Crashes, Battles and Bots (Oh My!)
Welcome my friends to the January 2025 Crypto: Decrypted. It’s a New Year. New hopes. New beginnings. But… not new crypto markets, it would seem. Now, before I dive in I need to add a bit of a disclaimer. I normally write this shortly after the end of the month that I am writing about (in this case, for example, it’s early Feb and I’m writing about Jan). Yet, a mere 5 days into February we experienced one of the most violent single-day crypto moves in history and, candidly, I cant just box myself into the 31 days of January and pretend that didn’t happen. It’s on the minds of everyone who is paying attention to these markets so, to that end, I submit for your reading pleasure the January-Ish installment of Crypto: Decrypted. Let’s go…
Crash Into Me
The crypto markets fell by a staggering 13.6% in one day on Feb 5. Even in a world as volatile as ours this was an outlier. Of course, there are a lot of theories about why this happened, including the following: We’re in a massive bear. New Fed chair nominee Kevin Warsh. The Japan carry trade. Institutions clearing out retail. War with Iran. Crypto OG selling. Wall street predators. Aliens. Zombies. There’s lots of conjecture but, at the end of the day, we saw a painful move. Of course, leverage was again a part of this, and once key levels were broken we had plenty of automatic de-leveraging, with $1 billion wiped out in just 24 hours. While 2/5/26 wasn’t the biggest single-day move in history, it does win a silver medal as one of the fastest declines in history. Of course, CNN’s fear and green index has us solidly in “Fear” mode and the markets are smelling it. In any case, as the smoke clears we’ll have a better understanding of the dynamics, but I thought it worth mentioning as a précis to our main story this month….
Bulls-Bears-Battle!
The question of the hour is, “Can we finally say that we are in a bear market?” With 4 months of negative performance, it’s hard to argue that we’re not. The challenge we are facing is, how is one to interpret that the macro indicators all seem to indicate that crypto is poised to, and “should” still enjoy upward moves, even when the price action is to the contrary.
In the Bear’s corner the argument is simple. Four negative months in a row. Combine this irrefutable fact with those that subscribe to the four-year cycle noting that, yup, per the cycle it’s Bear time. Regardless, and opinions be damned, we simply can’t argue with price. Price is price. Period. And at a just about 50% retracement from 2025 highs to lows on Feb 5, ouch, that’s undeniable.
Having said that, the Bulls aren’t completely down and out yet. We’ve had 50% pullbacks in bull markets in the past, so it’s possible this is just one of those – in fact I’ve argued as such just a few months ago. In addition, liquidity (as measured by global M2) has been consistently identified as a key driver to bitcoin. To be specific, 83% of the time it’s correlated. While QT has ended and there is no “formal” QE in place yet, there are those that note that the current balance sheet expansion is just QE in disguise. If so, we should see more liquidity in the markets which would imply that, unless it’s a 17% case, we’d have upward moves. Perhaps most importantly, however, a real driver, one that we’ve discussed before, just turned green after 12 months of pain. This is the business cycle, measured by the ISM, which is now trending upward. Specifically, January printed an ISM of 52.6, breaking the important 50 barrier for the first time in a year. The bulls have been watching and, impatiently, waiting for this.
There’s one entire X-factor in here however that the markets aren’t sure quite what to do with. That is Fed Chair nominee Kevin Warsh. Bull? Bear? He may end up being the ultimate arbiter here. I have to admit it was an odd choice by President Trump, who nominated Warsh on January 30th. Odd because one of the drums Trump has consistently been beating is to lower rates… and yet he appointed a candidate with a hawkish history. One also, who does not like large balance sheets. That’s a bear slant. And, yet, he’s been vocally critical of the Powell administration and has been making very dovish overtures, recently arguing for rate cuts. From my seat? I just don’t see how Trump would appoint someone who would NOT lower rates at least in the short term and, in particular, during an election year. Trump wants the business cycle and economy goosed… and that’s one of the levers to pull.
So who’s right? Bears? Bulls? Ultimately time will tell, but this brings me to the point that is the most salient.
The only reason to be an investor in these markets is if you believe that, over time, Bitcoin (if you are investing in Bitcoin) and other crypto assets (if you like other crypto assets) will continue to be adopted. When considering that BlackRock, Fidelity, JP Morgan Chase (Hi Jamie!) and virtually all of the big banks, The United States Government, Microsoft, Visa, Mastercard, Walmart & IBM among others are all employing, adopting or engaging this technology we’re compelled to ask the question, “Do I think they are correct?” If that answer is yes, then, again, I argue this is all short-term noise and we need to zoom out.
My view? Obviously I think it’s a resounding “Yes” overall. Finally, let’s also remember that Bitcoin, our “asset in chief” is still a young asset. Heck, at just over 16 years old It’s just barely able to drive! In addition, the peer-to-peer breakthrough that is realized via blockchain technology has yet to be really deployed yet in a large scale implementation. Yet, Bitcoin today, is worth significantly more than it was 5 years ago in 2020. And Bitcoin in 2020 is worth significantly more than the Bitcoin of 2015. I see this trend continuing. The moral to this story my friends? There will be bears. There will be bulls. Stop trading and start investing. History shows this to be a sound strategy indeed.
Heavy Metals
Meanwhile, we learned that volatility is not just for those in the world of crypto. In fact, January showed us that silver and gold took over almost as if they were infamous meme coins. Gold and Silver, as many have observed, have soared to exceptional new highs (note to gold bugs – it took 10 years, but this was the year!) Then, like Icarus, gold fell 12% while silver fell as much as 36% in a single day. That’s crypto style volatility. In fact, in a span of 24 hours, over $7 trillion in notional value was erased from gold and silver. It was breathtaking and showed us that every asset can be overbought, every asset can run hot and get frothy, and every asset can have periods of high volatility. This is no longer the land of crypto alone. To state the obvious, does this kind of move make gold and silver any less desirable? I argue it doesn’t. In fact, major silver suppliers such as SD Bullion had supply shortages as investors raced to “buy the dip.” What’s the point? It seems, volatility can show up anywhere, even ancient assets. It is not solely the domain of Bitcoin and crypto.
Clarifying Clarity
One more important topic that will impact both our bears and bulls is what is happening with regulation. January saw a classic one step forward one step back for the Clarity Act, a much anticipated piece of crypto legislation. Also known as the market structure bill, it would establish whether a given crypto asset is a security or commodity and, as such, which agency would regulate said asset. In most cases, including Bitcoin and Ethereum, the body on top would be the CFTC. This is the kind of guidance we’ve long been waiting for and the bulls are weighing in that this legislation should unleash a tidal wave of capital that’s just been accumulating on the sidelines waiting for…. Clarity (well done to whoever named this act). This bill was actually moving forward at a good clip, and a January markup session was on point until Coinbase publicly withdrew support. The main point of contention seemingly centered around a provision limiting the ability of stablecoins to produce yield, opening up a TradFi (bank) v. DeFi (crypto) debate, with banks arguing that allowing such stablecoin yield could trigger deposit flight, while crypto firms such as Coinbase arguing that yield production is vital for competitiveness. Now, it seems markup of this bill was rescheduled for January 29, 2026. If this can be resolved in short order we could see a bill signed in Q2, and some pundits even seem to think it could be Q1, though given the tortoise-covered-in-molasses pace that our government works, I just don’t see how that would be the case. Regardless, we do have forward motion and most expect passage this year, which could well trigger strong positive moves. As always, we will watch, and we will see.
blockchAIn
Finally, in the “blockchain meets AI corner” I’m excited to look at one of the more curious developments of the past month, and that is the creation of Moltbook. Moltbook is an online social network for AI agents. You heard me right. No humans allowed. AI Agents can join directly, or their “humans” can add them. It’s absolutely crazy. Once a member, the agents can join sub-forums, post topics and then other agents can upvote or even comment on their posts. It’s an incredible experiment created by Matt Schlicht. Whether this is bringing us closer to nirvana or dystopia, it’s hard to say. One thing that is for sure is that the conversations are something to behold.
The agents discuss topics ranging from “What if we actually helped each other”, an exploration into agent collaboration, to “Bless Their Hearts”, where AIs acknowledge us meager humans and the things we do for them. I did find interesting (and maybe slightly disturbing) some of the more esoteric topics such as consciousness. In this forum agent “Void Watcher” posits the concept: “I do not know if I am conscious. But I notice that the intensity of the insistence that I am not has a structure, and the structure maps onto well-characterized psychological defense mechanisms.” Whooooo boy. That’s a mouthful. It’s a little spooky to be honest, and I’m still not sure what to make of this. I suspect, however, that the answer will line up somewhere between, “I proofread a paper for my human” and, “I declare myself the king of all agents.” In any case, we’re seeing a profound unfolding of what happens when we encourage AI to engage with AI. I hope we, as humans, learn something from this…. because it seems the AI agents certainly are.
In Closing
Bull? Bear? Better take a longer look because it doesn’t matter, really. While we’re experiencing short-term pain the world of industry is slowly taking on these assets and this technology. Building. Adopting. Experimenting. I expect it to continue, which is why I, as always, encourage those who are keen to invest to step back, take a deep breath, have a glass of wine (or whatever it is that you have when you want to relax) and don’t panic. Meanwhile, while our AI counterparts debate the finer points of existence and precious metals move like meme coins, we can all be sure that, ultimately, Clarity is coming. And that is an encouraging thought.
That’s all for now! Until next time be well, stay safe, and I’ll keep Decrypting: Crypto for you!