to peak out. when you look at you know the peaks of you know the the the the you know the bare markets we had of course was in 2014 2018 and 2022 but the peaks the peaks were of course always the year before but the peaks were always between October to December primarily actually in December and of course you know the peak for example in December 2017 it was sort of like a you know a mixture between the the CME Bitcoin, you know, launch, but there was also some enforcement regulatory enforcement action. Then there like peaked the bull market, you know, the bull market in 2013 peaked also in in December. It was sort of like also driven by some regulatory action in China and everything. And it's, you know, and of course we know that the bull market in 2021 peaked in sort of like November because people expected the Fed to turn hawkish at the December meeting. So it's always like this sort of like end of the year kind of scenario which is sort of like where where we are now or where we have been you know since October since we peaked there. So it falls into this scenario and what what we have is actually between January to October of these you know US midterm election years is that the US stock market tends to go sideways."

"And I think there's a very high chance that the Democrats are going to win and then a lot of you know the Trump's expansionary policies might not be pushed through and I think that's kind of the argument why sort of the stock market might be running out of you know steam here as well and sort of like goes sideways. There might be some sector rotation and I do fear there might be this void then for Bitcoin as well that you know Trump was of course the Bitcoin president but what if he cannot do his policies anymore maybe there will be some nothing is going to happen really and I think that's kind of like the the risk where that sort of like we are so like foreseeing because when you look at historically during those years Bitcoin actually had a sharp correction can it go down really 60% I think you know I would say uh probably like 70,000 should be like like a lower level in the sense because there's some super technical support there and so we we we haven't been you know we were already like at 80,000 so we weren't really that far away but it's very difficult to identify what's really going to push Bitcoin up from here our scenario is more that we that we just trade around this sort of 80,000 to 100,000 you know for for a while but we fail to really break out and I think there is a drift lower because of that"

"I mean, I coins, you know, we have, you know, we have actually been since the beginning of the year suggested to people to hedge bitcoin within, you know, diversified altcoin portfolio because it's difficult to argue why altcoins should rally."

"And I think the argument is really that we have around $59 billion per year in in unlocks and a lot of those unlocks are, you know, VCs, early investors. But I think the focus is really on the on the VC side or on the, you know, on the, you know, hedge fund side here where a lot of the investors that again invested in the VC funds in the last cycle or even the cycle before probably want their money back because a lot of those, you know, VC investments sort of failed to list on, you know, on the IPO market. you know, we didn't really have a lot of IPOs coming, you know, this year. Of course, we had Circle, of course, we had, you know, Gemini, you know, we had bullish, but I think there's a lot money trapped really, I think, unfortunately, from from these LPS, and the LPs want their money back. So, I think there's this constant pressure of, you know, selling some of those those holdings. And again, it's like $59 billion per year. So, there's a natural seller in the market. It's almost like the opposite of the US stock market where there's always a natural buyer. And I think that's a little bit kind of the tricky part how to argue."

"But I think the the thing that's I think a little bit the really unfortunate thing is that there's not a lot of real narratives and not a lot of stories, right? I mean this RWA, you know, how can you really make money off of of you know holding the token, right? I mean you know even the lighter token really passes on not a lot of you know of of the revenue that they're generating. I mean when you remember like last cycle it was all exciting. It was all DeFi. It was you know I mean you know last time there was so much to learn almost versus now it's just to learn where where the capital is flowing but there's not a lot of I think you know exciting protocols and I think that's a little bit the the unfortunate you know time and I think that's kind of like where I would argue that you know not a lot of money is actually being used to really be deployed in DeFi. So it's you know the narratives have really changed and you know last was also a lot of minting you know on the NFT side so you needed to buy Ethereum versus now it's more kind of like well I can make 3% staking yield I mean after all the cost and everything it's a lot less versus you know versus a 10-year Treasury pays around you know 4.1 4.2 too. So there's actually a negative carry to move money from Trefy into crypto versus last cycle, you know, thanks to, you know, three arrows and Alama who were paying of course, you know, massive, you know, yields basically that could be passed on to various instances versus uh, you know, treasury yield were just like 1%. So there was a clear incentive to move money from Trefy into crypto just to harvest the higher yield versus now it's the opposite. I think that's why it's very difficult because if you know the more and more yield is being E is being staked for example I think the less and less will be really be used unless of course it's liquid staking but I think a lot of the E are being staked is just like laying around and not being used and I think that it's a sign you know where we are in the cycle so I would say we need more exciting protocols exciting stories exciting narratives but I think the VC investors have not really put a lot of money into crypto and that's why a lot of protocols didn't really have a lot of I don't know marketing budget to drive like great narratives or something."

"So, so you think the narratives are the right are the catalyst which could take Alt higher. Uh right now there's nothing that's compelling from your angle in terms of what's come out this cycle. Well, I think when you you know when you look historically, right, people always try to look at the the havinging cycle as sort of like why we rally, but I think in you know in the end it was always like an exciting story or a new way to acquire Bitcoin. It was it was you know it was it was something else was was really going on. It was not suddenly that the mining rewards were cut you know in half that suddenly bitcoin would be rallying you know it was for example in 2013 it was suddenly you know bitcoin was available in China discovered it, you know, bu which is like the the Chinese Google was accepting bitcoin payments for some of their services that time really when bitcoin went up 10x in a matter of weeks. So there was like a great you know story really around right and I think really like a sort of like a use case versus this this cycle it's more about buying and storing the asset but not really using it and I think that's really kind of like where where the narrative runs a little bit you know foul because we don't want people to just sort of like just just stake their ease we want the people using their ease for something exciting you know we want you know people using ease to I don't know mint NFTts or or something else right but but using it and I think that's really the I think the you know the problem we have is that historically when there was you know when when the cost structure went lower for example when when batteries for cars you know when when the cost for batteries went lower and lower and lower suddenly of course Tesla exploded because it was cheaper for them you know to buy these batteries and put them in their kind their cars and everything so there was a lot more uh you know volume going on versus I think right now is of course we having these finally Ethereum you know, fees, gas fees are lower and lower, but not a lot of volumes is happening. And I think that's sort of like the the mismatch, right?"

"And then when this happens, I think then we have a new narrative. Then we have a new bull market. A new bull market will come for sure. The question really is, you know, when and you know, I don't think we can rely too much on macro on that side. Got it. So just in terms of next year, you think that um altcoins are going to continue underperforming Bitcoin in terms of Bitcoin dominance continue to go up? Yeah, I think so. I think I don't think there's a real com I don't think there's a real compelling story for altcoins. I think selectively you know for example like I think BM B is probably one of my my my favorites simply because you can generate some some higher yield you can participate on the launchpads you can participate on some of the the you know token launches there and historically this year you would have made another 10% in terms of yield and I think it grows with the ecosystem I think we have shown in some of our analysis that you know the BMP actually grows with the number of of you know wallets in the ecosystem but I think a lot of the the the the other projects, you know, a lot of the protocols they really like last cycle, they sort of have become like, you know, dead ends."

"Salana overhyped or underpriced? overhyped."

"If you could use only one chart forever uh price flows or macro to influence your decisions, what would it be? It would be the 21week moving average for Bitcoin."

"Who influences crypto more today, CZ or Black Rockck? Excellent question. I mean this is really black rockck and I think if I may you know take this question here. Yeah, When you look when you look back at this is really like a very very important question. When you look back each cycle had different promoters. Each cycle had different people you know to bring into the crypto market. You probably remember like Bitcoin Jesus right? It has all changed. You know of course now it's more Larry Fring or you know Tom Lee for example who is of course on you know CNBC every day or three times a day. So I think it brings in different different people and I think even like last cycle we had a lot of more retail um you know proxies right people that were close to the retail market you know versus this cycle these are all institutional players there's nobody you know we haven't really heard much from you know Vitalik we haven't really heard much from CZ I would say I mean CZ seems to tweet you know every couple of weeks you know some some you know keep you know hodddling or something but I think this cycle it's really institutions and I That's why these Wall Street players, these Wall Street promoters are the ones who are really most influential. But I think to really to bring up the retail market, we need those people that really resonates with the retail people, right? We need somebody young, dynamic, you know, somebody crazy. And I think we're missing really the crazy people this cycle. And I think that's why we're not bringing in the new retail crazy people. And I think that's what we need. Totally agree. We need more Vitalic tweeting, CZ tweeting, and less of Larry Frink singing about, you know, tokenized assets."