Crypto Assets Market Q1 2025 Review

At the beginning of 2025, the Crypto Assets market opened amid multiple expectations and uncertainties. The market had high hopes for a shift in the Federal Reserve's policy, innovations in AI technology, and the new government's commitment to friendly regulation. However, by the end of the first quarter, it presented a situation of "macro turmoil and micro innovation lying dormant."

The global economic situation has become a key factor dominating the market. The Federal Reserve is struggling to balance between repeated inflation and recession risks. The unexpected interest rate cut in March briefly boosted the market but failed to offset the liquidity panic triggered by the bursting of the U.S. stock market bubble. The new government promotes Bitcoin as a national reserve and implements regulatory legislation, releasing positive signals for the industry, but it also intensifies the debate over transformation costs. After reaching a new high in January, Bitcoin experienced a 30% pullback, indicating that funds were taking profits from the "halving market"; the overall performance of altcoins was lackluster, but innovations like RWA still inject momentum into the industry. Notably, some mainstream exchanges are starting to lay out the DEX ecosystem, promoting seamless access for users to DeFi and other application scenarios by aggregating on-chain liquidity and account abstraction technology, and for the first time allowing users to trade DEX assets directly within centralized platforms. This paradigm shift of integrating centralization and decentralization may become the key to the next round of growth.

Macroeconomic Environment and Impact

In the first quarter of 2025, U.S. economic data will have a profound impact on the crypto market. Since the launch of ETFs, the correlation between the crypto market and U.S. stocks has significantly increased, with the performance of the Nasdaq largely determining the direction of Crypto Assets. Although Bitcoin was once seen as "digital gold," it is now more inclined towards being a risk asset, more influenced by market liquidity. The core of the macroeconomy lies in the balance between inflation and economic strength; the market trades on expectations for the future: if inflation is too high or the economy is overheating, the Federal Reserve may delay interest rate cuts, which would be unfavorable for capital markets; if the economy is too weak, it could trigger recession risks, which similarly undermines market confidence. Therefore, the macroeconomy needs to find a balance between strength and weakness to provide a good environment for capital markets.

The large-scale layoffs by the new government have directly led to an increase in the unemployment rate. At the same time, tariff policies have driven up the prices of affected goods and the costs of related services, exacerbating inflationary pressures and increasing the likelihood of a recession in the U.S. These policies have increased the factors of market instability, leading to greater fluctuations in the capital markets. Considering the gains from the recent election sentiment and the potential risks of a pullback, some investment institutions have reduced their investment plans in the first quarter and shifted their focus to the expansion of OTC strategies. However, these policies may not merely be economic adjustments, but rather a means to increase political bargaining chips or create chaos to achieve specific goals, such as forcing the Federal Reserve to cut interest rates by manufacturing signs of recession, thereby alleviating the national debt issue and stimulating economic growth. Therefore, the market remains optimistic about the subsequent performance of Crypto Assets.

In the first quarter, the crypto market responded sensitively to economic data. The January data was overall strong but the market remained stable. The inflation in February exceeded expectations, leading to a sharp decline in interest rate cut expectations, causing a significant drop in Bitcoin. The improvement in March data led to a brief rebound, but the core PCE exceeding expectations triggered another decline. Tariff policies intensified inflationary pressures, increasing market uncertainty, and may become a factor driving the Federal Reserve to adjust its policies. The future trends of the crypto market will still heavily depend on economic data and the Federal Reserve's policy direction, and investors need to closely monitor changes in inflation and employment data.

New Government Crypto Assets Policy and Its Impact

The new government signed an executive order in March to establish a strategic Bitcoin reserve, funded mainly by approximately 200,000 confiscated bitcoins ( worth about $18 billion ), and prohibits the sale of the reserve bitcoins. This move aims to elevate Bitcoin as a "sovereign reserve asset," enhancing its legitimacy and liquidity, and promoting the United States' leadership in the digital assets space. In the short term, the price of Bitcoin surged over 8%, but quickly fell back as the reserve relied solely on confiscated assets with no new plans. In the long run, this move could inspire other countries to follow suit, pushing Bitcoin to become an international reserve asset. Other digital assets may also be included in the reserve, marking a shift for Crypto Assets towards becoming a national strategic tool.

In terms of regulation, the new government has dismissed the SEC chairman, established a Crypto Assets working group, clarified the standards for the classification of securities and non-securities tokens, and terminated lawsuits against certain companies. It has abolished the controversial accounting standard SAB 121, alleviating the financial burden on companies. The regulatory environment has significantly loosened, and institutional investors are accelerating their entry; traditional financial institutions are authorized to conduct crypto custody services, promoting industry compliance. In the short term, policy dividends may accelerate innovation and capital inflow; in the long term, it is necessary to be vigilant about systemic risks and the complexity of global regulatory games.

In terms of stablecoins, establish a federal regulatory framework that allows issuing institutions to access the Federal Reserve payment system, explicitly prohibit the issuance of central bank digital currencies, and maintain the innovation space for private encryption currencies. The application of stablecoins in cross-border payments accelerates, expanding the internationalization path of the US dollar; the market share of private stablecoins increases, deepening integration with the traditional financial system.

In terms of tariff policy, in February, the "Reciprocal Trade and Tariff Memorandum" was signed, requiring trade partners to align their tariffs with those of the United States and imposing tariffs on countries that implement value-added tax. In April, a further executive order on reciprocal tariffs was signed to refine policy direction. This triggered countermeasures from major countries, increasing global trade costs and potentially reducing scale. Rising production costs and accelerated supply chain restructuring are leading to decreased corporate investment willingness. The United States is facing inflationary pressures from imports, and expectations for interest rate cuts have been postponed. Tariff policies are forcing companies to move production to other countries, but domestic infrastructure and labor shortages in the U.S. hinder the return of manufacturing. Industries such as automobiles and electronics that rely on global supply chains are suffering, multinational companies are under increased profit pressure, and technology stocks are correcting. Emerging markets face challenges in accommodating the transfer of industrial chains. The tariff war undermines trust in the dollar as a settlement currency, leading to a decline in bond prices. Global financial markets are generally down, and liquidity is under pressure.

The new government's encryption policy boosts market confidence and attracts capital in the short term through regulatory easing and strategic reserves, but in the long term, it is necessary to be wary of the risks of computing power centralization and policy fluctuations. The tariff policy, although under the name of "national priority", has led to the fragmentation of the global trade system, increasing inflation and intensifying recession expectations, forcing funds to flow from risk assets to safe-haven assets. This highlights the contradictions and games in the transformation of the digital economy and the real economy.

Since its launch in 2024, a certain project has had a multi-dimensional impact on the industry due to its political background and capital operation. It is seen as a "barometer" of government Crypto Assets-friendly policies, with its asset allocation and strategic cooperation interpreted as a "presidential selected portfolio," attracting investors to follow suit. In the short term, this may exacerbate the market's dependence on "political narratives," driving specific token price fluctuations, while in the long term, there is a need to be wary of the risks of policy reversals. The dollar stablecoin it launched emphasizes compliance and institutional-grade custody. If it successfully penetrates cross-border payment and DeFi scenarios, it may weaken the existing stablecoin market share, promote the digitalization of the dollar, and consolidate the United States' financial dominance.

The operation of this project benefits from policy adjustments, providing a compliance template for similar projects, lowering industry thresholds, and attracting traditional financial institutions to participate. However, it may lead to market bubbles due to regulatory arbitrage. It holds a large amount of various Crypto Assets, echoing the government's "strategic encryption reserve" policy, which may guide more capital to focus on digital assets and promote them to become the core narrative of the next cycle. Its operational model provides a reference for other projects on "government-business interaction," and in the future, more Crypto projects relying on political forces may emerge, but it is necessary to balance compliance with the principles of decentralization.

The project's impact on the industry is dual-faceted: on one hand, it accelerates compliance through political empowerment, promotes the integration of DeFi with institutional capital, and explores the global application of USD stablecoins; on the other hand, reliance on policy dividends may lead to market bubbles, and opaque profit distribution could trigger a crisis of trust, while ineffective execution may result in negative case studies. In the future, attention should be paid to the progress of product implementation, the acceptance of the stablecoin market, and the supportive role of government policy coherence.

The Integration of Exchanges and Decentralized Applications

Exchanges and Web3 wallets are important gateways to the crypto world, where users often complete fiat top-ups and Crypto Assets trading activities on mainstream exchanges, or interact with dApps through Web3 wallets. In the past, the distinction between the two was clear, as Web3 wallets had a high entry barrier, and ordinary users mostly started with exchanges. As we enter 2025, exchange businesses have become more mature, with a certain exchange announcing a user count of 200 million, double that of the previous cycle. However, the daily active users on Web3 native chains are only about 10% of those on exchanges.

Since 2023, exchanges have entered the Web3 wallet market by leveraging asset management accumulation. A certain exchange's wallet has attracted a large number of users due to its excellent product experience. The exchange utilizes its own advantages, such as building its own RPC, to create a more comprehensive wallet product. However, these are essentially not significantly different from traditional Web3 wallets; they are merely higher-quality multi-chain wallets and have not broken the usage threshold.

Another exchange's Web3 wallet is closely integrated with accounts, supporting quick transfers between on-site assets and Web3 wallets, reducing user security concerns. At the same time, it collaborates with DEX within the ecosystem to launch IDOs aimed at ordinary users, attracting more participation. Its latest feature allows on-site users to directly purchase on-chain assets, breaking the traditional boundaries between CEX and DEX.

Unlike mainstream exchanges, native crypto projects focus on the actual needs of on-chain users. A certain project has leveraged MPC and account abstraction technology to launch a product that integrates a wallet and trading platform, addressing the challenges of multi-chain asset transfer and trading, and gaining market recognition.

The integration of CEX and DEX is not only a technological innovation but also a milestone for the market to move from "oppositional division" to "cooperative symbiosis." This transformation enhances efficiency and inclusivity, while also bringing new challenges in regulation, security, and governance. In the future, whoever can better balance the efficiency of centralization with the security and autonomy of decentralized assets will be able to lead the evolution direction of the next generation of financial infrastructure.