Bitcoin declined by 3.2% over the past 24 hours, contributing to a broader crypto market downturn and triggering $11.5 billion in liquidations.
Despite the decline, industry experts predict that the crypto bull market may be entering a new intermediate phase rather than concluding. Han Xu of HashKey Capital notes that the conclusion of quantitative tightening and an expanding M2 money supply could fuel future growth for Bitcoin and other digital assets.
Market Downturn and Macroeconomic Insights
Bitcoin briefly dipped below $104,000 for the first time in a week, leading major cryptocurrencies like Ethereum and Solana to fall by approximately 9% and 10%, respectively. This downward movement resulted in significant liquidations across crypto futures markets.
Despite concerns about the sustainability of the bullish trend, Han Xu, a partner at HashKey Capital, remains optimistic. He suggests that the market is transitioning into a new intermediate phase with considerable upside potential.
In a recent interview, Han highlighted macroeconomic trends and on-chain data as essential indicators for a potential recovery in crypto sentiment. He pointed to upcoming changes in the Supplementary Leverage Ratio (SLR) and the anticipated conclusion of quantitative tightening later this year as pivotal factors that could reverse the current dollar liquidity cycle.
Quantitative Tightening and Its Implications
Quantitative tightening (QT) refers to the Federal Reserve’s strategy of reducing its balance sheet by selling bonds, which decreases the money supply and pushes interest rates higher. The conclusion of QT, expected in the first half of 2025, may signal a shift in global liquidity conditions.
Han explained, "Once QT concludes, we anticipate a significant drop in real yields, which historically correlates with increased risk appetite in both traditional and digital asset markets. Cryptocurrencies are particularly sensitive to shifts in global liquidity."
He added that over the past decade, major digital assets have demonstrated a beta exceeding 8.5, far higher than stocks or commodities. This suggests that cryptocurrencies often react more swiftly and intensely when liquidity conditions improve.
The potential relaxation of the Supplementary Leverage Ratio (SLR)—a regulation requiring banks to maintain a 3% capital buffer against leverage exposure—could further enhance market liquidity. Under a new administration inclined toward deregulation to spur economic growth, these changes may encourage investment in risk assets, including cryptocurrencies.
Bitcoin’s Long-Term Value Proposition
While the popular prediction of Bitcoin reaching $1 million per coin may seem ambitious, Han Xu argues that it is grounded in asset pricing logic and monetary economics. Bitcoin’s supply is highly inelastic, similar to gold but with stricter constraints—capped at 21 million coins, with inflation rates halved every four years.
Meanwhile, continuous growth in the global M2 money supply, driven by currency depreciation, encourages investors to seek reliable stores of value. Bitcoin’s emerging role as "digital gold" is further reinforced by increasing institutional adoption and corporate treasury acquisitions.
US spot Bitcoin exchange-traded funds (ETFs) have seen substantial growth, with cumulative net inflows reaching $45.31 billion within 17 months of launch. Corporate treasuries have also allocated approximately $85.2 billion to Bitcoin, led by firms like MicroStrategy and others emulating its strategy.
Han projects that Bitcoin’s market capitalization could eventually match that of tradable gold—including bars, coins, and ETFs—estimated at around $5.6 trillion. In a scenario resembling the macroeconomic stagnation of the 1970s, physical assets like gold achieved a 30% compound annual growth rate (CAGR).
Assuming a more conservative 15% annual appreciation for gold and Bitcoin achieving parity with tradable gold’s market cap, a path to $1 million per Bitcoin by 2035 is not only plausible but mathematically reasonable.
At the time of writing, Bitcoin is trading at $104,400, down 3% over 24 hours.
Frequently Asked Questions
What caused the recent crypto market decline?
The decline was driven by a combination of profit-taking, leveraged position liquidations totaling $11.5 billion, and short-term bearish sentiment affecting major cryptocurrencies like Bitcoin, Ethereum, and Solana.
How might quantitative tightening ending affect crypto prices?
The conclusion of quantitative tightening is expected to increase global liquidity, lower real yields, and boost risk appetite—factors that historically benefit cryptocurrencies due to their high sensitivity to monetary expansion.
Is Bitcoin’s $1 million price target realistic?
While ambitious, this target is supported by Bitcoin’s fixed supply, its growing acceptance as a treasury reserve asset, and potential macroeconomic trends that could enhance its role as a store of value. Explore more strategies for long-term crypto investment.
What role do Bitcoin ETFs play in market dynamics?
Bitcoin ETFs have significantly increased institutional accessibility, contributing to substantial capital inflows and reinforcing Bitcoin’s legitimacy as a strategic asset for diversified portfolios.
How does corporate adoption influence Bitcoin’s value?
Corporate acquisitions, such as those by MicroStrategy, reduce available supply, increase demand, and reinforce confidence in Bitcoin as a hedge against inflation and currency devaluation.
What are key indicators to watch for a market recovery?
Important signals include changes in global liquidity conditions, regulatory developments, institutional investment trends, and on-chain metrics like network activity and holder behavior. View real-time tools for tracking these indicators.