Crypto Assets Market Q1 2025 Review

At the beginning of 2025, the Crypto Assets market started with a blend of optimism and uncertainty. The industry has multiple expectations for the new year: the Federal Reserve may shift to a loose policy, AI technology may break through again, and the new government's commitment to a friendly regulatory framework are all seen as potential catalysts for industry development. However, by the end of the first quarter, the market exhibited a distinctive characteristic of "macroeconomic fluctuations and micro-level innovation lying dormant."

The global macro economy has become a core factor dominating the market. The Federal Reserve is weighing between recurring inflation and recession risks. The unexpected recession rate cut expectations in March briefly boosted risk appetite, but failed to offset the panic triggered by the collapse of stock market valuation bubbles. The new government has fulfilled its campaign promises by promoting Bitcoin as a national strategic reserve and digital asset reserves, as well as implementing regulatory legislation, which releases structural benefits for the industry. However, the dual approach of policy dividends and relaxed regulatory enforcement has intensified the controversy over the "cost of compliance transformation" in the market.

After Bitcoin hit a historic high again in January, it experienced a deep correction, indicating that funds are taking profits from the "halving market." Overall, altcoins performed modestly, but innovations such as RWA and user entry still inject momentum into the industry. It is worth noting that some trading platforms are accelerating their layout of the DEX ecosystem, promoting seamless user access to DeFi and other application scenarios through on-chain liquidity aggregation and account abstraction technology, and for the first time allowing users to trade DEX assets directly within the platform. This shift towards a model of "centralization and decentralization integration" may become a key pivot for the next round of growth.

Macroeconomic Environment and Impact

In the first quarter of 2025, the macroeconomic situation in the United States has a profound and complex impact on the Crypto Assets market. Since the approval of the Bitcoin spot ETF, the positive correlation between the crypto market and U.S. stocks has increasingly strengthened, and the performance of the Nasdaq index directly influences the direction of the Crypto Assets market to some extent. Although Bitcoin was once referred to as "digital gold," currently, Crypto Assets are more inclined to be viewed as risk assets, more significantly 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 overheating, the Federal Reserve may delay interest rate cuts, which is unfavorable for the capital markets; if the economy is too weak, it may trigger recession risks, which is also detrimental to market confidence and capital flows. Therefore, the macroeconomy needs to find a balance between strength and weakness to provide a favorable environment for the capital markets.

The new government has significantly reduced the number of government agency personnel, directly leading to an increase in the unemployment rate. At the same time, the tariff policy has exacerbated inflationary pressures by pushing up the prices of goods and the costs of services, increasing the likelihood of an economic recession. These policies have added to market instability, resulting in increased volatility in the capital markets. Considering the high gains brought about by the previous election market and the potential for a huge withdrawal risk in the short term, some institutions have scaled back their investment plans in the first quarter and shifted their focus to exploring OTC strategies and channel expansion.

However, these policies may not simply be economic regulations, but rather aimed at increasing international negotiation leverage, or deliberately creating chaos to achieve special political and economic objectives, namely forcing the Federal Reserve to quickly cut interest rates by creating signs of recession, thus achieving a balance between alleviating national debt issues and stimulating economic growth. Therefore, some institutions still have a positive outlook on the future performance of the Crypto Assets market.

In the first quarter, the Crypto Assets market was sensitive to macro data. The overall data in January was strong, but the market remained stable. In February, inflation exceeded expectations, leading to a sharp drop in interest rate cut expectations, causing a significant drop in Bitcoin. The improvement in data in March led to a brief rebound, but the core PCE exceeding expectations again triggered a decline. Tariff policies exacerbated inflationary pressures and increased market uncertainty, which could become a factor forcing policy adjustments. In the future, the trends of Crypto Assets will still highly depend on macro data and Federal Reserve policies, and investors need to closely monitor the dynamics of inflation and employment data.

The New Government's Crypto Assets Policy and Its Impact

The new government signed an executive order in March, requiring the establishment of a strategic Bitcoin reserve, with funding primarily coming from about 200,000 confiscated Bitcoins ( worth approximately $18 billion ), and prohibits the government from selling the reserve Bitcoins. This move aims to elevate Bitcoin to a "sovereign reserve asset," enhancing its legitimacy and liquidity, and pushing the U.S. to lead in the digital asset space. In the short term, the price of Bitcoin soared over 8%, but then fell back due to the reserve relying solely on confiscated assets without any new purchasing plans. In the long run, this move may inspire other countries to follow suit, promoting Bitcoin as an international reserve asset. Other digital assets may also be included in the reserve, marking a transition of Crypto Assets to national strategic tools.

In terms of regulation, the new government has replaced the SEC chairman, established a Crypto Assets working group, clarified the classification standards for securities and non-securities tokens, and terminated lawsuits against certain companies. Additionally, it has abolished the controversial accounting standard SAB 121, reducing the financial burden on companies. The regulatory environment has significantly eased, accelerating the entry of institutional investors; traditional financial institutions are allowed to conduct crypto custody services, promoting the industry's compliance process. These policies have changed the ecosystem of the US crypto and financial industry through loosening rules, restructuring frameworks, and promoting legislation. In the short term, the policy dividend may accelerate technological innovation and capital inflow; however, in the long term, it is necessary to be wary of systemic risks and the complexity of global regulatory games.

In terms of the development of stablecoins, the new government has established a federal regulatory framework for stablecoins, allowing issuing institutions to connect to the Federal Reserve payment system, and explicitly prohibiting the issuance of central bank digital currency ( CBDC ), 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.

In terms of tariff policy, the "Reciprocal Trade and Tariff Memorandum" signed in February requires trade partners' tariffs to be in line with those of the United States and imposes additional tariffs on countries that implement a value-added tax system. This has triggered a spiral increase in global tariff barriers. An executive order in April further refined the policy, aimed at reducing the trade deficit, promoting the return of manufacturing, and protecting the economy and national security, imposing higher tariffs on the countries with the largest trade deficits. This has led to rapid countermeasures from the countries most affected, increasing global trade costs and potentially reducing the scale of international trade.

Under the influence of tariff policies, production costs have risen, supply chain restructuring has accelerated, and corporate investment willingness has declined. The United States is facing inflationary pressure from imports, and the Federal Reserve's monetary policy is caught in a dilemma, with interest rate cut expectations being postponed. Companies are forced to transfer production to other countries, but the shortage of domestic infrastructure and labor in the U.S. hinders the return of manufacturing. Industries that rely on global supply chains are affected, multinational companies are under profit pressure, and technology stocks have retreated. Emerging markets face challenges in taking on the transfer of industrial chains and are unlikely to fill the demand gap in the U.S. in the short term. The tariff war undermines the trust in the U.S. dollar as an international settlement currency, leading to a decline in government bond prices and an increase in yields. Some countries have begun exploring de-dollarization paths. Global financial markets have generally declined, and liquidity is under pressure.

The new government's Crypto Assets policy boosts market confidence and attracts capital inflow in the short term through regulatory relaxation and strategic reserves, but there are long-term risks to be wary of regarding mining power centralization and policy fluctuations. Although the tariff policy is named "America First," it leads to the fragmentation of the global trade system, raises inflation, and exacerbates expectations of economic recession, forcing funds to flow from risk assets to safe-haven assets. These two policies highlight the contradictions and gamesmanship of the United States in the transformation of the digital economy and the real economy.

Since its launch in 2024, a certain DeFi project has had a multidimensional impact on the Crypto Assets industry, leveraging its political background and capital operations. This project is seen as a "barometer" of the new government's crypto-friendly policies, with its asset allocation and strategic partnerships interpreted as a "presidential selected portfolio," attracting investors to follow suit. In the short term, this may intensify the market's reliance on "political narratives," driving price fluctuations of specific tokens, while in the long term, there is a need to be wary of the risks of policy reversals. The project's dollar stablecoin launched in March emphasizes compliance and institutional-grade custody. If it successfully penetrates cross-border payment and DeFi scenarios, it may weaken the market share of existing stablecoins and simultaneously promote the digitalization of the dollar, consolidating the United States' dominant position in the global financial system.

The operation of this project benefits from policy adjustments, providing a model for similar projects, lowering industry thresholds, and attracting traditional financial institutions to participate, but it may lead to market bubbles due to regulatory arbitrage. Its heavy investment in various Crypto Assets resonates with the "strategic encryption reserve" policy, which may guide more capital to focus on Crypto Assets and promote digital asset reserves as the core narrative of the next cycle. Its operating model provides a reference for "government-business interaction" for other projects, and more Crypto projects relying on political forces may emerge in the future, but it is necessary to balance compliance and decentralization principles.

In summary, the project has a dual-edged effect on the industry. On one hand, it accelerates compliance through political empowerment, promotes the integration of DeFi and institutional capital, and explores the global application of US dollar stablecoins; on the other hand, reliance on policy dividends may lead to market bubbles, and opaque profit distribution could trigger a trust crisis, while poor project execution may become a negative case. In the future, attention should be paid to the progress of its product implementation, the acceptance of stablecoins in the market, and the supportive role of government policy coherence.

The Integration of Exchanges and DEXs

Exchanges and Web3 wallets serve as important gateways into the world of Crypto Assets. Users often recharge with fiat currency at mainstream exchanges to engage in trading, lending, wealth management, and other activities, or interact with dApps using public chain wallets. In the past, the boundaries between the two were clear. Due to the high entry threshold of Web3 wallets, ordinary users mostly embark on their Web3 journey starting from exchanges, which retain users through more mature services. By 2025, exchange operations will be more mature, with a large exchange announcing in 2024 that its user count has reached 200 million, double that of the previous cycle. In contrast, the number of Web3 native users is limited, with on-chain daily active users being only about 10% of those on exchanges.

Since 2023, the exchange has entered the Web3 wallet market by leveraging its asset management accumulation. A certain exchange wallet has attracted numerous users at the product level, successfully retaining users through its performance in asset management, on-chain interactions, and trading optimization. The exchange utilizes its own advantages, such as self-built RPCs, to create a more comprehensive wallet product. However, these types of wallets are essentially not significantly different from traditional Web3 wallets; they are merely higher quality and more convenient multi-chain wallets that have not broken the usage threshold.

Another exchange's Web3 wallet is closely bound to the exchange account, supporting fast transfers between on-site assets and the wallet, reducing users' security concerns. This wallet has launched an IDO aimed at ordinary users in collaboration with a DEX within the ecosystem, attracting more participation and learning of on-chain knowledge. Its latest feature allows on-site users to directly purchase on-chain assets, breaking the traditional boundaries between exchanges and DEX.

Unlike mainstream exchange-dominated Web3 wallets, native encryption projects focus on the actual on-chain needs of users in the wallet space. A certain project, leveraging MPC and account abstraction technology, has seized the unified account demand generated by multi-chain trading, launching a product that integrates wallets and trading platforms. This solution addresses the challenges of transferring and trading assets across different chains, helping users achieve convenient management and efficient trading of multi-chain assets, gaining market recognition.

The integration of exchanges and DEX is not only a technological innovation but also a milestone in the transformation of the crypto market from "opposition and fragmentation" to "collaborative coexistence." This change has not only improved efficiency and inclusiveness but has also given rise to new challenges in regulation, security, and governance. In the future, those who can better balance centralized efficiency with the asset security and autonomy of decentralization will prevail.