Q1 2025 Crypto Assets Market Review and Outlook

At the beginning of 2025, the Crypto Assets market experienced a significant wave of volatility. Although the political shift towards a positive stance at the beginning of the year drove prices up, the market subsequently underwent a noticeable correction. After Bitcoin and Solana reached historical highs in January, the market as a whole declined, with the S&P 500 index and Bitcoin both dropping by 15-20%. Small-cap and high-growth stocks performed even worse, with the second largest Crypto Asset declining by 47%.

This round of correction is mainly attributed to macro factors and some issues unique to Crypto Assets. At the macro level, the market is concerned about increasing policy uncertainty and the risk of stagflation. The tariff plans implemented by the new government have lowered consumer confidence, corporate profits, and GDP expectations. The establishment of the Department of Government Efficiency has also raised concerns about cuts in government spending. In addition, the market's optimistic expectations for demand for artificial intelligence hardware have cooled, leading to a significant drop in related stocks and coins.

The Crypto Assets industry still faces some unique challenges. First is the collapse of the meme coin bubble, which has sparked controversy with high-profile figures launching meme coins. Secondly, a large exchange suffered a hacking attack, which, although it did not result in customer fund losses, weakened market confidence.

From the price performance perspective, the median price of tokens fell by over 50% in the first quarter, with almost all tokens experiencing a decline. However, the market is increasingly focusing on tokens with strong fundamentals, which have performed relatively well. Historically, similar levels of pullback are not uncommon and are often followed by a strong rebound.

Despite the gloomy market sentiment, some indicators suggest that the worst phase of selling may be over. The U.S. Economic Policy Uncertainty Index is at a 40-year high, the Crypto Panic Index is at an extreme panic level, the Bitcoin futures funding rate is negative, and investor sentiment surveys show pessimism at historical highs. These extreme sentiments often signal a price bottom and good returns in the future.

At the same time, favorable interest rates and liquidity conditions support risk assets. The downward trend in long-term interest rates is beneficial for the valuation of risk assets. Global liquidity conditions continue to improve, with major economies implementing or considering stimulus measures. Historically, Bitcoin's major price increases often occur during periods of increased liquidity.

From another perspective, Bitcoin's four-year cycle often aligns with significant macro events. The current dollar trust crisis may serve as a catalyst for a new round of increases. Bitcoin, as a non-sovereign store of value, becomes more attractive as uncertainty increases.

Recently, the performance of digital assets has started to outperform stocks and the US dollar, possibly leading to an early rebound. At the same time, many positive industry developments have been overshadowed by market fluctuations, such as favorable policy actions.

More importantly, the fundamentals of Crypto Assets are improving. Blockchain companies are generating significant revenue, user activity continues to reach new highs, and the usage of stablecoins has surged. Innovations in key areas such as stablecoins, artificial intelligence, DePIN, and DeFi remain strong.

Overall, despite the challenges in the first quarter, market sentiment indicators suggest that the worst may be over. As the volatility caused by tariffs subsides, investors are expected to refocus on long-term positive factors and strong fundamentals. As a leading growth asset, Crypto Assets may rebound first.