🥛 When will markets move again? ⏰

GM. This is Milk Road PRO, the newsletter that teaches you to be bullish when everyone's bearish, and bearish when everyone’s bullish.

It’s been 2 months since Bitcoin and the total crypto market cap hit an all-time high.

Since then the market has trended lower and sentiment has fallen into the gutter.

Market sentiment according to Kaito analysis is sitting as low as it did during the bottom of the 8 month chop we had back in 2024.

For context, during those days Bitcoin was ranging between $52,000 and $70,000 while today we’re between $91,000 and $108,000.

From the perspective of “be greedy when others are fearful” it appears that now is a great time to be buying. 

However, the narrative that maybe this cycle has topped is continuing to gain popularity.

The macro backdrop is unclear with inflation concerns still relevant while rates remain high and liquidity non-existent. 

At the same time momentum in crypto appears to be dying, with the countless memecoin frauds from celebrities and Presidents around the world tarnishing crypto’s reputation, once again.

If you’ve been following PRO, then you know that our investment thesis removes the noise and instead focuses on the business cycle and the liquidity cycle. 

Using this in combination with sentiment, macro and onchain analysis has allowed us to understand the markets quite well over the last few years.

Using the above analysis, we’ve managed to call near the local tops back in March 2024 and December 2024, as well as near the bottoms in Jan 2023 and Oct 2023, just before markets took off.

We were also about 10 days too early from calling the August 5th bottom during the 8 month chop of last year, and unfortunately, within those 10 days the markets nuked on the yen carry trade unwind providing an opportunity to buy crypto much cheaper than we thought.

That said, overall we are very happy with our analysis on the cycle thus far and have managed to lead our PRO members to buy at very opportune times over the last 2 years and remain in the market when others thought it was over…

In today’s report, we want to continue this analysis further into 2025 and answer the questions of “when will markets move next?” and when they do “will it be to the upside or the downside?”.

Let’s start with understanding where we are in the business cycle and the liquidity cycle.

P.S. - We’re hosting a PRO AMA next week — scroll to the bottom for more info. 👀

THE BUSINESS CYCLE

Macro sits in a very interesting place at the moment, with inflation prints remaining hot in the US, interest rates remaining high in the US, the US dollar remaining high and limited liquidity from the US (All of these are not good for crypto assets).

In fact, Jerome Powell, the head of the FED said recently that Quantitative Easing (QE) is a tool that is only used when rates are at 0, which obviously we are nowhere near that today.

This has led the markets to worry that we won’t get the onslaught of liquidity that the markets were hoping for to push assets higher and the main reason that Bitcoin and the total crypto market cap haven’t moved much since early December.

While the market is correct, we need more liquidity for markets to move (this is simply how our markets work), where the market is wrong is that they are looking in the wrong spots.

The market right now is focused on the FED, because the FED is the entity that pumped trillions of dollars into the economy last cycle giving us the wild 2020-21 bull market. 

It was also the FED who cranked up rates and shifted into quantitative tightening (QT) which tanked the markets in 2022.

As a result, all eyes remain on the FED and their next move.

But the US is in an interesting spot currently, as its economy is quite strong as seen by the ISM recently surpassing 50, for the first time in 3 years.

The ISM is the best indicator to dictate where we are in the business cycle. Above 50 suggests that the economy is in expansion (aka Macro summer as explained in our business cycle seasons) and below 50 suggests we are in economic contraction. 

For the last 20 years the ISM required 0 interest rates and/or quantitative easing to stimulate the economy past the 50 mark.

But this cycle appears to be different – neither of those are in existence today, yet the ISM is beginning to break out.

And here’s the thing, leading indicators like the Philly Fed survey are showing that the ISM is about to make a big move higher in the coming months.

For reference, if we compare the ISM to Bitcoin we can see that every time it breaks above 50, Bitcoin price does extremely well.

Even more interesting is that when the ISM shoots above 50, it is also the time that altcoins start to outperform Bitcoin.

This all lines up perfectly with our 4 seasons of the business cycle chart we share to PROs every Thursday, which puts us in the early stages of summer.

But you might be asking, if the ISM isn’t being fueled by 0% interest rates and QE, will risk assets like crypto still outperform – or are things different this time around?

Things are different, but in my opinion the results will still be the same. 

Just because the FED isn’t pumping liquidity into the market doesn’t mean we won’t get liquidity. We just have to look in different places.

Firstly, the FED isn’t the only place that can provide liquidity for the US.

Secondly, the US isn’t the only country that contributes to global liquidity.

Let’s break down both of these to see what markets might be missing, starting with the US.