According to a recent Forbes report, Wall Street institutions are quietly positioning themselves for a significant upward movement in the Bitcoin and cryptocurrency markets.
A series of events within the crypto space and the broader macroeconomic environment have influenced market dynamics throughout 2025. Although digital assets remain at the forefront of growth investing, they have not been immune to the prevailing risk-off sentiment affecting most industries and asset classes.
The year began optimistically, with shifting political attitudes toward cryptocurrencies driving prices upward from the November elections through January. However, after Bitcoin and Solana reached new all-time highs in January, the inauguration of former President Trump turned into a classic “buy the rumor, sell the news” event. Both the S&P 500 and Bitcoin experienced declines of 15–20%, though Bitcoin has since partially recovered. Looking closer, high-growth and small-cap assets fared even worse. Ethereum, the second-largest cryptocurrency by market cap, fell by 47%. This pullback can largely be attributed to macro factors, as well as some issues unique to digital assets.
Macroeconomic Influences on the Market
From a macroeconomic standpoint, markets have been concerned with increased policy uncertainty and the threat of stagflation—a combination of slowing economic growth and rising inflation. The Trump administration’s continued push for tariff policies has contributed to declining consumer confidence, lower corporate earnings expectations, and reduced GDP forecasts.
While initial tariff announcements began with executive orders on inauguration day, it wasn’t until the first round of tariffs targeting Mexico, Canada, and China took effect on February 1 that markets fully reacted. Each subsequent tariff declaration triggered market declines, culminating in a significant downturn by early April.
Another contributing factor has been the impact of government efficiency initiatives, which have subtly influenced public sector sentiment and spending. Given that government expenditures account for nearly a quarter of GDP and have contributed significantly to job growth in recent years, any reduction in spending could have tangible short-term economic effects.
Regardless of the long-term merits of these policies, their speed and scale represent a stark departure from previous administrations. Markets dislike uncertainty, and the instinctive reaction has been a flight to safety and more defensive positioning.
The AI Optimism Correction
From a growth perspective, equities had been buoyed by optimism around seemingly limitless demand for AI hardware. However, this sentiment was dampened as the market began digesting the implications of rapid advances in AI, including achievements by entities like DeepSeek. Nearly all AI-related public equities—and AI-themed tokens—underwent substantial corrections, with many falling more than 50%.
Digital Asset-Specific Challenges
The digital asset industry also faced its own set of challenges, starting with the memecoin bubble burst. This wave of selling began after former President Trump launched his own memecoin and accelerated following controversy involving Argentine President Javier Milei and an allegedly manipulated memecoin project named LIBRA.
Debate continues over whether these developments are ultimately positive or negative for the crypto space. On one hand, high-profile figures bring attention and new users into the ecosystem, encouraging more innovation in tokenization—one of the most disruptive forms of capital formation seen in decades.
On the other hand, memecoins often reinforce the public perception that cryptocurrency is rife with scams and jokes, damaging the reputation of serious builders in the space. They also drain liquidity and attention from other tokens. And because memecoins are often extractive, it becomes difficult for legitimate projects to recover after the hype fades.
The second major industry-specific event was the hacking incident involving Bybit, the world’s second-largest crypto exchange. Although no customer funds were lost—Bybit covered the shortfall—the event still shook confidence in the overall market structure.
When combined, these factors created a noticeable drag on market performance.
Market Performance and Sentiment Indicators
The sell-off was broad-based. In the first quarter, the median token fell by more than 50%, and nearly all cryptocurrencies are in negative territory year-to-date. This price action mirrors the behavior of the S&P 500 and its underlying components.
We believe the market is increasingly focusing on tokens with sound fundamentals, and this is reflected in relative performance. Year-to-date, tokens with real revenue and cash flows have outperformed those without by 8 percentage points. Memecoins and AI-related tokens have underperformed the broader market.
As painful as it may be, we view the destruction of capital in fundamentally worthless tokens as a healthy market correction.
This is not the first time the market has experienced such a pullback. Significant corrections are common within broader bull markets.
During the 2020–2022 rally, Bitcoin itself experienced five separate drawdowns of more than 20%. Other tokens saw corrections of 40–50%. Even in strong markets, volatility is inevitable.
In the current long-term uptrend, we have already experienced three such pullbacks—including the one we are in now. Each time, being shaken out has proven to be a mistake. In fact, Bitcoin recently rebounded to $95,000, with most of those gains occurring within a single week. For those with a long-term investment horizon, the ability to withstand this volatility is a significant advantage.
When analyzing quarterly changes in crypto market capitalization, sharp declines have often been followed by strong rebounds.
Q1 2025 was the worst quarter for cryptocurrencies since the summer of 2022. While past performance is not necessarily indicative of future results, history shows that steep declines are almost always followed by powerful rebounds—though the magnitude of recovery depends on current market conditions and, most importantly, whether the overall upward trend remains intact.
Monitoring Market Sentiment
On April 15, 2025, I hosted a crypto market outlook call where I discussed several indicators that track market sentiment. These indicators had reached historically extreme levels, suggesting that the worst of the selling may be behind us.
The U.S. Economic Policy Uncertainty Index reached its highest level in 40 years, comparable to readings during the COVID-19 pandemic and exceeding those recorded during both the 9/11 attacks and the 2008 financial crisis.
The Crypto Fear and Greed Index, which considers technical momentum and social media sentiment among other factors, showed that market participants had fallen into extreme fear—levels not seen since the bear market lows and the FTX collapse in late 2022. Historically, such extreme negativity has often signaled a local price bottom and favorable entry points for future returns.
Bitcoin futures funding rates on Binance indicated that more participants were shorting than going long. This has only occurred during market downturns in previous cycles and has typically preceded significant bounces, similar to those seen in late 2023 and late 2024.
Finally, the American Association of Individual Investors (AAII) Sentiment Survey showed that over 60% of investors were bearish about the next six months. Since the survey began in the 1980s, this has only happened three other times: in 1990, 2008, and 2022—all periods of major market pullbacks.
In summary, these charts suggest that—whether looking at crypto-specific sentiment, crypto-native positioning, or broader retail investor sentiment—we have reached historic extremes. The most aggressive phase of selling may already be behind us.
Favorable Interest and Liquidity Conditions
At the same time, favorable interest rate and liquidity conditions are supportive of risk assets.
The 10-year U.S. Treasury yield has been steadily declining since peaking in 2023, with particularly sharp drops in recent days. While rates may remain higher for longer due to persistent inflation, the overall trend is downward. The Trump administration—particularly Treasury Secretary Bevans—has emphasized the importance of reducing long-term rates, and policy actions appear aligned with this goal. Lower long-term rates are crucial for sustaining U.S. spending and are also supportive of risk asset valuations.
Global liquidity conditions are also improving. After a period of tightening, both Europe and China are now implementing stimulus measures. We may be on the verge of a shift toward quantitative easing. Over the past few weeks, both Treasury Secretary Bevans and Fed Governor Collins have spoken about this in response to bond market turbulence caused by soaring long-term yields. Their natural response will be to provide liquidity support, and when that happens, several of the world's largest economies will be working in concert. Increased liquidity is bullish for risk assets.
When we compare global liquidity with Bitcoin's price, it becomes clear that Bitcoin's major upward trends have occurred during periods of increasing liquidity. During times of stress—usually triggered by liquidity tightening—Bitcoin has pulled back along with other assets. Therefore, we view rising global liquidity as a key indicator to monitor.
The Four-Year Cycle: A Different Perspective
This is a historic moment for the global economy: the S&P 500 just experienced its worst week followed immediately by its best week. Bitcoin's price tends to experience significant volatility around major macroeconomic events, which often coincide with global liquidity cycles. In 2012, it was the Eurozone sovereign debt crisis. In 2016, it was Brexit. In 2020, it was the economic collapse triggered by the COVID-19 pandemic. Many attribute Bitcoin’s price cycles to its halving events, but another explanation is that every four years or so, a major macroeconomic event occurs that supports a Bitcoin bull market. Once again, we find ourselves in such a moment.
Recent macroeconomic developments are evolving into a crisis of confidence in the U.S. dollar. Many observers note that rising long-term bond yields signal bond market turbulence or even capital flight as foreign companies and entities move savings out of dollars. Bitcoin’s primary function is that of a non-sovereign store of value. This doesn’t necessarily mean its price must be stable, but it is increasingly viewed as an attractive alternative and diversification tool in an increasingly uncertain world. This de-dollarization trend supports that thesis.
Positive Industry Developments Overlooked
Amid the price volatility, many positive industry developments have been overlooked. On the policy front, these include the White House appointing a "crypto czar" and establishing a digital asset working group, creating a strategic Bitcoin reserve, rolling back restrictive regulations such as SAB-121 and the DeFi broker rule, and the SEC dismissing over a dozen lawsuits against major companies.
Arguably, the crypto industry has experienced one of the most positive news cycles in its history—with many changes being structural—yet it just underwent its worst quarter since 2018. We believe this good news has not been priced in by the market and has simply been overshadowed by volatility.
Most importantly, digital assets need real adoption and usage to sustain value. Blockchain-based businesses are now generating billions of dollars in revenue. Real Economic Value (REV)—a measure of total demand and value capture on L1 blockchains—was $1.5 billion last quarter, or $6 billion annualized. Total on-chain application revenue was approximately $3 billion over the same period, or $10 billion annualized.
Daily active addresses—a measure of user activity—continue to hit new all-time highs. Stablecoins and on-chain stablecoin transfer volumes have also reached record levels as more people choose to use crypto for payments and savings. Innovation remains strong in key investment themes such as stablecoins, AI, DePIN, and DeFi. We expect these fundamental metrics to trend upward as more people discover the compelling applications and opportunities available on-chain.
Frequently Asked Questions
Why did cryptocurrency prices fall sharply in early 2025?
The decline was driven by a combination of macroeconomic factors and industry-specific events. Macro concerns included policy uncertainty, stagflation fears, and new tariff policies. Within crypto, the memecoin bubble burst and a high-profile exchange hack contributed to the downturn.
How do institutional investors view the current crypto market?
Institutional investors are increasingly focusing on tokens with strong fundamentals—those generating real revenue and cash flow. Many are using this period of volatility to build positions in anticipation of future growth, viewing the current market as an attractive entry point.
What are the most important indicators to watch in the crypto market?
Key indicators include global liquidity conditions, Bitcoin futures funding rates, the Crypto Fear and Greed Index, and on-chain metrics like daily active addresses and stablecoin transfer volumes. These provide insight into market sentiment, adoption trends, and potential turning points.
How does macroeconomic policy affect cryptocurrency prices?
Cryptocurrencies, particularly Bitcoin, are increasingly correlated with broader risk assets and are sensitive to changes in liquidity, interest rates, and economic policy. Expansionary monetary policy and increased liquidity typically support higher crypto prices, while tightening conditions usually create headwinds.
Is the four-year cycle in Bitcoin prices related to halving events or macroeconomic factors?
While many attribute Bitcoin’s cycles to its halving events, there’s a strong argument that macroeconomic events occurring every four years or so—such as financial crises or major policy shifts—play an equally important role in driving Bitcoin bull markets.
What long-term factors support continued growth in digital assets?
Long-term growth drivers include increasing institutional adoption, regulatory clarity, technological innovation, and growing use cases for blockchain technology across finance, supply chain, digital identity, and other sectors. The fundamental narrative of digital assets as a non-sovereign store of value remains intact.
Conclusion
In summary, the first quarter of 2025 proved challenging for digital assets as macro forces dominated and risk appetite retreated. The biggest overhang remains uncertainty around tariffs and their global economic impact. Market outlook remains highly uncertain, reflected in sentiment indicators hitting historic lows.
However, these same sentiment signals suggest we may have passed the most aggressive selling phase. As we move through this period of tariff-driven volatility, we believe investors will begin to appreciate the strong long-term bullish factors and robust fundamentals. Explore more strategies for navigating crypto market cycles.
We continue to expect digital assets to perform strongly this year. As leading indicators for growth assets, cryptocurrencies were the first to correct—but may also be the first to recover and the quickest to rebound.