Crypto Assets Market Q1 2025 Review

At the beginning of 2025, the Crypto Assets market started off amidst complex emotions. The industry held multiple expectations for the new year: a shift in Federal Reserve policy, breakthroughs in artificial intelligence technology, and a friendly regulatory framework promised by the new government were all seen as potential factors driving industry development. However, by the end of the first quarter, the market displayed distinct characteristics of "macro fluctuations and micro innovations."

The global macroeconomic environment has dominated market trends. The Federal Reserve is struggling to balance inflation and recession risks. The brief boost in market sentiment from the March recession rate cut expectations did not offset liquidity concerns triggered by the bursting of the stock market valuation bubble. The new government has promoted a clear national strategic reserve for Bitcoin and digital asset regulation, releasing positive signals for the industry, but has also intensified debates over the costs of transformation. After Bitcoin broke through $100,000 in January, it experienced a 30% correction, exposing the market's profit-taking narrative around "halving." Altcoins performed generally flat, but innovative products such as RWA and user onboarding have still injected momentum into the industry. Notably, some trading platforms are accelerating their layout in decentralized ecosystems, promoting seamless access to decentralized application scenarios through on-chain liquidity aggregation and account abstraction technology, and for the first time allowing users to trade decentralized assets directly on the platform. This model of blending centralization and decentralization could become key to future growth.

Macroeconomic Environment and Impact

In the first quarter of 2025, the U.S. macroeconomy will have a profound impact on the cryptocurrency market. The correlation between the crypto market and U.S. stocks has intensified, and the performance of the Nasdaq index will to some extent determine the direction of the cryptocurrency market. The core of the macroeconomy lies in balancing inflation and economic strength; the market trades on future expectations: if inflation is too high or the economy is too strong, the Federal Reserve may delay interest rate cuts, which would be detrimental to the capital market; if the economy is too weak, it could trigger recession risks, also negatively affecting market confidence. Therefore, the macroeconomy needs to find a balance between strength and weakness to provide a favorable environment for the capital market. Large-scale layoffs by the government directly lead to an increase in the unemployment rate. At the same time, tariff policies drive up the prices of affected goods and the costs of related services, exacerbating inflationary pressures and increasing the likelihood of economic recession.

These policies have increased market instability factors, leading to intensified fluctuations in the capital market. Considering the gains and potential pullback risks brought by the election market in the fourth quarter of 2024, some investment institutions have contracted their investment plans in the first quarter of 2025, turning their attention to business exploration of other strategies. However, these policies may not be purely economic adjustments, but rather aimed at increasing political negotiation leverage or creating chaos to achieve specific purposes, such as forcing the Federal Reserve to cut interest rates by creating signs of recession, alleviating national debt issues, and stimulating economic growth. Therefore, some institutions remain optimistic about the subsequent performance of the crypto assets market.

In the first quarter, the Crypto Assets market was sensitive to economic data. January's data was generally strong, and the market reacted steadily. February's inflation exceeded expectations, leading to a sharp decline in interest rate cut expectations, causing Bitcoin to drop significantly. The improvement in March data led to a brief rebound, but core PCE exceeding expectations triggered another drop. Tariff policies have intensified inflationary pressures, increasing market uncertainty, which may become a factor forcing the Federal Reserve to adjust its policies. In the future, the trend of Crypto Assets will still highly depend on economic data and Federal Reserve policies, and investors need to closely monitor inflation and employment data dynamics.

The New Government's Crypto Assets Policy and Its Impact

The new government signed an executive order in March to establish a strategic Bitcoin reserve, funded by approximately 200,000 seized bitcoins valued at about $18 billion, and prohibited the sale of the reserve bitcoins. This move aims to elevate Bitcoin as a 'sovereign reserve asset', enhancing its legitimacy and liquidity. In the short term, the price of Bitcoin surged over 8%, but then fell back. In the long term, it could prompt other countries to follow suit, pushing Bitcoin to become an international reserve asset. Other digital assets may also be included in the reserves, marking a transition of Crypto Assets into national strategic tools.

In terms of regulation, the new government is pushing to dismiss the chairman of the Securities and Exchange Commission, establish a Crypto Assets working group, clarify the classification standards between securities and non-securities tokens, and terminate lawsuits against some companies. Controversial accounting standards will be abolished to lighten the financial burden on enterprises. The regulatory environment is significantly relaxed, and institutional investors are accelerating their entry; traditional financial institutions are authorized to conduct crypto custody business, promoting industry compliance. In the short term, policy dividends may accelerate innovation and capital inflows; in the long term, there is a need to be vigilant about systemic risks and the complexity of global regulatory games.

In terms of the development of stablecoins, the government has established a federal regulatory framework for stablecoins, allowing issuing institutions to access the Federal Reserve payment system, and explicitly prohibiting the issuance of central bank digital currencies, in order to maintain the innovation space for private Crypto Assets. The application of stablecoins in cross-border payments is accelerating, expanding the internationalization path of the dollar; the market share of private stablecoins is increasing, and the integration with the traditional financial system is deepening.

On the tariff policy front, the new government signed the "Reciprocal Trade and Tariff Memorandum," requiring trading partners to align their tariffs with those of the United States and imposing additional tariffs on countries that implement value-added tax. Subsequently, an administrative order on reciprocal tariffs was signed, imposing higher tariffs on countries with significant trade deficits. This sparked retaliatory measures from the major affected countries, increasing global trade costs and potentially reducing the scale of international trade. The United States is facing import-driven inflationary pressures, with expectations for interest rate cuts being delayed. The tariff policy has also undermined confidence in the US dollar as an international settlement currency, leading some countries to explore paths toward de-dollarization. Financial markets have generally experienced sharp declines, and liquidity is under pressure.

Since the launch of the new government-supported decentralized finance project in 2024, it has had a multi-dimensional impact on the industry. The project is regarded as a "barometer" of policy, with its asset allocation and strategic partnerships interpreted as a "presidential selected portfolio," attracting investors to follow suit, which may exacerbate the market's reliance on "political narratives." The project's launch of a US dollar stablecoin emphasizes compliance and institutional-grade custody, potentially weakening the existing stablecoin market share and promoting the digitization of the dollar. The project operates as a compliance template for similar projects, lowering industry entry barriers and attracting participation from traditional financial institutions, but it may lead to market bubbles due to regulatory arbitrage.

The Integration of Centralized and Decentralized Exchanges

Exchanges and Web3 wallets serve as important gateways to the world of encryption. Users often complete fiat currency top-ups and Crypto Asset transactions on mainstream exchanges, or interact with various decentralized applications using Web3 wallets. By 2025, exchange businesses will become more mature, with some platforms doubling their user numbers compared to the previous cycle, while on-chain daily active users will only account for about 10% of centralized exchanges.

Since 2023, exchanges have entered the Web3 wallet market by leveraging asset management accumulation. Some products have attracted users and achieved user retention thanks to excellent experiences. However, these products are essentially not significantly different from traditional Web3 wallets and have not broken the usage threshold.

A certain exchange has launched a Web3 wallet that is closely integrated with the platform account, supporting quick transfers of assets between the site and the wallet, reducing security concerns. At the same time, it has partnered with decentralized exchanges within the ecosystem to launch a token issuance activity aimed at ordinary users, attracting users to participate in on-chain activities. The latest feature allows users on the site to directly purchase on-chain assets, breaking the traditional boundaries between centralized and decentralized exchanges.

Unlike mainstream exchanges, native encryption projects focus on addressing real needs in the wallet sector. Some projects leverage their technical accumulation to launch products that integrate wallet and trading functions, solving the challenges of multi-chain asset management and trading, and gaining market recognition.

The integration of centralized and decentralized exchanges marks the transition of the crypto market from "opposition and fragmentation" to "collaborative coexistence." This transformation enhances efficiency and inclusivity, while also bringing new challenges in regulation, security, and governance. In the future, participants who can better balance the efficiency of centralization with the security and autonomy of decentralized assets may dominate the evolution of the next generation of financial infrastructure.