The ongoing correction in Bitcoin may be just beginning, and the wider cryptocurrency market could be bracing for a significant downturn similar to what occurred in 2022.
“I can envision us potentially seeing a price in the $50,000 range before the year concludes,” stated Quinn Thompson, the founder of Lekker Capital, during a recent discussion. A price in the “five handle,” which indicates a range between $50,000 and $59,999, would represent a considerable decline from the current unstable level of approximately $83,000, roughly a 50% drop from the peak of just over $109,000 seen a little over two months ago.
Thompson elaborated, “I don’t believe this will happen quickly, which is what makes it painful and shocking for many. The current market conditions lack volatility, with fewer significant liquidations or crashes.” He explained that the environment is one of slow deterioration, which can be more unbearable for traders as they wonder, ‘Is it over? Is the bottom here?’
Having maintained a bearish outlook from much higher price levels, Thompson has deemed recent cryptocurrency policy announcements from the White House — whether concerning the Sovereign Wealth Fund, Strategic Bitcoin Reserve, or anything else — as “nothingburgers” and opportunities for selling. He further pointed out that Strategy’s (MSTR) ongoing purchases of Bitcoin may not necessarily have a positive influence on the cryptocurrency’s value since they appear to represent the only substantial demand.
Four Economic Headwinds
Central to Thompson’s analysis is the notion that the policies associated with the Trump administration are likely to adversely affect the economy over the next six to nine months.
Firstly, the Department of Government Efficiency (D.O.G.E) has prioritized reducing the U.S. deficit by cutting government expenditures — a key factor in job growth in recent years. Thompson noted that the labor market was already unstable when the Biden administration transitioned control to Trump, and the new leadership’s fiscal approach seems less inclined to support it.
“People get engaged in the political debates,” Thompson remarked. “We can have differing opinions on the necessity of the Department of Education. However, the funds being printed were circulating, benefiting individuals who spent them on vacations or groceries, contributing to growth.”
Elon Musk, instrumental in D.O.G.E, mentioned last week that he is aiming for a $1 trillion reduction in government spending by the end of May, alongside a 15% cut in annual government spending, equating to nearly $7 trillion.
Even if D.O.G.E falls short and manages to cut, for instance, just $100 billion over four years, the more substantial cuts are likely to happen early in Trump’s term, not later, Thompson argued. Consequently, the impact of these cuts on the economy and consumer sentiment is expected to be felt soon, regardless of whether the agency meets its goals or not.
Secondly, the intensified crackdown on illegal immigration at the southern border — coupled with a renewed focus on deportations — is expected to influence the labor market negatively, as Thompson mentioned. Migration generally boosts growth by applying upward pressure on wages; if this labor source diminishes, workers may demand higher pay that some businesses will struggle to meet.
Thompson’s third concern involves tariffs. The Trump administration frequently alters its tariff policies, sometimes proposing new tariffs and other times revoking them, which fosters uncertainty about the likelihood of any proposed tariffs being enacted. Such uncertainty can cause businesses to postpone making investment or hiring decisions until the tariff landscape stabilizes.
Finally, the Federal Reserve seems reluctant to ease financial conditions due to subpar inflation data. The U.S. central bank last reduced rates by a full percentage point at the end of 2024, bringing them to 4.25%-4.5%, yet this move was insufficient to push Bitcoin above $110,000. Thompson anticipates the Fed could lower rates by 25 to 75 basis points in 2025, albeit these reductions are likely to be staggered throughout the latter half of the year.
“There seems to be more coordination between the Treasury and the Fed than many realize,” Thompson noted. “While some expected contention between Trump and [Fed chair] Powell, the reality is that they are aligned in their goals. [Secretary of Treasury] Bessent and Trump are actively working to slow growth, which aids Powell in achieving lower inflation.”
When Will the Bottom Arrive?
Given these significant challenges facing risk-oriented assets like stocks and Bitcoin, the forecast for the crypto sector this year does not appear promising, according to Thompson. The White House’s apparent indifference towards a potential recession further underscores this sentiment.
“Bessent is stepping in with the message, ‘We need to correct the course.’ Correcting that course involves draining the fuel that has sustained inflated asset prices. The direct outcome of their strategies will be a declining market for stocks,” Thompson explained.
However, how long does Thompson expect Trump to adhere to this path? Until the repercussions become too severe and even his supporters urge a change, or until early 2026 — it’s challenging to push the country into a recession with the midterm elections on the horizon.
“I see this as a controlled burn. They seek to methodically clear the underbrush to prevent a larger issue. However, controlled burns can swiftly become wildfires,” Thompson added. “The path ahead will likely be a prolonged struggle as they attempt to implement these policies.”