Crypto Market Weekly Review (12.01~12.07): Liquidity Crisis Resolved, BTC Enters Weak Equilibrium

Author: 0xBrooker

Amid a liquidity crisis and the “cycle law curse,” BTC experienced a brief respite in December after the storms of November.

On one hand, as the probability of a December rate cut bounced back to over 80%, the Federal Reserve stopped QT and began to release some liquidity into the market, while the Treasury’s TGA account also started spending. On the other hand, panic selling and large-scale realized losses have come to an end. Panic selling pressure has eased, but due to weak buying power, BTC price remains in a stalemate.

More than 34% of on-chain BTC is in a loss position; DAT leader Strategy has reduced purchases and signaled a defensive stance to the market; BTC ETF channel funds are still in a high-beta asset aversion period, with outflows exceeding inflows.

This week’s economic and employment data continue to support the US economy’s “soft landing” baseline scenario, transitioning from “overheating” to “moderate cooling.” Although Nvidia’s stock price remains well below previous highs, the three major stock indices are still trending upward, approaching previous highs.

A short-term macro liquidity inflection point has emerged. After a 25 basis point rate cut next week, the signal from the Fed’s regular meeting—whether “dovish” or “hawkish”—will have a significant impact on short-term market volatility, but the medium-term outlook remains unthreatened.

Additionally, the Bank of Japan will most likely raise rates in December, which will also impact the US stock market, though not to the same extent as the Carry Trade shock expected in 2024.

For the crypto market, where intrinsic value accumulation is severely lacking, the situation is even more dire. While the long-term trend of increasing asset allocation remains, short- and mid-term sentiment has already faded. Greater macro liquidity stimulus or a surge in allocation enthusiasm is needed to attract more capital inflows and absorb the selling pressure from long-term holders locking in profits.

The current equilibrium is more of a respite after passionate selling. Unless we see a further reversal in buying and selling trends, we maintain our view that the probability of a “bull-to-bear” transition outweighs that of a “mid-term correction.”

Policy, Macro Financial, and Economic Data

After the US government shutdown ended, the first important data—September’s PCE—arrived late on Friday.

Core PCE rose 2.8% year-over-year, slightly below the expected 2.9%. Nominal PCE remained in the 2.7%-2.8% range, reinforcing the narrative of “inflation slowly declining, but still above the 2% target.” Since October’s PCE data is permanently missing and November’s data will only be released after the Fed’s December meeting, September’s PCE is the only reference before the December 10 FOMC meeting. Lower-than-expected inflation data has strengthened expectations for a December rate cut, and even for continued cuts through 2026.

On employment, the ADP report showed US private sector jobs fell by 32,000 in November, a sharp contrast to October’s revised +47,000 and against market expectations for a modest 10,000 increase. Structurally, certain high-discretionary consumer sectors in services dragged down the figures, in line with market views of “marginal demand slowdown, but not a complete collapse.” For the FOMC, this signals “cooling employment, not out-of-control deterioration”—reinforcing the case for rate cuts, but not enough to support aggressive easing.

Initial jobless claims dropped to 191,000 this week, the lowest since September 2022, but continuing claims rose to 1.94 million, climbing slowly. Companies are “hiring less + controlling new job openings” (long-term hawkish bias), but there have been no massive layoffs; the overall labor market is in a “no hiring, no firing” slow-cooling state (short-term systemic risk is controllable). This also supports rate cuts, but not aggressive easing.

FedWatch December 25bp Rate Cut Probability Change

After about a month of volatility, based on economic, employment data and Fed officials’ remarks, the market generally expects a 25 basis point rate cut at the December 10 FOMC meeting. The impact on the market will mainly depend on the “dovish or hawkish” guidance after the meeting. If guidance is “dovish,” high-beta assets like the Nasdaq and BTC will see upward momentum. If “hawkish,” clearly downplaying further easing, current risk asset pricing based on “continuous rate cuts + soft landing” will need a downward adjustment—a shock that will likely be much greater for highly leveraged BTC positions with substantial unrealized losses than for traditional assets.

Crypto Market

This week, BTC opened at $90,364.00 and closed at $94,181.41, up 0.04% for the week, with a volatility of 11.49%. Trading volume was flat compared to last week.

BTC Daily Chart

Based on the “EMC Labs BTC Cycle Analysis Model,” we believe the main causes of the current BTC adjustment are short-term liquidity exhaustion and mid-term volatility in liquidity expectations, layered with cycle-driven long-term holder selling.

On November 21, after New York Fed President John Williams stated that “there is room for further rate cuts in the near term,” US stocks and BTC rebounded from their lows. Since then, the three major US indices have gradually recovered, approaching all-time highs. After a 4.1% rebound last week, BTC lost momentum again and entered a choppy phase. The fundamental reason is that liquidity remains extremely tight and neither buyers nor sellers have truly reversed their behavior.

On December 1, the Fed stopped QT and provided about $16.5 billion of short-term liquidity via temporary repos. The US Treasury conducted two Treasury “buybacks” totaling $14.5 billion. This somewhat eased short-term market liquidity, but was not enough to drive inflows into high-beta assets like BTC.

Fed Net Liquidity

Although Fed Net Liquidity has rebounded somewhat, it remains low and continues to suppress high-beta assets with no fundamental improvement.

From a capital flows perspective, the past two weeks have seen net inflows into the crypto market—$3.146 billion last week and $2.198 billion this week. This is the main reason why BTC has shifted from a decline to a choppy phase.

Crypto Market Capital Flows (Weekly)

However, focusing on the BTC ETF channel, which has a greater impact on BTC pricing, there was still a net outflow of $84 million this week.

On the selling side, both short- and long-term holder selling volumes dropped sharply, but long-term holder selling still continued this week. This shows that while the clearing phase is nearing its end, long-term profit-taking sales driven by the “cycle law curse” have not stopped.

Long and Short-Term Holder Selling & CEX Inventory Stats

A pause in long-term holder selling could provide a chance for a market rebound. Looking at on-chain data over the past two weeks, there is still passive buying power in the market, with over 40,000 BTC withdrawn from exchanges. The ebb and flow between selling pressure and buying power offers a chance for market stabilization and rebound. But for a true reversal, active buying power must return. This requires a real improvement in macro liquidity and a genuine recovery in demand for BTC allocation.

One piece of positive news is that in November, Texas made its first spot ETF purchase, buying about $5 million in BTC ETF products to bolster its BTC reserves. Although not enough to offset ETF redemptions, it sets a positive example for market sentiment.

Cycle Indicators

According to eMerge Engine, the EMC BTC Cycle Metrics indicator is 0, entering a “downtrend phase” (bear market).