Crypto Assets Market Q1 2025 Review

Industry Overview

In early 2025, the Crypto Assets market began a new chapter amid a complex interplay of optimism and uncertainty. The market held multiple expectations for the new year: a potential shift in the Federal Reserve's monetary policy, a resurgence of the AI technology revolution, and a friendly regulatory framework promised by the new government, all seen as potential drivers for breakthroughs in the industry. However, by the end of the first quarter, the market exhibited a distinct characteristic of "dramatic fluctuations in macro narratives and deep dormancy in micro innovations."

The global macroeconomic environment has become the core factor driving market rhythms. The Federal Reserve faces a difficult balance between recurring inflation and the risk of recession. Although the unexpected hype around recession and interest rate cuts in March briefly boosted risk appetite, it failed to offset the liquidity panic triggered by the bursting of stock market valuation bubbles. The new government has promoted the national strategic reserves of Bitcoin and digital asset strategic reserves, as well as the implementation of the "Digital Asset Regulatory Clarity Act", which releases structural benefits for the industry. However, the simultaneous occurrence of policy dividends and relaxed regulatory enforcement has intensified the controversy over the "compliance transformation costs" in the market. After reaching a historical high in January, Bitcoin has encountered a 30% deep correction, revealing the market's profit-taking on the "halving narrative". The overall performance of the altcoin market has been lackluster, but the emergence and delivery of incremental products such as RWA and user entry points continue to inject underlying innovation momentum into the industry. Notably, some major trading platforms are accelerating their layout of decentralized trading ecosystems, promoting users' seamless access to DeFi applications through on-chain liquidity aggregation and account abstraction technology. They also allow users to trade decentralized assets directly within their accounts for the first time. This shift in paradigm of "centralization and decentralization integration" may become a key pivot for growth and breakthroughs in the next cycle.

Macroeconomic Environment and Impact

In the first quarter of 2025, the macroeconomic environment in the United States had a profound and complex impact on the Crypto Assets market. The positive correlation between the crypto market and the stock market has become increasingly stronger, with the performance of the NASDAQ largely directly influencing the direction of the Crypto Assets market. Although Bitcoin has been hailed as "digital gold," Crypto Assets are currently leaning more towards being risk assets rather than safe-haven assets, being more affected by market liquidity. The core of the macroeconomy lies in the balance between inflation and economic strength; the market trades on expectations of the future: if inflation is too high or the economy is too strong, it may delay interest rate cuts, which would be detrimental to the capital market; conversely, if economic performance is too weak, it could trigger recession risks, which would also be detrimental to market confidence and capital flow. Therefore, the macroeconomy needs to find a balance between strength and weakness in order to provide a favorable environment for the capital market.

The government has significantly reduced the number of institutional staff, directly leading to an increase in the unemployment rate. At the same time, the new tariff policy has exacerbated inflationary pressures by driving up the prices of affected goods and the costs of related service industries, increasing the likelihood of economic recession. These policies have added instability to the market, resulting in increased volatility in the capital markets. Considering the significant gains brought about by the pre-election market in the previous quarter and the potential risk of market pullbacks due to huge fluctuations in the short term, some investment institutions have scaled back their investment plans in the first quarter of 2025, focusing more on exploring OTC strategies and channel expansion. However, these policies may not merely be economic regulation measures, but rather aimed at increasing bargaining chips in political negotiations with other countries, or deliberately creating chaos to achieve specific political and economic objectives, namely forcing the central bank to quickly implement emergency defensive interest rate cuts by manufacturing signs of economic recession, thus achieving a win-win in alleviating national debt issues and stimulating economic growth. Therefore, the market remains cautiously optimistic about the future of Crypto Assets.

In the first quarter, the Crypto Assets market showed a high sensitivity to macroeconomic data. In January, the overall macroeconomic data in the United States was strong, but the market reacted relatively calmly. In February, due to deviations between macroeconomic data and expectations, the Crypto Assets market experienced significant volatility. In March, the overall macroeconomic data improved, market sentiment warmed up somewhat, but the better-than-expected performance of core PCE once again triggered volatility.

Looking ahead, the trend of the Crypto Assets market will still be highly dependent on macroeconomic data and central bank policy directions. Investors need to closely monitor changes in inflation and employment data to accurately grasp market trends.

Government's Crypto Assets Policy and Impact

The new government signed an executive order in March 2025, requiring the establishment of a strategic Bitcoin reserve, funded mainly by about 200,000 Bitcoins confiscated from criminal or civil cases, valued at approximately $18 billion, and prohibiting the government from selling Bitcoins in the reserve. This move aims to elevate Bitcoin as a "sovereign reserve asset," enhancing its legitimacy and liquidity, while also promoting the United States' leadership in the digital assets space. Although Bitcoin's price surged over 8% in the short term, boosting market confidence, the market later perceived that the reserve relied solely on confiscated assets without any new purchase plans, leading to a rapid price decline. In the long term, this move may inspire other countries to follow suit, pushing Bitcoin toward becoming an international reserve asset. Additionally, a series of non-Bitcoin digital assets could also be included in the digital asset reserve. This signifies a transformation of Crypto Assets from marginalized assets to state strategic tools. Despite the short-term market response being undermined, its long-term impact may reshape the global financial system: on one hand, promoting Bitcoin as a mainstream reserve asset, and on the other hand, intensifying competition among sovereign nations in the digital finance sector.

In terms of regulation, the new government has pushed for the dismissal of the former head of the regulatory agency and established a Crypto Assets working group to clarify the classification standards between securities and non-securities tokens, as well as to terminate lawsuits against certain companies. Additionally, controversial accounting standards have been abolished, reducing the financial burden on businesses. The regulatory environment has significantly relaxed, accelerating the entry of institutional investors; traditional financial institutions such as banks have been authorized to conduct crypto custody services, promoting the compliance process in the industry. This series of regulatory policies has changed the ecosystem of the U.S. crypto and financial industry through deregulation, restructuring frameworks, and promoting legislation. In the short term, policy dividends may accelerate technological innovation and capital inflow; however, in the long term, vigilance is needed against systemic risks and the complexities of global regulatory games. In the future, the effectiveness of policy implementation will depend on multiple variables such as judicial challenges, economic cycles, and political games.

In terms of the development of stablecoins, the government has established a federal regulatory framework for stablecoins, allowing stablecoin issuers to access the central bank payment system, and explicitly prohibiting the central bank from issuing digital currency (CBDC), in order to maintain the innovative space for private Crypto Assets. The application of stablecoins in cross-border payments is accelerating, expanding the path of US dollar internationalization; the market share of private stablecoins is growing, and their integration with the traditional financial system is deepening.

In terms of tariff policy, in February 2025, the government signed the "Reciprocal Trade and Tariff Memorandum," requiring the tariff rates of the United States' trading partners to be consistent with those of the United States, and imposing tariffs on countries that implement a value-added tax system. Subsequently, other countries quickly took countermeasures, leading to a spiral rise in global tariff barriers for the first time. On April 2, 2025, the government signed an executive order on reciprocal tariffs, further refining and implementing the policy direction outlined in the February memorandum. This move prompted rapid countermeasures from the countries most affected, causing the economic and trade relationship between the two sides to officially enter a phase of serious divergence and friction.

Under the influence of such tariff policies, global trade costs are bound to increase, and the scale of international trade may shrink. Production costs have risen sharply, the restructuring of supply chains has accelerated, and corporate investment willingness has declined. The United States will have to face the pressure of imported inflation. The central bank's monetary policy is caught in a dilemma, and interest rate cut expectations have been postponed. Tariff policies also force companies to shift production to other countries, but the domestic infrastructure and labor shortages in the United States hinder the return of manufacturing. Industries such as automobiles and electronics, which rely on global supply chains, have been severely impacted, multinational companies are facing increased profit pressures, and the stock prices of tech giants have experienced corrections. Emerging markets face challenges in accommodating the transfer of industrial chains, making it difficult to fully fill the demand gap from the United States in the short term. The tariff war has also undermined confidence in the dollar as an international trade settlement currency, leading to a decline in the prices of ten-year government bonds and a corresponding increase in yields. Behind this is also the government's plan to reduce debt expenditures and borrowing costs, prompting some countries to explore de-dollarization paths. In the financial market, global financial markets have generally fallen sharply, and market liquidity is under tremendous pressure.

The government's Crypto Assets policy has boosted market confidence and attracted capital inflows in the short term through regulatory relaxation and strategic reserves, but in the long term, it is necessary to be wary of the risks of mining power centralization and policy reversals. The tariff policy, while claiming to prioritize "domestic interests," has led to the fragmentation of the global trade system, increased inflation, and exacerbated expectations of economic recession, forcing funds to flow from risk assets to safe-haven assets such as gold. These two major policies highlight the contradictions and gamesmanship of the United States in the transformation of the digital economy and the real economy.

A government-supported DeFi project has had a multidimensional impact on the Crypto Assets industry since its launch in 2024, leveraging its political background and capital operations. The project is seen as a "barometer" of the government's crypto-friendly policies, with its asset allocation and strategic partnerships interpreted by the market as an "officially selected portfolio," attracting investors to follow suit. In the short term, this may exacerbate the market's reliance on "political narratives," driving price volatility of specific tokens, while in the long term, there is a need to be wary of the risks of policy reversals. At the same time, the project is set to launch a USD stablecoin in March 2025, emphasizing compliance and institutional-grade custody. If it successfully penetrates cross-border payments and DeFi scenarios, it could weaken the market share of existing stablecoins while promoting the digitalization of the USD, thereby consolidating the United States' dominant position in the global financial system.

In addition, the operation of this project benefits from government policy adjustments, providing a compliance model for similar projects, lowering the compliance threshold for the industry, and attracting traditional financial institutions to participate in Crypto Assets business, but it may lead to market bubbles due to regulatory arbitrage.

In terms of long-term strategic value, the project heavily invests in various Crypto Assets, echoing the government's "Strategic Crypto Reserve" policy. This layout may guide more capital to focus on Crypto Assets, thereby promoting digital asset reserves to become the core narrative of the next cycle. At the same time, the operating model of this project provides a reference case for other projects in terms of "government-business interaction." In the future, there may be more encryption projects relying on political power, but it is necessary to balance compliance with the principles of decentralization.

In summary, the project's impact on the Crypto Assets industry has a double-edged sword effect. On one hand, it accelerates the compliance process through political empowerment, promotes the integration of DeFi and institutional capital, and explores the global application of USD stablecoins; on the other hand, reliance on policy dividends may lead to market bubbles, and the lack of transparency in profit distribution may trigger a trust crisis, while poor project execution could become a negative case for the industry. In the future, attention should be focused on the project's product implementation progress, the market acceptance of its stablecoins, and the supporting role of government policy coherence.

The Connectivity and Integration of Exchanges and Decentralized Trading

Exchanges and Web3 wallets serve as important entry points to the crypto world. Users often start by using fiat currency on mainstream exchanges to recharge assets and engage in financial activities such as trading, lending, and wealth management of Crypto Assets, or interact with various applications through Web3 wallets on different public chains. In the past, the boundaries between the two were clear. Due to the high entry barriers and educational costs associated with Web3 wallets, ordinary users often begin their Web3 journey through exchanges, and centralized exchanges retain users through services that are more mature and liquid than decentralized applications. Especially entering 2025, the exchange business is more prosperous compared to the previous cycle.