Summary While the underlying drivers are different, Bitcoin is in a similar position to the S&P 500 going into 2025. Both have enjoyed years-long rallies, powered by momentum and an underlying fundamental driver set that could potentially 'roll over'. As a result, holding BTC and taking advantage of the strong momentum - while trailing a stop loss - appears to be optimal. We rate BTC-USD a 'Hold'. Last week, we published our prediction for the S&P 500 (SPX, SP500) in 2025. In it, we outlined how we thought the broader equity markets were at a crossroads - between solid underlying growth prospects and a demanding, expensive-looking valuation. In short, we explained that our preferred strategy would be to ' Hold ' the index, while trailing a stop loss at historical pivot points . By doing this, one could take advantage of a trending, bull market, while potentially locking in gains if the valuation 'bubble' pops, like it did at the end of 2021. Today , we're going to be taking a deeper look at another key global asset: Bitcoin ( BTC-USD ). On the surface, the digital currency is a completely different animal than the S&P 500, with a different supply & demand situation driven by totally different inputs. However , despite this, following a strong run-up in 2023 and 2024, we think BTC is in a position similar to the S&P 500, in that holding the asset - while trailing a pivot-point-based stop loss - could be the best way to maximize risk/reward in a 'mixed bag' of a year. In this article , we'll examine BTC's underlying drivers, look at the coin's historical moves, and ultimately explain our 2025 outlook for the leading digital currency. Sound good? Let's dive in. Valuing Bitcoin Historically, much digital ink has been spilled when it comes to explaining various methodologies for 'valuing' Bitcoin. On the surface, many see BTC as a bet against the global financial system, which makes sense given its post-2008 roots. As the USD money supply increases and inflation rises, many see Bitcoin as a place to ' escape to '. However, in our view, BTC is really, ultimately, a replacement for Gold ( XAUUSD:CUR ) in the modern era. At face value, BTC has many of the same properties as the shiny yellow metal - it's supply growth is constrained, it's not issued by any single country, and it's primarily a way of storing excess liquidity created by the mainstream financial system. At the same time, it doesn't suffer from the same drawbacks as Gold, like the cost of custody, the difficulty of transport, and the direct environmental impact of mining. The key, to us, is that BTC ' works '. As a neutral, public, monetary backbone for the internet age, BTC demand is driven by the inherent value of the network's functionality. Thus, valuing BTC can be done in largely the same way as one would value Gold - by looking at fundamental drivers like monetary supply growth, inflation, and interest rates. Plus, one has to consider BTC as a competitor to Gold when it comes to a global store of value, so there's that 'ascendant' narrative as well. Bitcoin's Fundamental Drivers Let's start by looking at the monetary situation, which has historically proven to be one of Bitcoin's key directional drivers. In short, the rate cycle has been up and down over the last few years, which has caused a considerable amount of volatility in BTC's price. Starting in 2020, following the Covid selloff, the Fed injected a tremendous amount of monetary easing into the system, which came with significant growth in the supply of USD, also known as M2, alongside growth in the Fed's Balance sheet: TradingView TradingView Interest rates also came down to basically zero, which meant that it was incredibly cheap to take out debt: TradingView Of this new liquidity, much of it found its way into Gold and Bitcoin, both of which increased substantially in price during this time. From there, inflation began to pick up as global energy prices began to tick higher post lockdown, which ultimately led to sticky inflation that necessitated a hiking cycle. With this tightening on the horizon, BTC saw a huge wipeout throughout 2022. TradingView After inflation began to normalize in 2023, bonds also began to stabilize, and BTC once again enjoyed a bid. Then, combined with a 'halving', which cut supply growth in half, we've seen considerable gains from the start of 2023 through the start of 2025: TradingView Looking ahead , into 2025, we see monetary headwinds are beginning to crop back up on the horizon. For starters, the Fed continues to tighten liquidity as it unwinds its balance sheet. At the same time, the Fed's easing cycle may now be in question following worse-than-expected inflation data, alongside better-than-expected employment data: A better-than-expected job openings reading for November 2024, along with a significantly stronger-than-anticipated nonfarm payrolls report for December 2024, suggested that the labor market had once again become highly resilient after showing considerable cooling in the middle of last year. For a Fed that wants to ease monetary policy, the data was a spanner in the works . Additionally, there were some concerning inflationary indicators—prices paid by services organizations for materials and services increased to a nearly two-year high in December. If the Fed plans on cutting rates less than BTC buyers anticipated in 2024, then it could damage BTC's 'excess liquidity' bull thesis and cause BTC's floating price to move back down. That said, it isn't all bearish news. On the positive side of things, BTC still enjoys a slow secular bid when it comes to taking over Gold's position as the global currency-proof store of value, which should provide a trickle bid over time. On this front, Gold still has a much higher overall market cap vs. Bitcoin (roughly 10x), which means there's significant upside from this driver alone: 8marketcap.com This likely won't switch over quickly, but it's a passive flow into the asset which should buttress prices. Additionally, BTC has historically been a trendy asset, and we're still clearly in the throes of an uptrend: Logarithmic Heiken Ashi Chart (TradingView) Thus, when you look at BTC in 2025, going in, we have a bit of a mixed bag. On one hand, we've got sentiment and BTC's competitive position with Gold in a position to drive the price higher. On the other hand, the global liquidity situation could be on the verge of slowly rolling over. What's the best way to play it? Our Outlook As we mentioned at the start, the S&P 500 and Bitcoin, in our view, are largely in the same camp, albeit for different underlying reasons. In sum, both have enjoyed years-long rallies that now appear somewhat long in the tooth, powered by momentum and an underlying fundamental driver set which could roll over at some point in 2025. Thus, we're very much in a 'show me' kind of year, where the market will care - more than normal - about co-incident data . As a result, we think that holding BTC, while preparing for a move lower in prices would be prudent, given the momentum situation. What's the best way to achieve this? With a trailing pivot point stop loss: TradingView Above, you can see a weekly chart of Bitcoin, where the red dotted horizontal rays represent pivot point lows. Placing a stop loss below these points, and then trailing as the chart makes new highs, seems like the best way to lock in gains in this volatile asset. Right now, this chart would have you placing a stop loss at roughly $50,000, which is a long way down from where BTC has been trading recently. That said, if you'd like to have a setup that tracks price more closely, you could go with a 2 day chart, which will likely get a new pivot low around $90,000 at some point: TradingView Either way, using a trailing pivot stop, considering Bitcoin's overall extension to the upside, and wobbly monetary price drivers , seems like the best way to play this volatile asset going into a mixed bag of a year. Summary All in all, we think BTC will keep trending higher, at least until the monetary situation potentially resolves to the downside. In the event that does happen, protecting a long position with a trailing stop loss seems like the best way to trade Bitcoin in what otherwise looks to be a tough-to-predict year. If you're long, watching economic data closely and following Fed meetings should be your top priority for 2025. Thus, our ' Hold ' rating. Stay safe out there!
