As we close another calendar year, it’s human nature to look forward to the approaching new year and share views on the 2025 outlook. Let’s start this short year-end missive with a review of current economic conditions, followed by a summary of Servant Financial’s asset allocation views. We’ll share some contrarian market views and some expert predictions on potential 2025 pyrotechnics for Bitcoin.
Current Economic Conditions
While longer-term Treasury yields remain elevated yet relatively stable, wage growth continues to be robust, and housing inflation remains persistent. Inflation is likely to exceed 2% through at least the first half of 2025. Despite these pressures, gradual interest rate cuts from the Fed are still anticipated in 2025.
Headline inflation rose by 2.7% year-over-year in November, as expected, while core inflation remains persistently high at 3.3%; both measures increased by 0.3% month-over-month. While headline, core, food, and medical care inflation are trending higher, shelter inflation is slowly easing, with housing inflation declining on a month-over-month basis. The 10-year Treasury yield initially dropped on the in-line CPI print and warmer-than-expected PPI reports but later rebounded.
November’s PPI exceeded expectations, rising 3.0% year-over-year compared to the 2.6% estimate. Wholesale food inflation was a key contributor. The Fed cut its benchmark interest rate by 0.25% at its last meeting on December 18th, bringing the 2024 rate reductions to a total of 1.0%. An additional 0.75% in cuts are expected by markets in 2025 with the first 0.25% cut in March 2025 and the equivalent of three 0.25% cuts over the remainder of the year.
Economic growth is expected to be supported by consumer and government spending, particularly in the first quarter of 2025. Consumer spending remains resilient, largely driven by higher-income households. Although consumer loan delinquency rates have shown some stabilization, they remain elevated, especially among younger demographics. Meanwhile, the healthcare sector faces potential transformative changes, with the new Trump administration considering spending cuts amid ongoing industry challenges and years of underperformance.
Asset Allocation
With equity valuations remaining relatively unattractive by traditional valuation metrics and a wide range of potential geopolitical, policy, and economic outcomes on the horizon, sticking to first principles is key as we turn the page on another year and another occupant in the White House. We intend to remain focused on broad asset class diversification, avoiding unnecessary risks, and potentially fading extremes in asset classes and sectors (healthcare). We maintain that diversification should include healthy exposures to risk and minimal longer-term bonds (given that lower long-term interest rates and bond price upside appear limited). We anticipate significant regulatory changes in two key areas. Bitcoin and digital assets, where the regulatory and political winds appear very constructive. And healthcare, where the regulatory and policy changes are likely to be adverse.
Please see the linked slide below for a more detailed discussion of asset allocation views.
Contrarian Market Views
Major Wall Street firms’ 2025 outlooks (based on simple word counts of published research) have primarily favored artificial intelligence (AI), China’s economic recovery, and midstream energy plays. Meanwhile, Bitcoin, biotech, nuclear/uranium, and small caps appear to be under Wall Street’s radar (or not on their books for sale.)
Of these contrarian asset class plays, we believe Bitcoin and the digital asset class more broadly have considerable tailwinds from the change at the White House, going from a clearly antagonistic regime to one that is clearly supportive of American technological innovation and a transparent, clear regulatory framework.
Bitcoin Friendly Nominees
The following triumvirate of Trump 2.0 nominees suggests a strong foundation for the further institutionalization of Bitcoin and digital assets in 2025 and beyond.
David Sacks, Digital Asset (and AI) Czar – David plans to provide regulatory clarity for the Bitcoin and crypto industry, focusing on compliance, taxation, and operational guidelines to enable sector adoption and growth in the U.S. Sacks seeks to position the U.S. as a global Bitcoin & cryptocurrency leader, supporting Trump’s vision of making America the “Bitcoin capital of the planet,” with a more transparent and clear regulatory approach.
Scott Bessent, Treasury Secretary – Bessent has been advocating for tax cuts, reducing government spending (and deficits), strong national defense, targeted and gradual tariffs, and a focus on lowering inflation. He plans to preserve the dollar’s global reserve currency role but has not publicly stated how Bitcoin fits within that mandate. Bessent emphasizes that deficit reduction is essential, starting with fiscal reforms. He has proposed a “3-3-3” target, aiming to achieve 3% economic growth, a reduction in the deficit to 3% by 2028, and an increase in daily oil production by 3 million barrels.
Paul Atkins, SEC Chairman – Atkins is anticipated to steer the SEC towards a more deregulatory approach, reversing many of prior SEC Chair Gensler’s inconsistent policies. Atkins has a strong pro-Bitcoin & cryptocurrency stance, advocating for a clear regulatory framework for digital assets. He has criticized Gensler’s aggressive enforcement actions against crypto firms and has emphasized the need for tailored rules that address the unique challenges of this sector.
Bitcoin Predictions
Galaxy Digital Asset Management controls $4.9 billion in digital assets and recently shared their 2025 predictions for Bitcoin and digital assets:
- Bitcoin will cross $150k in the first half of 2025 and test or best $185k in the 4th
- The U.S. spot Bitcoin ETFs will collectively cross $250 billion in AUM in 2025.
- Bitcoin will again be among the top performers on a risk-adjusted basis among global assets in 2025. The following is a chart for 2024 through December 20th
- At least one top wealth management platform will announce a 2% or higher recommended Bitcoin allocation.
- Five Nasdaq 100 companies and five nation states will announce they have added Bitcoin to their balance sheets or sovereign wealth funds.
- More than half the top 20 publicly traded Bitcoin miners by market cap will announce transitions to or enter partnerships with hyperscalers, AI, or high-performance computing firms. Hut 8 (NASDAQ: HUT), a small allocation in the most risk-tolerant Servant client models, has already made strategic announcements in this area.
- The world’s top four custody banks will custody of digital assets in 2025. The Office of the Comptroller of the Currency (OCC) will create a pathway for national banks to custody digital assets, leading the world’s top four custody banks to offer digital asset services: BNY, State Street, JPMorgan Chase, and Citi.
- The U.S. government will not purchase Bitcoin in 2025, but it will create a stockpile using coins it already holds, and there will be some movement within the departments and agencies to examine an expanded Bitcoin reserve policy.
If only a portion of Galaxy’s explosive Bitcoin predictions come to fruition, 2025 will be a good year for holders. We wish you a Merry Christmas and Happy Holidays. May you find time to relax, recharge, and celebrate the joy of the season with your friends and family.
As is our custom, we’ll be making an annual charitable contribution to Mercy Home for Boys & Girls. We’re looking forward to seeing you in the New Year.
