- If China resorts to aggressive fiscal stimulus and monetary easing to combat a potential economic slowdown, it could lead to a devaluation of the yuan. In this scenario, Bitcoin could become an attractive option for Chinese investors seeking to protect their wealth from currency depreciation and capital controls.
- Our in-house "Cryptoasset Sentiment Index" has reversed its trend week-on-week, currently signalling a neutral sentiment with 6 out of 15 indicators above their short-term trend.
- Chart of the Week shows Bitcoin decisively outperforming stocks, bonds, commodities, and even gold in 2024. As we transition into 2025, industry consolidation and the growth of Bitcoin DeFi further reinforce its dominance.
Chart of the Week
Performance
The primary headline from last week was the ongoing challenges faced by Chinese authorities in managing their economic slowdown. China's 2-year government bond yields hit multi-decade lows of 1.024%, a level that has not been seen in recent history. This alarming trend suggests that the world's second-largest economy is grappling with significant issues that require close monitoring.
China's private sector debt has ballooned to over 200% of its GDP, a level that has historically been a red flag for impending economic crises. This excessive leverage has manifested in various sectors, from corporate debt to household mortgages, as the country sought to maintain its growth trajectory. Recent efforts by the Chinese government to address this debt have resulted in challenges such as financial strain on property developers and a slowdown in the housing market.
China could very well follow the conventional playbook of lowering interest rates to stimulate borrowing and economic activity, as employed by Japan in the 1990s but there are concerns that given China’s private sector balance sheets are already stretched thin, cheaper credit alone is not enough to entice businesses and households to take on more debt.
This means that China's policymakers now find themselves in a difficult position, with fiscal stimulus being the only viable option left. However, the efficacy of this approach remains uncertain, given the country's already high levels of local government debt and the diminishing returns on infrastructure investments.
Despite these challenges, there are several reasons why this situation could be bullish for Bitcoin. Firstly, if the Chinese government resorts to aggressive fiscal stimulus and monetary easing, it could lead to a devaluation of the yuan. In such a scenario, Bitcoin could emerge as an attractive option for Chinese investors seeking to protect their wealth from currency depreciation and capital controls.
Secondly, the spillover effects of a Chinese economic slowdown could exacerbate global economic uncertainty. As discussed in our previous research report, Bitcoin has often been viewed as a hedge against macroeconomic instability during times of heightened risk aversion. Our analysis revealed that Bitcoin has shown above-average returns following major geopolitical risk events in the past, supporting the thesis that cryptocurrencies may act as a hedge against geopolitical risks. As investors seek to diversify their portfolios and mitigate risk, Bitcoin could benefit from increased global demand.
Thirdly, the global economic spillovers from China’s slowdown could prompt central banks to adopt more accommodative monetary policies, particularly in economies heavily exposed to Chinese trade or demand. Historical precedents, such as the coordinated monetary easing during the Global Financial Crisis (2008–2009) and the pandemic response (2020), show that central banks often respond to external shocks by reducing interest rates or injecting liquidity into financial systems. If this pattern repeats, an environment of excess liquidity and low interest rates could emerge. Bitcoin has historically thrived in such conditions, as investors seek alternative assets that offer higher returns and act as hedges against inflation or currency devaluation. This combination of factors could drive increased global demand for Bitcoin, reinforcing its appeal as a store of value during periods of macroeconomic uncertainty.
However, it's important to note that if China's economic troubles lead to a severe global market downturn, Bitcoin could also face short-term selling pressure. In the initial stages of a market panic, institutional investors may liquidate their Bitcoin holdings to cover losses or meet redemption requests. Nevertheless, as markets stabilize, Bitcoin's unique value proposition as a decentralized, safe-haven asset on account of its counterparty risk-free and censorship-resistant nature could help it regain its appeal.
This resilience is further underscored by our "Chart of the Week," which shows Bitcoin decisively outshining every major asset in 2024, outperforming stocks, bonds, commodities, and even gold. As we transition into 2025, we are observing significant shifts that further reinforce Bitcoin's dominance as an asset. One prominent trend is the diminishing distinction between Layer 1 and Layer 2 solutions, highlighting an industry trajectory toward consolidation. In this competitive landscape, the ability to secure liquidity and sustain adoption is becoming a more critical determinant of success than purely technical advantages. Bitcoin's unique selling proposition (USP) as the most decentralized, secure, and widely recognized digital asset positions it as the primary beneficiary of this consolidation. Unlike emerging projects that face increasing challenges in capturing liquidity, Bitcoin’s entrenched status ensures its continued dominance in both market share and investor confidence.
This growing entrenchment is further amplified by the fact that we believe Ethereum Virtual Machine (EVM) compatible chains will continue to gain market share in the coming years, driven by projects like Base, Monad, and Berachain. This growth will be fuelled by the vast amount of training data available for EVM and Solidity, which will enable AI-powered tools like Large Language Models (LLMs) to streamline smart contract development.
The confluence of these factors bodes well for the growth of Bitcoin DeFi. As mentioned in our last edition, over 99% of Bitcoin currently being held passively, the potential for unlocking this value through DeFi applications is immense. As Bitcoin Layer 2 solutions prioritize EVM compatibility, we can expect to see a surge of innovation and capital inflows into this space.
Furthermore, the advent of AI-driven tools like LLMs could democratize access to DeFi and lower the barriers to entry for developers. As smart contract development becomes more accessible and efficient, we can expect to see an explosion of experimentation and innovation in the Bitcoin DeFi space.
In general, among the top 10 crypto assets, BNB posted the only positive performance week-to-date, with Tron and Solana being the least depreciating assets.
Overall altcoin outperformance vis-à-vis Bitcoin sustained a reversal in trend from last week, with Bitcoin ranking sixth out of ten — positioning it below the median among our tracked altcoins on a weekly basis. Nevertheless, its performance remained above average when compared to the overall depreciation seen across the tracked altcoins
Sentiment
Our in-house “Cryptoasset Sentiment Index” has reversed its trend week-on-week, as it is currently signalling a neutral sentiment.
At the moment, 6 out of 15 indicators are above their short-term trend.
We observe slightly higher sentiment readings in indicators like the BTC funding rate or the BTC put-call volume.
The Crypto Fear & Greed Index signals a “Greed” level of sentiment as of this morning.
Performance dispersion among cryptoassets has continued its declined further from last week, currently settling around the 0.43 mark. This signals that altcoins show signs of being less correlated with the performance of Bitcoin.
Altcoin outperformance vis-à-vis Bitcoin marked a reversal from last week, with Bitcoin ranking sixth among ten altcoins, below the median, though still performing above average compared to the overall altcoin decline.
In general, increasing (decreasing) altcoin outperformance tends to be a sign of increasing (decreasing) risk appetite within cryptoasset markets and the latest altcoin underperformance continues to signal a negative risk appetite at the moment.
Sentiment in traditional financial markets as measured by our in-house measure of Cross Asset Risk Appetite (CARA) had increased during last week but has levelled out at around the same point as last week. The index currently signals a neutral cross asset risk appetite.
Fund Flows
Weekly fund flows into global crypto ETPs have turned negative, continuing its deceleration from the prior week.
Global crypto ETPs saw around -155.6 mn USD in weekly net outflows across all types of cryptoassets which is a deceleration compared to prior week’s net inflows of +237.6 mn USD in weekly net inflows.
Global Bitcoin ETPs that saw net outflows totalling -292.8 mn USD last week, of which -243.4 mn USD in net outflows were related to US spot Bitcoin ETFs alone.
The Bitwise Bitcoin ETF (BITB) in the US also saw net outflows, totalling -67 mn USD last week.
In Europe, the Bitwise Physical Bitcoin ETP (BTCE) saw no net flows, with the Bitwise Core Bitcoin ETP (BTC1) following suit.
Outflows from the Grayscale Bitcoin Trust (GBTC) continued to be high, with around -164.6 mn USD in net outflows last week. The iShares Bitcoin Trust (IBIT) continued to see minor positive net inflows of +76 mn USD last week.
Meanwhile, flows into global Ethereum ETPs increased slightly with around +123.3 mn USD in net inflows, after +92.5 mn USD in net inflows the week before.
US Ethereum spot ETFs saw a change in pace with around +145.4 mn USD in net inflows on aggregate. The Grayscale Ethereum Trust (ETHE), however, continued to experience net outflows of around -23 mn USD last week.
The Bitwise Ethereum ETF (ETHW) in the US saw no net flows last week.
In Europe, the ETC Group Physical Ethereum ETP (ZETH) experienced minor net inflows of +0.2 mn USD while the Bitwise Ethereum Staking ETP (ET32) experienced minor net outflows with -0.1 mn USD in net inflows.
Altcoin ETPs ex Ethereum while seeing positive minor net inflows with around +3.2 mn USD last week, has continued to significantly decelerate. The ETC Group Physical Solana ETP (ESOL) saw no net flows last week.
Flows into thematic & basket crypto ETPs have reversed to seeing around +10.6 mn USD in net inflows last week. The ETC Group MSCI Digital Assets Select 20 ETP (DA20) have remained neutral, seeing no net flows last week.
In contrast, global crypto hedge funds continued to exhibit a low market exposure to Bitcoin last week. The 20-days rolling beta of global crypto hedge funds’ performance to Bitcoin increased only slightly to around 0.61 per yesterday’s close.
On-Chain Data
In general, Bitcoin on-chain metrics have been somewhat mixed last week, following suit from the week before.
Selling pressure, while having fallen, continued to be high as weekly net selling volumes on BTC spot exchanges amounted to -991 mn USD last week.
In terms of Spot Cumulative Volume Delta (CVD), which measures the difference between buying and selling volume, the metric remains negative, indicating dominance of sell-side pressure. Dollar order volumes similarly reflect a higher prevalence of spot sell orders. However, it is worth noting that supply dynamics on exchanges tend to provide a slightly clearer explanation of price action.
On the bright side, Bitcoin net exchange balances continued to decline, with outflows of -20,917 BTC signaling a persistent demand overhang. This sustained supply deficit can be viewed as slightly bullish, as increased exchange inflows would imply a rise in available supply.
Whale activity on exchanges have reversed its trend by turning positive last week as whales started to take bitcoins off exchanges on a net basis. More specifically, BTC whales have taken -36,778 BTC from exchanges last week, signalling decreasing selling interest from whales. Whales are defined as network entities that control at least 1,000 BTC.
In general, the overall supply deficit in Bitcoin has continued to deepen, as evidenced by the ongoing decline in BTC exchange balances. According to the latest data from Glassnode, only 2.8 million BTC remain on exchanges, marking a decrease of 20 K BTC from last week and reaching levels last observed in May 2019. This reinforces our observation that Bitcoin's supply deficit continues to intensify.
Futures, Options & Perpetuals
Last week, BTC futures open interest decreased in BTC-terms and decreased by around -18.5k BTC. BTC perpetual futures open interest increased by around +5.5k BTC.
Meanwhile, BTC perpetual funding rates, increasing slightly from last week, continued to positive bit not overly excessive signalling ongoing moderately bullish sentiment among BTC perpetual traders.
When the funding rate is positive (negative), long (short) positions periodically pay short (long) positions. A positive funding rate tends to be a sign of bullish sentiment in perpetual futures markets now.
The BTC 3-months annualised basis has levelled at 12.9% p.a averaged across various futures exchanges.
BTC option open interest has decreased significantly by around -158k BTC. The put-call open interest ratio remained relatively flat.
The 1-month 25-delta skew for BTC dropped slightly last week, indicating a modest decrease in demand for put options and a more bullish market sentiment. The skew leaned slightly skewed toward call options, with delta-equivalent calls carrying a premium of approximately 2.5% per annum.
BTC option implied volatilities also remained relatively stable, with 1-month realized volatility slightly increasing.
At the time of writing, implied volatilities of 1-month ATM Bitcoin options are currently at around 57.6% p.a.
Bottom Line
- Aggressive fiscal and monetary stimulus in China could devalue the yuan, making Bitcoin attractive for wealth protection against currency depreciation and capital controls.
- Our "Cryptoasset Sentiment Index" now signals neutral sentiment, with 6 of 15 indicators above short-term trends.
- Bitcoin outperformed all major assets in 2024. We expect industry consolidation and Bitcoin DeFi growth in 2025 to cement its dominance.
Appendix
Rechtlicher Hinweis
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