Netizen Weekly | Bitcoin Market Update #6
Don't Fight The Prez: Navigating the QT-to-QE Transition Mirage
Hello fellow Netizen,
Bitcoin is currently trading in the mid-80K range following the FOMC meeting, maintaining its neutral momentum as it consolidates amid political and liquidity crosscurrents. Asset markets remain firmly in an INFLATION risk-off regime despite the Federal Reserve's slightly dovish shift in reducing Treasury runoff. Let's dive in.
Market Illusion: Decreased QT vs. True Monetary Easing
The Federal Reserve kept interest rates unchanged while slowing its balance sheet reduction (QT) from $25 billion to just $5 billion per month starting in April. The Fed's updated economic outlook shows concerning trends: they expect higher inflation (2.8%, up from their previous 2.5% forecast), slower growth (1.7%, down from 2.1%), and rising unemployment (4.4%, up from 4.3%). While they still project two interest rate cuts this year, four Fed officials now expect zero cuts at all in 2025.
Markets may rally on this QT reduction, but investors should understand this isn't actual monetary easing. Chair Powell explained that market disruptions from the ongoing debt ceiling standoff drove this decision and acknowledged that tariffs are contributing to inflation. A potential positive development is the discussion around banking regulations – specifically, the Supplementary Leverage Ratio (SLR). Treasury Secretary Bessent has indicated support for easing these rules, which could free up hundreds of billions in bank capital for Treasury purchases. Remember that President Trump's team has clearly stated they don't consider this "their economy" for 6-12 months, emphasizing the need for a market "detox" period. While markets will eventually need true monetary expansion (QE) to prevent a debt refinancing crisis, merely slowing QT isn't enough – though the banking rule changes may help limit downside risk.
TLDR: Bitcoin may see short-term gains from reduced QT, but sustained upward momentum likely requires actual monetary expansion that remains unlikely until economic conditions significantly deteriorate.
Bitcoin Temperature Check: On-Chain Signals of Declining Activity
Bitcoin's on-chain metrics reveal a significant contraction in market liquidity through declining exchange activity. Exchange inflows have dropped dramatically from +58.6k BTC/day at the market peak to the current level of just +26.9k BTC/day – a substantial -54% reduction. This steep decline in coins flowing to trading venues correlates with a similar reduction in "Hot Supply" (coins aged less than one week), which has fallen from 5.9% to only 2.8% of circulating supply. These parallel trends indicate diminishing trading activity and reduced willingness to transact, with over half of previously liquid Bitcoin now sitting idle rather than actively trading on exchanges.
The derivatives markets tell a similar story of contracting liquidity, with futures open interest experiencing a pronounced decline. Total open interest has fallen from $57B at the market peak to $37B currently, representing a -35% reduction in speculative and hedging exposure. This contraction appears partially driven by an unwinding of the cash-and-carry trade, as evidenced by correlated outflows from US spot ETFs alongside futures position closures. The declining appetite for leverage and derivatives exposure further reinforces the picture of a market experiencing significant liquidity compression across both spot and futures markets.
TLDR: The severe contraction in both spot and derivatives liquidity suggests Bitcoin prices will likely remain range-bound with limited volatility until a catalyst—either fresh capital inflows or forced selling—breaks the current equilibrium.
200 DMA Bounce vs. STH Resistance: The Battle at Key Cost Basis Levels
Current Bitcoin Price ($86,050) relative to major cost basis levels:
7.6% below STH Cost Basis ($93,171)
33.4% above True Market Mean Price ($64,484)
97.6% above Realized Price ($43,541)
234.7% above LTH Cost Basis ($25,707)
With the Fed's announcement of slowing QT yesterday, overzealous bulls misinterpreted this as actual monetary easing (QE), triggering a modest rally that pushed Bitcoin above its 200 DMA at $84K. This enthusiasm reflects a fundamental market misunderstanding—reduced balance sheet runoff is not the same as expansion. While this technical breakout appears promising, we see limited upside potential with the STH cost basis at $93.1K functioning as a strong resistance ceiling, where many short-term holders who've been underwater for over a month will likely take the opportunity to de-risk amid continued volatility and uncertain macro conditions.
TLDR: Consider taking profits or trimming positions as price approaches the $93.1K STH cost basis level, which likely represents a strong resistance ceiling in the current macro environment.
Bitcoin Supply: Stuck Between A Rock and A Hard Place
Interestingly, the FOMC rally propelled us above two key supply concentration levels that we have been flagging for weeks. At $82K there is 200K BTC held, and at $84K there is 193K BTC held. With Bitcoin now trading around $86K, time will tell if this former resistance will now turn into support. Looking ahead, the next major level of supply concentration uncoincidentally is in alignment with the STH cost basis at $94K where a significant 392K BTC is currently held. Unless liquidity conditions ease significantly and the debt refinancing risk is behind us, we find it unlikely for us to have a durable breakout above this for the foreseeable future. We see this breakout as more likely to be a 2H2025 event, but time will tell.
TLDR: Consider the $94K level as a strategic profit-taking zone as Bitcoin approaches the massive supply wall coinciding with the STH cost basis.
Your Edge in Bitcoin Accumulation
Our Dynamic DCA model has historically outperformed traditional dollar-cost averaging by ~30% over multi-year periods. For just $10/month, access our premium research and rigorously back-tested accumulation strategy that adapts to market conditions using on-chain data, helping you stack Bitcoin smarter.
Thanks for reading this week's note! See you next week – and as always, hit reply if you have any questions, comments, or suggestions!
Take care -Brian
Disclaimer: This newsletter is for informational purposes only and should not be considered financial advice. Always conduct your own research and consult with a qualified financial advisor before making investment decisions.