December 18, 2025 Daily Report

Yesterday, after the US stock market closed, it continued to decline, with tech stocks all pulling back in a correction, and Bitcoin also experienced a rally followed by a retreat.
The US Christmas holiday is approaching, and market liquidity is relatively low, with investor sentiment being cautious. Any small movement can trigger a rush to exit.
Currently, the US stock market has already reached a leveraged bubble state.
From the on-market leverage indicator of US stocks, since June 2025, this indicator has broken through one standard deviation. It is now roughly comparable to July 2007, not yet at the extreme levels of March 2000, but significantly higher than the mid-term highs since 2009.
Once the bubble phase begins, US stock movements mainly depend on liquidity rather than fundamentals.
If on-market deleveraging starts and the indicator turns around, the entire market will enter a medium- to long-term downtrend.
Moreover, the higher the peak, the lower the bottom after deleveraging.
From this perspective, if the US stock market really declines, the correction could be even larger than the wave from November 2021 to December 2022.
Currently, everyone is most concerned about US monetary policy, which will directly determine the direction of US stocks and liquidity.
At present, AI and tech stocks are attracting investment due to policy support and capital inflows.
However, investors are also worried that the Federal Reserve and Trump have not yet decided who will win, fearing that the US economy might slip into recession, leading to intense market speculation and high volatility.
Nevertheless, yesterday, legendary trader Ban Mu Xia stated that concerns about an AI bubble have been ongoing for some time, and the market has basically digested these worries.
Concerns about Japan's interest rate hikes have also caused recent market stagnation, which is within market expectations.
The Federal Reserve has begun expanding its balance sheet, and liquidity is gradually improving.
Last week’s non-farm payroll data was not great but not too bad either, providing more room for rate cuts and not directly signaling a recession.
Therefore, it is very likely that now is the best time in the medium term (next 1-2 months) to buy risk assets such as Bitcoin, S&P 500, and CSI 300.
In the next one or two years, cyclical concerns about an AI bubble may re-emerge, each causing market pullbacks. However, each pullback is actually an opportunity to buy until the market becomes overly convinced that this time is different.
From a macro perspective, I believe the Federal Reserve has entered a large easing cycle, with three consecutive rate cuts in 2025, plus balance sheet expansion, gradually restoring market liquidity.
Additionally, Trump will have mid-term elections next year, and he will definitely prevent the US economy from falling into recession, so US stocks are unlikely to crash significantly. This will require the Fed to cooperate with him in easing.
As long as the Fed’s monetary policy does not shift, the problem is manageable. The key now is who can hold out until the end.
From the data, it appears that short-term holders are mainly selling, and there is not much selling pressure from trapped investors at high levels. Bitcoin mainly follows the trend of US tech stocks.
In the past week, whales also bought 54,000 BTC, worth $4.66 billion.
However, according to spot ETF data, both BTC and ETH are experiencing outflows. On December 16, BTC outflows amounted to $277 million, and ETH outflows were $224 million, indicating that US institutional investors are currently cautious.
Overall, December is the North American Christmas and holiday season, considered the worst period for market liquidity. Coupled with various macro events gradually unfolding, market volatility is expected to increase.
Next, attention can be paid to Thursday’s CPI inflation data; the lower the number, the more favorable it is for the Fed to cut rates.
On Friday, the Bank of Japan will adjust interest rates. A 25 basis point hike is almost certain, which is a bearish signal, but the market has already priced it in, so the impact should not be too significant.
The key is whether the Bank of Japan will signal a continued rate hike, which could influence short-term market sentiment and prices.