© 2026 The DeFi Report. All Rights Reserved.
Hello readers,
First, I want to wish you all a healthy and happy New Year ahead. I’m deeply grateful for your support and humbled by the growth of The DeFi Report in the past year.
2025 is going to be a big year. And I couldn’t be more fired up to share our data-driven analysis and market insights with you. Our goals this year is the same as last year: stay humble. Stay focused. And get a little bit better every. single. day.
To kick off 2025, we’re sharing our views on “altseason,” as well as our current thinking on the macro setup for the year ahead.
Disclaimer: Views expressed are the author’s personal views and should not be relied upon as investment, legal, tax, business, or any other advice.
Let’s go.
Given Solana’s outperformance in ‘24, memecoin mania, DeFi’s renaissance, and the recent rise of AI agents, some believe that “altseason” has already happened.
We disagree. Why?
We view SOL’s outperformance as largely a catch-up trade from being wildly undervalued in ‘23
Memecoin mania looks more like DeFi summer back in 2020 (a glimpse of the bull market to come in ‘21)
DeFi’s renaissance (Aave, Hyperliquid, Aerodrome, Pendle, Ethena, Raydium, Jupiter, Jito, etc.) is real, but DeFi still feels niche. According to Kaito AI, it’s narrative mindshare as a sector dropped in 2024
The rise of AI Agents looks more like a glimpse of “altseason” than the actual thing
We can acknowledge that there is plenty of froth in the market. But the big-picture data doesn’t lie.
Data: CoinGecko
A quick breakdown:
In the last cycle, the total crypto market cap grew $431b in Q4-20. Bitcoin captured 71.5% of the move. BTC dominance hit 72% on 1/3/21 (cycle peak).
In the current cycle, the total crypto market cap increased $1.16 trillion in Q4. BTC captured 59.5% of the move. BTC dominance sits at 56.4% today — just off the cycle peak of 60% established on 11/21/24.
Now. You may be thinking that BTC capturing a smaller share of the increase in total crypto market cap this cycle means altseason is happening already.
But look at what happened as we transitioned into 2021, the final year of the last cycle:
The crypto market cap grew $1.75 trillion from 1/1/21 - 5/11/21. BTC captured just 31% of the move. Dominance dropped to 44%.
From 5/11/21 - 6/30/21 the total market cap dropped nearly 50%. BTC dropped roughly 50% over the same period.
The market then rebounded, growing to a $3 trillion market cap peak by 11/8/21. BTC captured just 38% of the second move.
While some believe that this is “Bitcoin’s cycle” (due to ETH underperformance, ETF dominance, Strategic Bitcoin Reserve hype, L2s, etc) the data suggests that BTC was actually stronger as we transitioned into ‘21 — the final year of the last cycle.
In the last cycle, “altseason” kicked off with a bang as we rang in the New Year. ETH did a 5.3x from January through May. Avalanche did a 12x. SOL went up 28x over the same period. DOGE went up 162x 🤯. This is what “altseason” truly looks like. Bitcoin dominance dropped nearly 30% over this period.
As noted, we see some froth in the market today. With that said, we think “altseason” is just starting now — evidenced by Bitcoin’s drop in dominance from its cycle peak at 60% on 11/21/24.
In our base case, we forecast the total crypto market cap to grow to $7.25 trillion next year (113% increase from today). If 35% flows to BTC from here, that would take it to $3.2 trillion, or $162k per BTC. Our bull case projects a $10 trillion total crypto market cap. With 35% of flows, that takes BTC to $4.2 trillion, or $212k BTC. Our bear case projects $5.5 trillion. With 35% of flows to BTC, that takes it to $2.6 trillion, or $131k BTC.
Our base case anticipates $2.5 trillion flowing into non-BTC assets this year — double what we saw last cycle in ‘21. For perspective: Solana, Avalanche, and Terra Luna had a combined market cap of $677m on 1/1/21. They peaked at $146b at the end of the year. That’s a 21,466% gain. Again. We haven’t seen massive moves like this just yet. That doesn’t mean it has to happen. But at least we know where we stand relative to the ‘21 cycle.
“Altseason” happens for several reasons. But we think there are 4 main drivers:
BTC wealth effect: BTC investors take profit + seek bigger returns further onto the risk curve.
Media attention. More attention = more users into crypto. Many will invest in what they believe to be the “next Bitcoin.”
Innovation. We typically see new and exciting use cases emerge later in crypto cycles.
Macro/Liquidity Conditions/Fed policy — which drives market sentiment and animal spirits.
Speaking of macro conditions…
If we are to have a proper “altseason,” we believe macro and liquidity conditions will have to line up with the growing risk appetite emerging amongst market participants.
In this section, we break down some of the key economic drivers for risk assets such as crypto, while thinking through probabilities for various outcomes in 2025.
As we noted in our last report, the Fed is concerned about inflation. As such, they shifted from forecasting 4 cuts this year to 2 in the November FOMC meeting. The market sold off as a result.
We think the Fed/market is offside concerning inflation. Why? The key drivers of inflation during COVID-19 were 1) supply chain issues, and 2) war-time money printing (fiscal) + ZIRP (Fed).
Therefore, to forecast inflation coming back, we need a catalyst. Some might point to oil. But we think Trump’s “drill baby drill” policy is deflationary to oil prices (increasing supply should result in lower prices). Others point to fiscal spending and the $1.8 trillion deficit forecast for ‘25. Lower taxes. Deregulation. And tariffs. All fair game.
But we also have deflationary forces in the economy. Things like AI and other technological innovations. We have an aging population — with lots of baby boomers retiring. We also have a declining population due to persistently low birth rates. And now we have a strict border policy. Not to mention China’s rapidly slowing economy.
This is all deflationary. Yet some people are still pointing to inflation’s “come back” in the 70’s. They make these comparisons without any context as to how the economy, demographics, commodities markets, etc are different today.
As such, our base case is that inflation largely stays in range with what we see today (2.4% PCE). It might even go down. We believe this is bullish for risk assets as it could lead to more than 2 rate cuts next year — which is not priced in today.
We ended the year at 4.6% — up a full % point from September 16 when the Fed started cutting. So, the Fed is trying to loosen monetary conditions. But the bond market has tightened them instead. Why? We think there are 3 primary drivers:
Inflation. The bond market thinks inflation could come back as a result of the Fed cutting rates.
Fiscal spending concerns and growing debts. Large deficits lead to more Treasury issuance — which could create an oversupply in the market. To attract buyers, rates have to go up (unless the Fed steps in as a buyer — which we expect to see later this year).
Growth expectations. Accelerated growth in ‘25 due to Trump’s policies (lower taxes, deregulation) could lead to higher inflation.
We think it’s fair that the bond market has re-priced the 10-year yield given the stated concerns. And we’ll note that the Treasury needs to re-finance over 1/3 of all outstanding debt this year, much of it at the short end of the curve — where there are more buyers —and where Secretary Yellen frontloaded most of the refinancing from last cycle. If the new Treasury Secretary Scott Bessent tries to term out the debt, it could create a supply/demand imbalance on the long end of the curve and cause yields to spike.
We think these risks are valid. But we also just think the Fed has tools (QE) to control rising yields when they need to. And we think the Trump admin will do what it takes for asset prices to go up.
Our base case is that the 10-year gets to 3.5-4%. It might go lower. Again we think this is bullish for risk assets.
While the 4th quarter data is not yet available, growth from the first 3 quarters suggests that we grew 3.1% in 2024. The latest GDP Now forecast from the Atlanta Fed projects 2.6% growth for next year.
Meanwhile, the S&P 500 was up 25% last year. It was up 24% in ‘23. The CAPE Ratio — which measures valuations relative to inflation-adjusted earnings from the past 10 years — is currently at 37.04 This is significantly higher than the historical mean of 17.19, indicating a reversion could be coming in ‘25.
But we shouldn’t blindly assume that a mean reversion is coming. What if lower taxes and deregulation increase earnings? What if automation increases efficiency? Or the anticipation of these things drive market participants to buy stocks?
It’s worth noting that the CAPE Ratio bottomed in Oct. ‘22 at levels nearing peak valuation in 1929 — just before the Great Depression. Hmm. We think it’s possible that the nature of modern global liquidity cycles is warping asset valuations — particularly after the financial crisis in 2008. After all, governments around the world continue to paper over aging demographics by printing money — creating asset bubbles, and a growing list of zombie companies in the process.
Data: The DeFi Report, S&P 500 CAPE Ratio via multpl.com
We think growth could surprise to the upside this year. But a lot of it could depend on whether Trump is able to push tax cuts and deregulation through Congress.
With that said, we do not see a recession on the horizon. Despite the high CAPE ratio, we don’t think we’re in a bubble either. Our base case has the S&P 500 growing 12.8% this year.
The labor market is cooling, with unemployment at 4.3% (up from 3.6% last year). The ISM is at 48.4 — indicating moderate contraction in the manufacturing sector (11% of GDP). Meanwhile, the Fed is 3 cuts and 1% into its rate-cutting cycle. The market is pricing in a pause for January at 88% currently. There is no FOMC meeting in February.
Therefore it looks like the Fed Funds Rate will stay at 4.25-4.5% until March at the earliest. Furthermore, a fight over the debt ceiling is looming as Secretary Yellen has indicated the Treasury will reach its borrowing limit between January 14 and January 23. As such, we think the Treasury may have to resort to spending down the TGA — the Treasury’s operating account at the Fed that can be tapped during an emergency. It has about $700b in it today. The Fed could also use its Reverse Repo Facility to release liquidity in an emergency.
Finally, yields are dropping like a stone in China as their economy appears to be in deflation. It looks as though China may need to stimulate to avoid a 2008-like debt deflation spiral.
So we think there is potentially some turmoil coming in Q1 that would ultimately result in liquidity injections from both the Fed/Treasury and the PBOC. We’re expecting some short-term volatility as a result.
It’s our view that “altseason” is just starting now. But we also believe the macro and global liquidity conditions will need to be supportive for a proper altcoin rotation to play out this year.
Of course, macro is very difficult to forecast. But we hope our analysis can help you develop your own framework for how the year could play out.
We do not see a risk of rate hikes — which ended the last cycle in Nov. ‘21
We do not see a risk of recession on the horizon (though some sectors such as CRE continue to experience pain)
We think the Fed/market is offside as it pertains to inflation concerns
We think the labor market could show signs of further weakness in Q1
We believe yields will drop later this year, with the Fed potentially buying the Treasury’s debt while pinning interest rates down (QE)
We think China has to stimulate to avoid debt deflation
We still think there is risk to the upside this year, as we believe the market set-up with Trump coming in during a period of rapid technological advancement looks similar to the late 90s
We expect to see some volatility/drama as the debt ceiling debate plays out over the next few weeks
The biggest risk is a black swan that would force the Fed to cut rapidly as the market would likely sell off in the panic before ultimately being buoyed by the spigots of liquidity
Thanks for reading.
Take a Report.
And Stay Curious.
Disclaimer: Individuals have unique circumstances, goals, and risk tolerances, so you should consult a certified investment professional and/or do your own diligence before making investment decisions. The author is not an investment advisor and may hold positions in the assets covered. Certified professionals can provide individualized investment advice tailored to your unique situation. This research report is for general educational purposes only, is not individualized, and as such should not be construed as investment advice. The content contained in the report is derived from both publicly available information as well as proprietary data sources. All information presented and sources are believed to be reliable as of the date first published. Any opinions expressed in the report are based on the information cited herein as of the date of the publication. Although The DeFi Report and the author believe the information presented is substantially accurate in all material respects and does not omit to state material facts necessary to make the statements herein not misleading, all information and materials in the report are provided on an “as is” and “as available” basis, without warranty or condition of any kind either expressed or implied.