Newsletter: January 2025 Edition
All the information in this letter is NOT to be considered financial advice; it is the author’s personal view and agreed views of others from their overviews of present markets. This content includes a summary of articles that I believe to be insightful and data that has been verified. The purpose is to provide content that is of interest and relevance to MarginCall.Club members.
Seasons greetings to all that visit
Welcome to the January 2025 Edition of the MarginCall.Club FinTech Newsletter
This month, we’ll review the key financial events of December 2024 and explore how they might impact January and beyond. As always, our goal is to provide you with timely, relevant insights to help you navigate the market effectively.
Financial Market Highlights – December 2024
- Stock Market:
- Dow Jones Industrial Average (DJIA): As of December 31, 2024, the DJIA closed at $45,587, reflecting a modest 1.14% gain for the month amid cautious investor optimism post-holiday season.
- S&P 500: The S&P 500 ended December at 5881.63, up 1.1%, buoyed by strong retail earnings and optimism surrounding Q1 2025 earnings forecasts.
- Nasdaq Composite: The Nasdaq Composite closed at 19,493.65, increasing 1.4% month-on-month, led by continued strength in the tech sector, especially in AI and semiconductor stocks.
- Economic Indicators:
- GDP Growth: U.S. Q4 2024 GDP growth is preliminarily estimated at 2.4%, reflecting a slight deceleration due to softer consumer spending and reduced manufacturing output.
- Inflation: The Consumer Price Index (CPI) for December showed a year-over-year increase of 2.2%, continuing its decline from 2.3% in November. Core inflation eased slightly to 2.7%.
- Employment: The U.S. unemployment rate remained steady at 3.6%, with job growth strongest in healthcare and retail. Layoffs in tech moderated, signaling potential stabilization in 2025.
- Interest Rates: The Federal Reserve left the federal funds rate unchanged at 5.25%, but anticipation of an early-2025 rate cut continues to influence bond markets.
- Cryptocurrency Update:
- Bitcoin (BTC): BTC closed December at $94,700, down from $96,400 at November’s close, driven by institutional adoption and bullish sentiment for Q1 2025.
- Ethereum (ETH): ETH gained further momentum, closing December at $3,380, supported by robust activity in decentralized finance (DeFi) and continued Layer 2 adoption.
- Regulatory Developments: The SEC’s approval of multiple spot Bitcoin ETFs has spurred investor confidence, while new regulations aim to provide greater clarity for decentralized exchanges.
- DeFi and NFTs: DeFi platforms saw consistent growth, and NFTs experienced renewed interest, particularly in utility-driven projects tied to gaming and metaverse applications.
- Geopolitical and Macro Economic Factors:
- Geopolitical Tensions: U.S.-China trade discussions remain stalled, and developments in Eastern Europe continue to contribute to market volatility.
- Energy Prices: Crude oil prices averaged $73 per barrel in December, up slightly due to seasonal demand and ongoing geopolitical concerns.
Key Events to Watch in January 2025
- Post-Holiday Retail Earnings: Retail sector performance during the holiday season will provide critical insight into consumer sentiment and economic resilience. Strong results could bolster GDP growth expectations for Q1 2025.
- Federal Reserve’s January Meeting: While no rate change is expected, market participants will closely watch the Fed’s tone for indications of potential monetary easing later in the year.
- Q4 2024 Corporate Earnings Reports: Early earnings reports will set the tone for equity markets. Positive surprises could sustain the current rally, while disappointments may trigger corrections.
Market Sentiment and Investment Insights
- Cryptocurrency Market: Bitcoin remains on a bullish trajectory, with analysts targeting $115,000 in early 2025 (that forecast was in the Feb news letter. However, resistance near $105,000 could result in temporary pullbacks.
- Key Market Threats – January 2025:
- Economic Data: Weak retail earnings or lower-than-expected Q4 GDP growth could prompt equity market corrections.
- Federal Reserve Policy: A hawkish stance in the January meeting could dampen sentiment across risk assets.
- Geopolitical Risks: Escalating tensions in global hotspots may lead to risk-off behavior, benefiting safe-haven assets like gold.
- Technical Analysis – Bitcoin Cup & Handle Pattern: Bitcoin’s weekly chart shows a textbook 350% cup-and-handle formation. If this pattern plays out, the next target is $275,000 by August/September 2025. Beyond that, a potential pullback followed by a push past $500,000 is anticipated before October 2025, aligning with Bitcoin’s historical halving cycles.
Updated Q&A Section
Q: Why are yields still elevated, and what’s driving swap spreads in January?
A: The dynamics driving elevated yields and widening swap spreads are multifaceted:
- Treasury Issuance and Demand-Supply Dynamics:
- The U.S. Treasury’s elevated debt issuance continues to exert upward pressure on yields.
- While institutional demand has shown improvement, it has yet to offset supply-side pressures.
- Federal Reserve Policy and Market Volatility:
- Uncertainty surrounding the Fed’s timeline for rate cuts contributes to fixed-income market volatility, widening swap spreads.
- Geopolitical and Fiscal Uncertainty:
- Persistent geopolitical risks and unresolved fiscal challenges maintain elevated long-term risk premiums.
- Liquidity Constraints:
- Reduced dealer capacity and hedge fund repositioning post-holiday season exacerbate market dislocations.
In Summary: Elevated yields and swap spreads reflect a combination of supply-demand imbalances, liquidity issues, and geopolitical uncertainty. Stabilization may occur in mid-2025 if the Federal Reserve signals a dovish pivot and geopolitical tensions ease.
Final Thoughts on Crypto
As we begin 2025, the markets are focused on Federal Reserve guidance, post-holiday retail performance, and global geopolitical developments. The crypto market’s resilience remains a key narrative, offering a potential hedge against macroeconomic risks.
Stay tuned for more updates, and remember that well-informed decisions are the cornerstone of strong financial outcomes.
My Thoughts on the coming month are the same as last month, the following being a summary of those thoughts with some added sound bites.
The recent U.S. presidential election, where Donald Trump secured victory, has prompted a reassessment of Bitcoin’s future value over the next four years. By examining current trends and logical deductions, here are some insights:
Deductions:
- The U.S. Debt Crisis:
- U.S. national debt exceeds $40 trillion. This level of debt poses significant challenges for the incoming administration.
This is a figure many have adopted since I published it.
- Strategic Loss in 2024:
- The Democratic Party may have strategically chosen not to win 2024 to avoid inheriting the debt crisis.
(Heard a couple of times on US news broadcasts)
- 2028 Comeback Strategy:
- Democrats may aim to position a strong candidate, such as Michelle Obama, as a “saviour” figure for the 2028 election.
(Being voiced across many democrat media channels)
Opinions:
Trump’s Bitcoin Game Plan:
- Trump has announced plans for the U.S. to acquire 1 million BTC over the next five years.
- This strategy could transform Bitcoin into a national asset, helping to offset the debt.
(This also seems to be playing out)
A Potential Path Forward:
- Year 1: Accumulate 200,000 BTC through dollar-cost averaging, costing approximately $20 billion.
- Launch a subsidized Bitcoin mining initiative to boost domestic production.
Long-Term Vision:
- By 2028, Bitcoin could significantly appreciate in value, reducing the national debt on the government’s balance sheet.
(A $1 million plus price by 2028 seems to be gathering momentum with the pundits across all parties)
Final Thoughts: While speculative, this scenario highlights the strategic intersection of politics, economics, and cryptocurrency. If executed effectively, it could redefine the U.S. financial system and elevate Bitcoin’s role in global finance. As always, remain vigilant and make informed decisions.
(I gave my view a 50/50 chance to play out, I now think that is a 65/35 odds of playing out
Regards, James
