Is It a Bull Market or a Bear Market? The Underlying Logic and Future Path of Bitcoin Prices

Introduction: The Dilemma of Bull vs. Bear

For cryptocurrency investors, determining whether the market is in a bull or bear phase directly influences portfolio management and asset allocation strategies. Recently, Bitcoin’s price has retreated from its all-time high of to the 81,000 range, sparking intense debate about “buying the dip” and “cycle inflection points.” Take, for example, a FIL miner whose holding cost is higher than the current price. If this is deemed a bull market correction, they might choose to hold; if a bear market is confirmed, they may consider reallocating or partially exiting. This dilemma reflects the core contradiction of the current market: Is Bitcoin’s price a temporary adjustment or a precursor to a long-term trend reversal?

The Ambiguity of the Current Cycle: A Transitional Phase Between Bull and Bear

From the perspective of traditional financial markets, a bull market requires conditions such as monetary easing, low interest rates, and positive economic growth, while a bear market is accompanied by liquidity tightening, asset sell-offs, and economic recession. The current environment presents significant contradictions: although the Federal Reserve has paused rate hikes, interest rates remain high at 4.5%, and the balance sheet reduction process has not stopped, indicating no substantial improvement in dollar liquidity. On the other hand, Bitcoin’s price, supported by ETF inflows, has risen over 200% from its 2023 low, leading some investors to view this as a “partial bull market.”

This contradiction has historical precedents. During the 2000 dot-com bubble, the Nasdaq index surged against the trend during the Fed’s rate hike cycle, only to plummet by 78% due to liquidity tightening and economic recession. The current AI and cryptocurrency narrative boom is similar—capital absorption by emerging industries has driven up the prices of certain assets, but the macroeconomic environment does not support a full-fledged bull market. Bitcoin’s price surge is driven more by structural factors (e.g., ETF accumulation) than systemic liquidity easing.

The Core Support for Bitcoin’s Price: The $70,000 Anchor Logic

To understand the resilience of Bitcoin’s price, one must focus on the dynamics of spot ETF inflows. Since the approval of ETFs in January 2024, institutions like BlackRock and Fidelity have accumulated over 200,000 BTC, nearly 1% of the circulating supply, with holding costs concentrated in the $65,000-$70,000 range. This “passive buying” has become a key force in supporting the price. Even if market sentiment weakens, Bitcoin’s price is unlikely to fall below $70,000 unless ETF investors engage in large-scale redemptions.

However, this support faces two major risks:

1. Economic Recession Triggering Panic Selling: If U.S. GDP growth turns negative (e.g., the Atlanta Fed’s GDPNow model predicts -2.4%), institutions may be forced to reduce high-risk assets, leading to ETF outflows that directly impact Bitcoin’s price.
2. Unmet Policy Expectations: The market has priced in a “Trump victory,” and if his crypto-friendly policies fail to materialize, the sentiment-driven premium may dissipate.

Historical Cycle Insights: Liquidity Inflection Points Determine the Ultimate Direction

Looking back at Bitcoin’s price history, its fluctuations are closely tied to the size of the Federal Reserve’s balance sheet. The 2018 bear market coincided with balance sheet reduction, while the 2020 bull market aligned with post-pandemic balance sheet expansion. Currently, the Fed is reducing its assets by $95billionmonthly($60 billion in Treasuries + $35 billion in MBS), and liquidity contraction has not yet ended. This explains why, apart from Bitcoin and a few other assets, most cryptocurrencies and U.S. stocks have not surpassed previous highs.

A true bull market requires two conditions:

1. Resumption of Quantitative Easing: If the Fed restarts bond purchases due to an economic recession, it will directly inject liquidity.
2. Interest Rates Falling to Near Zero: The current 4.5% rate still suppresses risk appetite, and only a drop below 2% can alleviate funding cost pressures.

Buying the Dip: Contrarian Strategies Amid Recession Fears

For investors, the current environment requires balancing short-term risks and long-term opportunities:

• Short-Term Defense: If Bitcoin’s price falls below $70,000andweeklyETFnetoutflowsexceed$500 million, it may signal a breakdown of support, with further downside potential to $50,000 (miner shutdown cost level).
• Long-Term Offense: Once the Fed signals balance sheet expansion (e.g., SLR adjustments) or the unemployment rate exceeds 5%, gradual accumulation is advisable. Historical data shows that Bitcoin’s price has risen an average of 400% during rate cut cycles, with bottoms typically leading U.S. stocks by 1-2 quarters.

Pay special attention to two types of signals:

1. On-Chain Data Validation: If Bitcoin holdings on exchanges continue to rise (e.g., weekly increases exceeding 100,000 BTC), it indicates heightened selling pressure; conversely, long-term holder (LTH) dominance above 70% reflects market reluctance to sell.
2. Macro Policy Nodes: If the Fed’s December 2024 dot plot confirms more than three rate cuts, it could mark the start of a new upward trend.

Conclusion: Finding Certainty in Uncertainty

The current market is neither a typical bull market frenzy nor a complete bear market winter but a transitional phase driven by liquidity tightening and localized narratives. The battle around Bitcoin’s price near $70,000 is essentially a tug-of-war between traditional financial capital and macroeconomic risks. For investors, it is crucial to move beyond black-and-white cycle labels and focus on three certainties:

1. Bitcoin’s Reserve Asset Attribute: Continued accumulation by sovereign nations and corporations will solidify its price floor.
2. The Irreversibility of Fed Policy: A debt-driven economic model will inevitably force a return to easing.
3. Technological Innovation Cycles: Upgrades to Bitcoin’s Layer 2 and privacy protocols may catalyze the next wave of growth.

In the end, the answer may lie in an old adage: “Bull markets are born in pessimism, grow in skepticism, mature in optimism, and die in euphoria.” While most are entangled in the bull vs. bear debate, real opportunities are quietly brewing.