Bitcoin Analysis: Liquidity has not yet returned, it is better to observe quietly.

Just as yesterday's analysis, Bitcoin broke below the Trendlines and continued to drop, stopping near 91550, closing with a strong 4-hour bullish candlestick. Unfortunately, this strong rebound did not last. As of now, Bitcoin's price has dropped back to near yesterday's low. If there was a liquidity hunting behavior around 90250 last night, we can consider it as building momentum for Bitcoin's takeoff after the new year. However, from a liquidity perspective, since the holidays have not fully ended, there will likely be a significant return of liquidity around January 6 next year, at which time a new major market trend will emerge. If during this period the price quickly drops to 90000-91000 and rebounds rapidly, it may be a good time to Buy again.

Christmas Holiday is over, 2025 is approaching, how will Bitcoin trend?

 

During the Christmas period, the US stock market is closed, and European and American traders are also on holiday, resulting in a relatively calm market with no significant fluctuations. With the end of the Christmas holiday, Bitcoin once again fell below 94,000. From the current situation, Bitcoin's price is continuously testing the Trendlines, although the lows are slightly rising, there have not been higher highs, indicating that the Bitcoin buyers are relatively weak at the moment, and it is likely to break below the Trendlines and test the price range of 90,000 to 91,000. Of course, if Bitcoin strongly rises back above the 95,500 level and stabilizes after the backtest, then Bitcoin still has the potential to continue upward.

The Most Classic Trading Strategy: The Vegas Tunnel

More than a decade ago, a well-known hedge fund manager named Vegas publicly revealed his trading strategy, which he named the "Vegas Tunnel Trading Method."  If you don't have your own trading system yet, you might want to give the Vegas Tunnel a try.

Two Tunnels

The first set consists of the EMA144 and EMA169, while the second set includes the EMA576 and EMA676. Each set of exponential moving averages forms a tunnel during price movements, which is referred to as the Vegas Tunnel. This tunnel holds significant guidance for the medium to long-term price trends.

The Vegas Tunnel (144, 169) serves as a watershed for medium and short-term trends in the market. It can guide direction and act as support and resistance.

How did he find these numbers? The answer is the Fibonacci sequence.

The Fibonacci Sequence

The Fibonacci sequence is a series of numbers in which each number is the sum of the two preceding ones, typically starting with 0 and 1. The sequence looks like this:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, ...

The Fibonacci numbers are often found in nature, art, and architecture, where they are associated with the golden ratio, approximately 1.618, which is derived from the ratio of successive Fibonacci numbers. This mathematical relationship is believed to represent aesthetic beauty and harmony.

 

Characteristics of the Vegas Tunnel Trading Method

1. Trend-following Trading: The Vegas Tunnel trading method is designed for trend-following, making it suitable for use when market trends are clear.

2. Clear Exit Points: This method provides well-defined exit points, allowing traders to accurately determine when to exit a trade to lock in profits or cut losses.

3. Filtering False Breakouts: The Vegas Tunnel trading method includes rules to filter out false breakout signals in the market, helping traders avoid common pitfalls and increasing the success rate of trades.

4. Easy to Learn: The rules and operational steps of this method are straightforward, making it easy for beginners to learn and master.

 

Filtering Signals

In defining the tunnel trading method, Vegas introduced the concept of breakouts.

What is the Concept of Breakout? A breakout occurs when the price moves beyond a predefined level of support or resistance, signaling a potential shift in trend. The filter line is represented by the 12-period EMA (Exponential Moving Average), which serves to filter out false breakouts in the market.

Role of the EMA12 Filter Line

The EMA12 acts as a filter to identify false breakouts. Here’s how it is applied:

• Conditions for Going Long: The price and EMA12 must simultaneously break upward through the EMA144 and EMA169 before considering a long position.
• Conditions for Going Short: The price and EMA12 must simultaneously break downward through the EMA144 and EMA169 before considering a short position.

This filtering mechanism ensures that we not only look at price breakouts but also reference the EMA12 signals to confirm the reliability of those signals. Only when the price and EMA12 signals align do we proceed with the trade; otherwise, it is regarded as a false signal.

 

Example of Filtering Mechanism Application

Bullish Signal Filtering: 

Suppose at a certain time, the candlestick price breaks above the medium and short-term Vegas Tunnel (EMA144 and EMA169).

If at that moment EMA12 does not simultaneously break upward through the tunnel, it is considered a false signal, and a long position is not entered.

Bearish Signal Filtering:

At another moment, the candlestick price breaks below the medium and short-term Vegas Tunnel (EMA144 and EMA169).
If EMA12 does not simultaneously break downward through the tunnel, it is also treated as a false signal, and a short position is not entered.

The Trump Crypto Era: How Cryptocurrency is Reshaping the Global Financial Landscape

In recent years, the cryptocurrency and decentralized finance (DeFi) sectors have experienced unprecedented growth. The attitude of traditional financial institutions (TradFi) and governments has gradually shifted from caution to active adoption. This transformation not only reflects how technology-driven financial innovation is reshaping the global financial landscape but also highlights the trend of cryptocurrency and traditional finance integration, driven by clearer regulations, growing market demand, and policy support.

Mutual Advancements Between Cryptocurrency and Traditional Finance

For a long time, traditional banks have been cautious about cryptocurrency. However, as market structures evolve and customers increasingly demand high returns and diversified investments, banks are beginning to realize that cryptocurrency is not just an emerging asset class but also a key opportunity to retain customers and attract new investors. Notably, during times of market turbulence, regulated financial institutions, with their stability and security, act as a "safe haven" for investors. For example, the 2022 FTX collapse prompted many investors to swiftly turn to regulated entities, underscoring the importance of trust.

At the same time, DeFi's flexibility and innovation provide inspiration for traditional finance. While some believe DeFi could replace traditional models, the reality is that traditional finance's market infrastructure and regulatory safeguards remain central to institutional liquidity and customer protection. In the future, the most likely trend is the fusion of the two, forming a "CeDeFi" (a hybrid model combining centralized and decentralized finance). This model will leverage DeFi's technological advantages while incorporating TradFi's compliance capabilities in KYC (Know Your Customer) and AML (Anti-Money Laundering), laying a solid foundation for the future of financial infrastructure.

Banks must seize this trend, collaborate with suitable partners, and proactively develop next-generation financial infrastructure. While providing flexibility, more efficient systems, and innovative financial products, they must also ensure the safety of customer funds and data. Banks capable of bridging these two worlds will undoubtedly occupy a crucial position in the future financial landscape, but they need to take action early.

The Role of Government Policy

In addition to being market-driven, policy support has also provided a powerful boost to the development of cryptocurrency and blockchain technology. Donald Trump, as the first global president to personally engage in cryptocurrency initiatives, further legitimized and formalized this sector with his policies.

During his presidency, Trump appointed several key officials, such as SEC Chairman Paul Atkins and "Crypto Czar" David Sacks, both strong advocates of cryptocurrency and blockchain technology. This team not only brought deep financial and technological expertise but also offered systemic support for cryptocurrency at the policy level. For instance, key members of Trump's administration were almost unanimously pro-crypto, including the Vice President, Treasury Secretary, and Director of National Intelligence, all of whom publicly expressed support for Bitcoin and blockchain technology.

More importantly, Senator Cynthia Lummis proposed the 2024 Bitcoin Act in response to Trump's idea of a "Bitcoin strategic reserve." This plan involves purchasing 1 million Bitcoins over five years through the Federal Reserve System and the Treasury Department to build a national Bitcoin reserve. This not only demonstrates the U.S. government's forward-looking stance on crypto assets but also provides a policy reference for other countries globally.

The Future Convergence of DeFi, CeFi, and Policy

With regulatory frameworks gradually improving and dual momentum from governments and institutions, the convergence of DeFi and CeFi will become a major direction for the financial industry. DeFi's technical components can deliver more efficient and lower-cost financial services, while CeFi's compliance and risk management capabilities provide essential safeguards for institutional investors and retail customers. This "CeDeFi" model will be the foundational infrastructure for future finance, and traditional financial institutions (such as banks) that capitalize on this trend will gain significant competitive advantages.

The Trump administration's supportive cryptocurrency policies further reinforce this trend. For example, the coordination between the SEC and CFTC, as well as legislation around Bitcoin reserves, provides policy assurance for CeDeFi's development. Additionally, with over 300 pro-crypto lawmakers in Congress, the long-term growth of this sector is backed by stable political support.

Conclusion: Act Now to Seize the Opportunity

Both traditional banks and policymakers must recognize the long-term potential of cryptocurrency and blockchain technology. For banks, simply "accepting" cryptocurrency is not enough. They must actively integrate into this emerging field by collaborating with the DeFi and blockchain industries to develop next-generation financial infrastructure. Simultaneously, government policy support acts as an accelerator for this process.

The future of cryptocurrency is not a simple replacement of CeFi by DeFi but a deep integration of the two. Financial institutions and governments that can seize the initiative in this process will occupy pivotal positions in the future financial landscape. The combination of TradFi's centuries of experience and DeFi's innovative capabilities will jointly build a more efficient, secure, and inclusive global financial system.

Bitcoin has plummeted again? What should regular investors do?

 

Bitcoin has experienced a recent three-day drop of 11.8%, following the Federal Reserve's remarks of 'not allowing the holding of Bitcoin' and 'not incorporating Bitcoin into the balance sheet'. Since 2021, El Salvador, currently holding 5969 Bitcoins, has been purchasing one Bitcoin every day, but under the long-standing urging of the International Monetary Fund (IMF), plans to reduce its Bitcoin plan. It intends to make accepting Bitcoin payments by businesses voluntary while implementing measures to reduce government deficits in exchange for IMF loans. This is undoubtedly a significant bearish signal, and last night's accelerated drop in Bitcoin is likely a result of this.

Looking at the positive side, several bullish factors that have been priced in for Bitcoin have already materialized. Barring any major black swan events, it should consolidate within the current price range. From a technical analysis perspective, even though Bitcoin's daily chart has fallen below EMA20, it is still above EMA50, with a significant order wall at 92500-95000 providing support. However, once this support is breached, Bitcoin is likely to fall back to around 80000 to fill the CME spot gap.

Here is a recommended investment strategy for Bitcoin, using the Ahr999 index for Dollar-Cost Averaging. Accumulate Bitcoin in spot positions below the DCA line and buy the dips in the long term. Once Bitcoin exceeds the DCA line, gradually sell off. This can be a good method. However, for investors in a one-sided market, this approach may not be suitable. Perhaps starting to accumulate Bitcoin through DCA from today's price could also be a good timing.

Reviewing the Historical Santa Claus Rally: Will It Happen Again This Year?

From 2014 to 2023, the cryptocurrency market experienced a post-Christmas "Santa Claus Rally" 8 times in 10 years. During the week from December 27 to January 2 of the following year, the total cryptocurrency market capitalization increased by 0.69% to 11.87%. This phenomenon draws inspiration from the definition by Yale Hirsch, who is credited with coining the term "Santa Claus Rally," originally referring to the market performance during the last five trading days of the year and the first two trading days of the new year.

On the other hand, the occurrence of a "Santa Claus Rally" in the cryptocurrency market during the week leading up to Christmas is less common, happening only 5 times in the past 10 years. Similar to the post-Christmas rally, these pre-Christmas increases ranged from 0.15% to 11.56%.

 1. How Has the "Santa Claus Rally" Performed in the Cryptocurrency Market?

In years without a "Santa Claus Rally," the largest pre-Christmas market correction occurred in 2017, when the cryptocurrency market dropped by 12.12%. This was a result of the price crash following the ICO boom that year. Apart from this, pre-Christmas market corrections were relatively small, ranging from 0.74% to 1.25%. Meanwhile, post-Christmas market corrections in 2021 and 2022 recorded declines of 5.30% and 1.90%, respectively.

Notably, in the past 10 years, only 3 years saw the cryptocurrency market experience a "Santa Claus Rally" both before and after Christmas. These years were:

1. 2016: The total cryptocurrency market capitalization rose by 11.56% before Christmas and 10.56% after Christmas.  
2. 2018: Despite the overall market being in a correction phase that year, there were moderate gains of 1.31% before Christmas and 4.53% after Christmas.  
3. 2023: In a recovering bear market environment, the crypto market rose by 4.05% before Christmas and 3.64% after Christmas.  

In contrast, the performance of the cryptocurrency market throughout December has been more extreme. Over the past 10 years, 5 Decembers saw overall market growth ranging from 16.08% to 94.19%, while in the other 5 years, market declines ranged from 1.73% to 15.56%.

Overall, the "Santa Claus Rally" in the cryptocurrency market is not a consistent phenomenon, with significant variations making it difficult to predict.

2. Will Bitcoin Rise During the Christmas Period?

In the past 10 years, Bitcoin experienced a "Santa Claus Rally" 7 times during the week leading up to Christmas and 5 times during the week after Christmas. Specifically, Bitcoin's pre-Christmas gains ranged from 0.20% to 13.19%, while post-Christmas gains ranged from 0.33% to 10.86%. This aligns with the broader cryptocurrency market's "Santa Claus Rally" performance.

Bitcoin's largest "Santa Claus Rally" occurred in the week before Christmas in 2016, when its price surged by 13.19%, breaching the $1,000 mark.

On the other hand, Bitcoin's largest decline during this period was in 2017, but it did not coincide with a "Santa Claus Rally." During that time, Bitcoin's price fell by 21.30% before Christmas. Additionally, Bitcoin experienced small declines before Christmas in 2015 and 2019, at 1.37% and 0.11%, respectively. Post-Christmas, Bitcoin's price corrections ranged from -0.04% to -6.42%.

In other words, if a speculator had participated in Bitcoin's "Santa Claus Rally" every year from 2014 to 2023—buying the week before Christmas and selling afterward—their average return would have been 1.32%. Conducting the same operation during the week after Christmas would have yielded an average return of 1.29%. In comparison, if the speculator had chosen to engage in Bitcoin price movements throughout December, the average return would have been 9.48%, which is at least 7 times higher than the returns from the "Santa Claus Rally."

However, similar to the broader cryptocurrency market, Bitcoin's "Santa Claus Rally" effect also exhibits inconsistent characteristics.

FOMC and Crypto Market: Fed Announces Rate Cut, U.S. Stocks and Crypto Markets Plunge

On Wednesday afternoon local time, the Federal Reserve announced a 25 basis point cut to its benchmark policy rate but signaled that the number of rate cuts in 2025 might be fewer than previously expected. This news triggered market turmoil, with U.S. stocks and cryptocurrency markets tumbling in unison. 

 According to the Federal Reserve's latest quarterly economic forecast, there may only be two rate cuts in 2025, significantly lower than the four cuts predicted in September and below the market's prior expectation of three. This suggests that the Fed is adopting a more cautious approach to balancing inflation with economic growth. Additionally, the Fed raised its forecast for personal consumption expenditure (PCE) inflation and core PCE inflation in 2024, increasing them from September’s estimates of 2.1% and 2.2% to 2.5%. 

 Fed Chairman Jerome Powell described this shift as a "new phase" of monetary policy, noting that after a projected 100 basis point rate cut in 2024, interest rates are now much closer to a neutral stance. 

Market Reaction: Stocks Plummet, Risk Aversion Rises

In response to the Fed's policy signals, all three major U.S. stock indexes fell sharply. By the close of trading on Wednesday, the Dow Jones Industrial Average was down 2.59%, marking its 10th consecutive daily decline and setting a 50-year record for the longest losing streak. The S&P 500 fell by 2.95%, and the Nasdaq dropped by 3.56%. Meanwhile, the U.S. dollar surged to a two-year high, and the Chicago Board Options Exchange Volatility Index (VIX), often referred to as the "fear gauge," spiked 58% to 25, reflecting heightened investor uncertainty and anxiety over future interest rates. 

Bitcoin Plunges as Powell Rebukes Trump’s "Strategic Reserve" Proposal

Following the release of the Fed's statement, Bitcoin’s price quickly plummeted from $104,000 to $100,256, representing a near 5% drop within 24 hours. Other cryptocurrencies suffered even larger losses, with XRP, ADA, and LTC all falling by nearly 10%. 

This sharp decline is closely linked to comments made by Fed Chairman Jerome Powell. During the press conference, when asked about former President Donald Trump’s idea of creating a "strategic Bitcoin reserve," Powell stated bluntly: "The Federal Reserve is not allowed to hold Bitcoin. The Federal Reserve Act specifies what assets we can hold, and we do not intend to advocate for changing the law. That’s something for Congress to decide." 

Trump has repeatedly expressed his vision of establishing a national Bitcoin reserve. In an interview with CNBC last week, he remarked, "We will accomplish great things in the cryptocurrency space because we don’t want any other country to embrace cryptocurrency before us. We want to lead the way." 

Some lawmakers have supported this idea. For instance, Republican Senator Cynthia Lummis from Wyoming is drafting legislation that would instruct the U.S. Treasury to purchase 1 million Bitcoins over five years. The funding for this purchase would come from Federal Reserve bank deposits and gold reserves. 

However, the proposal has faced criticism. Former New York Fed President Bill Dudley argued in a Bloomberg opinion piece last week that such a strategy would be a "bad deal" for Americans. A Barclays Bank analysis also noted that funding a strategic Bitcoin reserve might require issuing new Treasury bonds, which could face strong resistance from the Federal Reserve. 

Global Perspective: Bitcoin Reserves More Likely in Asia or the Middle East

While the idea of a "strategic Bitcoin reserve" has sparked widespread discussion in the U.S., Zach Pandl, Head of Research at Grayscale Research, believes that sovereign wealth funds in Asia and the Middle East are more likely to drive Bitcoin adoption. He stated, "Fed Chairman Powell’s comments disappointed investors regarding the theoretical possibility of a Bitcoin reserve. However, sovereign wealth funds, which manage highly diversified portfolios, are more likely to take the lead in adopting Bitcoin." 

Andre Dragosch, Head of Research at Bitwise Europe, also noted, "Although the Fed is cutting rates, financial conditions remain tight. The strengthening U.S. dollar poses a macroeconomic risk to Bitcoin, as dollar appreciation is often accompanied by a contraction in global money supply, which is unfavorable for Bitcoin and other crypto assets. Moreover, the Fed’s net liquidity continues to decline, further pressuring Bitcoin." 

That said, Dragosch highlighted that Bitcoin’s on-chain data remains favorable. The continuous decline in exchange balances suggests that the supply shortage could intensify, providing support for long-term prices. 

Technical Analysis and Short-Term Outlook

From a technical perspective, Bitcoin needs to find support near the $100,000 level in the short term. Crypto analyst Skew stated that long and short positions are battling fiercely, with significant stop-loss liquidations for long positions and profits for short positions. If Bitcoin can reclaim the $100,000 to $101,400 range and establish stability on the daily chart, it could reverse its downward trend. 

 Santiment analysts remain optimistic. On X (formerly Twitter), one analyst stated, "Bitcoin, despite its short-term decline, remains above $100,000. Compared to the S&P 500’s losses, the drop is relatively moderate. If the price stabilizes within the next 24 to 48 hours, it could actually be interpreted as a sign of strength." 

Conclusion

The Fed's policy adjustments are having a profound impact on global financial markets and cryptocurrency markets. While uncertainty about future interest rates and the strengthening U.S. dollar continue to weigh on Bitcoin and other crypto assets, long-term factors such as sovereign wealth fund adoption and supply-demand dynamics may provide support. Market participants will closely watch future developments.