A Post-Mortem Crypto Analysis refers to a detailed examination of a cryptocurrency-related event after it has occurred. The goal is to understand the root causes, impacts, and lessons learned.
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December 2024/January 2025 Crypto Meltdown Analysis
Disclaimer: Most of the analysis is focused on BTC data, since is the one most freely available
After conducting a post-mortem analysis of the recent crypto market meltdown, I identified a series of conditions present in early December that signaled an overheated or euphoric market. These indicators suggested an increased likelihood of at least a short-term correction or heightened fragility to external shocks and negative news.
That said, I still think that if macroeconomic conditions stabilize, this could be just a temporary correction rather than the end of the cycle, as we have yet to reach the extreme levels seen in past cycles. However, it does seem the presence of these conditions increases the probability of a correction at least in the short term.
Conditions present on crypto in early December:
- Unrealized profits, especially for long-term holders, reached very high levels (above 350% profit)
- Inflows to exchanges increased above normal levels at ~6B. Inflows have dropped from $6.1B at the peak to $2.8B now (-54%).
- Large profit-taking at peak (~5B per day, net ~4B per day), requiring significant capital inflows to absorb the selling pressure
- High levels of retail activity were present. At its peak in November 2024, retail investors spent $20.6M per hour. Today, it’s down 48% to $10.7M.
- Funding rates spiked, didn’t reach March’s extreme levels but was the highest since April 2024. Indicating a high level of speculative and leveraged positions.
- Entity-adjusted BTC transfer volume reached an all-time high of $20.7 billion in December 2024. However, by early February 2025, this figure had declined to around $11.2 billion per day
- Binary Coin Days Destroyed (CCD) indicator reached very high levels, indicating high sell-side pressure.
- Meme coin Google search trend got very high, indicating high retail speculative activity on very risky assets.
Macro conditions present:
- Huge optimism due to the election of Donald Trump
- Expectations for a more dovish FED were still present before the December FED meeting
- Inflation progress had stalled since June 2024
- Labor market weakness had stabilized
- Growth expectations were very high
- Global liquidity was weakening after having a significant urge earlier during 2024
Catalyst for meltdown:
In my opinion, the first sell-offs happened because of these overheated conditions on crypto combined with the Fed unexpectedly (for the markets) focusing or getting more concerned about inflation again
After that, the uncertainty from the Fed and politics have kept things volatile and have made the environment even more unstable.
Conclusion or lesson:
When on-chain data begins to indicate overheating conditions:
- High unrealized profits, and high profit taking
- Large exchange inflowns and btc transfer volume
- High retail activity and funding rates
- High speculative activity
- High selling presure
coupled with rising concerns about inflation, unemployment, economic growth, geopolitical, or liquidity risks, it would be ideal to start taking profits to mitigate potential downside risks.
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