The US government's establishment of a Strategic Bitcoin Reserve is seen as a major turning point for crypto adoption that could reduce the likelihood of a federal ban and potentially encourage other nations to follow suit. Analysts suggest that institutional investors will take Bitcoin more seriously, while market watchers expect big price movements as liquidity dynamics and government involvement evolve.
Analysts Predict Crypto Market Recovery
The total cryptocurrency market capitalization soared to a record high of $3.73 trillion on Dec. 14 of 2024, before experiencing a big 20+% decline to $2.89 trillion. Despite this pullback, some analysts are still optimistic about the market’s future trajectory, and predict a potential recovery and new all-time highs in the second quarter of 2025.
Mark Quant, a crypto markets researcher, presented an analysis which suggests that the Global Liquidity Index (GLI) could be a key factor in the market’s resurgence. The GLI measures the ease of financing in global financial markets, and provides insight into global financial conditions.
Historically, a rise in the GLI has been associated with increased investor access to capital, which in turn fuels demand for risk-on assets like cryptocurrencies. Quant pointed to a strong 0.77 correlation between the GLI and total crypto market capitalization, with a 74-day offset, which indicates that liquidity expansions tend to precede bullish trends in the crypto market. Based on this historical relationship, he suggested that the market could move sideways for the next month before beginning an upward trajectory in early April. This could potentially push the total market capitalization beyond $4 trillion.
The relationship between liquidity and crypto prices aligns with previous research, like the work of macroeconomist Lyn Alden, who found that Bitcoin historically followed global liquidity trends approximately 83% of the time over a 12-month period. Compared to other asset classes like the S&P 500, gold, and global equity indices, Bitcoin demonstrated the highest correlation with global liquidity conditions. However, Alden pointed out that short-term deviations could occur because of unique market events or internal dynamics.
During the recent market decline, analysts closely monitored key support levels to determine whether a bottom is in. Dom, a market analyst, pointed out that the total market cap is currently testing significant support at its 2021 cycle high and its March 2024 peak. He also shared that the yearly relative volume-weighted average price (rVWAP) sits just below the current market level, which reinforces the idea that the market structure remains intact for now. He warned that breaking below the current monthly lows could jeopardize the bull market’s continuation.
Daan Crypto, another well-known trader, believes that the outcome of the current weekly close will be a critical factor in assessing the market’s direction. As the total market cap is still under its 2021 highs, there are signs that bearish sentiment is trying to gain control over the higher time frame charts. Whether the market finds support at these levels or sees further downside remains to be seen.
US Crypto Reserve Could Boost Bitcoin Market Cap
An analysis by Sygnum Bank suggests that the creation of a strategic crypto reserve in the United States could drive Bitcoin’s market capitalization up by approximately 25%, adding around $460 billion in value. Donald Trump envisions a national crypto stockpile that includes Bitcoin along with other digital assets like Ethereum (ETH) and Solana (SOL). Sygnum's research pointed out the potential for a major price multiplier effect, and estimates that every $1 billion of net inflows into Bitcoin spot exchange-traded funds (ETFs) leads to a 3-6% increase in BTC’s price.
Inflows vs Bitcoin price (Source: Sygnum Bank)
Katalin Tischhauser, Sygnum’s head of research, explained that Bitcoin’s liquid supply is relatively small, making it highly susceptible to upward price shocks from large inflows. She added that if federal or state governments begin purchasing Bitcoin, it will likely set off a chain reaction, encouraging institutional investors and even other governments to follow suit.
The discussion around a national crypto reserve gained a lot of traction in July of 2024 when US Senator Cynthia Lummis introduced the BITCOIN Act, which is a proposal that is aimed at establishing a dedicated US Bitcoin reserve. Since then, more than half of US states entertained similar initiatives at a state level, though not all have been successful.
On March 2, Trump said that he is committed to the initiative, which fueled an initial market rally that later faded as broader macroeconomic concerns and trade tensions took hold. Despite the excitement, progress on these plans has been uneven, with five states already rejecting crypto reserve proposals.
Tischhauser’s prediction could very soon become a reality as President Donald Trump signed an executive order to create a Strategic Bitcoin Reserve and a Digital Asset Stockpile. The reserve will initially be funded with cryptocurrency that was seized in government criminal cases.
White House AI and crypto czar David Sacks confirmed that the Bitcoin reserve will be capitalized with assets forfeited through criminal or civil proceedings. A White House fact sheet also outlined that the Digital Asset Stockpile will include cryptocurrencies other than Bitcoin.
US Bitcoin Reserve a Turning Point for Crypto
The establishment of the Strategic Bitcoin Reserve in the United States greatly reduces the likelihood of a government ban on Bitcoin and could accelerate adoption by other nations, according to crypto analysts. The announcement initially triggered a 6% drop in Bitcoin’s price, but many believe the market reaction may have been misplaced as the move is a long-term bullish signal.
Bitcoin’s price action over the past 24 hours (Source: CoinMarketCap)
Bitwise chief investment officer Matt Hougan believes that a US strategic Bitcoin reserve makes it highly unlikely that the federal government will ever ban Bitcoin. This aligns with a November 2024 report from the Federal Reserve Bank of Minneapolis, which suggested that Bitcoin could pressure the government to balance its budget.
The move is also expected to push other nations to consider establishing their own Bitcoin reserves. The US currently leads in nation-state Bitcoin holdings with approximately 207,189 BTC worth $18 billion. The US is followed by China with 194,000 BTC and the United Kingdom with 61,000 BTC. El Salvador is the only country to have made Bitcoin legal tender and continues to accumulate.
Coinbase CEO Brian Armstrong expects G20 nations to take note and eventually follow the US lead. Hougan also pointed out how the reserve’s creation legitimizes Bitcoin in the eyes of institutional investors, which makes it harder for organizations like the International Monetary Fund (IMF) to argue against sovereign Bitcoin holdings. The IMF previously pressured nations like El Salvador to limit their Bitcoin investments.
Bitwise head of research Ryan Rasmussen revealed some of the broader implications of the US Bitcoin reserve, and believes that it removes institutional excuses for not investing in Bitcoin, as well as increases the likelihood of further state-level Bitcoin purchases. Lightspark CEO David Marcus described the move as a balanced and rational decision, while crypto lawyer John Deaton pointed out that Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick have been directed to explore “budget-neutral” ways to acquire more Bitcoin.
