The Market
Happy New Year! Although we didn’t witness a significant Santa rally, the crypto market partially recovered from the steepest post-election drawdown around December 22. With year-end profit-taking likely behind us, we start 2025 with a clean slate: funding rates are at healthy levels, and the altseason index has returned to the middle range.
If there is one word to define the crypto environment in 2025, it’s “Change”. This year marks a turning point for both the macroeconomic landscape and regulatory developments in crypto. Regulatory optimism will confront reality as the new administration, staffed with crypto-friendly policy makers, takes the reins. Globally, countries are grappling with the complex balancing act of inflation and growth. In the U.S., a relatively healthy economy continues its fight against inflation while trying to maintain growth, while China is combating deflation and slow economic growth. Meanwhile, on-going geopolitical tensions in the Middle East and Russia create further uncertainty for the risk markets.
Amid these challenges, we believe 2025 will also bring major breakthroughs in crypto’s mainstream adoption. Favorable regulations are expected to drive institutional participation, while dApps continue to refine their product-market-fit, particularly in areas such as DeFi and AI.
Factors to Watch for Crypto Market 2025
Crypto-native investors are highly optimistic about the market’s trajectory in 2025. Based on historical patterns, we are likely in the seventh or eighth innings of a bull market, with 1-2 quarters remaining before a market peak. Here are key factors to watch as they shape the journey to the top:
Speed of institutional adoption
Total inflows into the BTC spot ETFs have surpassed $100B, but only about 20% of that AUM is held by institutional investors. Major wealth management platforms like Morgan Stanley, Merrill, UBS and Fidelity have yet to include BTC ETFs into their model portfolios. If, as Blackrock suggested, BTC should comprise 1-2% of a typical investor’s portfolio, this represents $1-2 trillion of potential demand, based on $126 trillion in global managed assets.
Discussions around BTC as a reserve asset for the US Treasury are heating up. Multiple states, countries and corporations are exploring similar ideas and could move faster than the US government. We believe 2025 could be the year BTC gains recognition akin to Gold as an alternative storage of value. To match gold’s market cap, BTC’s price still has a 8-10X growth potential.
Crypto policy implementation
Optimism about a regulatory regime change is high, fueled by a pro-crypto president and cabinet. The first 100 days of the new administration will be critical as the rubber meets the road. Key legislative priorities include:
Stablecoin bill: Establishes a clear regulatory framework for the issuance and oversight of payment stablecoins, paving the way for wider adoption and a boom in issuance.
FIT21 bill: Clarifies whether digital assets fall under the CFTC or SEC’s jurisdiction, giving projects a clearer regulatory path and enabling custodians and exchanges to better serve those assets.
SAB 21 Repeal: Frees up capital requirements, allowing regulated banks and broker-dealers to offer custody service for digital assets
Access to banking services, a persistent challenge for crypto businesses under the prior regime, is expected to improve, enabling the industry to survive and thrive.
Global liquidity conditions
Global liquidity has been declining since its peak in September 2024 due to bond market volatility, a strong US dollar and slower central bank easing.
In the short term, liquidity could rise with the Treasury General Account (TGA) drawdown, given that the US may hit the debt ceiling by mid-January.
Median term, much depends on how the new administration spurs growth through business friendly policies while controlling inflation.
China, while announcing the intention of a big stimulus package, is also holding back pending the effects of new U.S. tariffs.
Increased debt to finance the stimulus packages makes monetary inflation inevitable, positioning BTC as a strong inflation hedge. Altcoins may experience more volatility, as their performance is more sensitive to global liquidity conditions and risk appetite.
Technology innovation could make or break crypto
Blockchain technology has made significant strides, offering faster and cheaper transactions. Solana’s resurgence and Base’s meteoric rise as the most used Ethereum L2 underscore blockchain’s potential to deliver Web2-like experiences. As users increase and as DeFi activities return to the peak levels seen in the last cycle, the crypto market has been resilient without any major hacks, breakdowns or fraud. However, several popular emerging technologies remain untested under stress, such as ETH restaking, high yield stablecoins, Hyperliquid’s use of the Arbitrum bridge. Given their wide adoption, a major breakdown could result in sizable financial damages.
Exciting Trends in Crypto
AI finding product market fit in crypto
In my recent CoinDesk article on the intersection of crypto and AI, we explored the evolution of Crypto X AI developments and highlighted areas where blockchain can accelerate AI adoption. Blockchain excels at funding raising and decentralized resource coordination, complementing AI’s resource-intensive demands and its tendency toward centralized control. Over the years, AI applications in crypto have evolved from hardware (decentralized computing) and models (decentralized model marketplaces) to applications like AI agents. Given the high-quality thresholds for computing and models, AI agents are more likely to achieve product market fit. Blockchain-based AI agent platforms such as Virtuals, VVAIFU, and Eliza provide permissionless access to capital and tools, enabling anyone to build task-specific agents.
Promising AI agent applications are already emerging, including chat companion and social media star (Luna), crypto analysts (Aixbt), artists (Zerobro) and DeFi agents (Mode). The recent hype surrounding AI agents has driven valuations of selected platforms from below $100M to multi-billions in less than two months. The ultimate value of these platforms hinges on their ability to incubate successful AI agents. Drawing from Web2 examples: Cursor, the leading AI coding tool, is valued at $2.6B, while Perplexity, the most popular AI search engine, is valued at $9B.
According to Messari Research, the total market cap of AI applications has mirrored the size of the DeFi market during the DeFi summer. If the bull market persists, especially with improved global liquidity, the market cap could still rise signifcantly higher.
Increased demand of crypto-native yield
As TradFi interest rates decline and DeFi yield rise due to increased borrowing demand, stablecoins now offer mid-to-high double digit-yield through collateralized DeFi lending, surpassing even the private credit opportunities in TradFi.
DeFi yields also stem from sources uncorrelated with the TradFi markets, such as borrowing demand for leveraged trading, staking/restaking for blockchain security, basis trading, DEX LP fees and various incentives from newer projects seeking to bootstrap their TVL. These attractive yields come with different varying risks and often require user sophistication. However, innovative solutions are emerging simplify yield access for end users:
Morpho: Provides modular infrastructure for risk curators to offer attractive yield strategies via DeFi lending. It creates the “asset management” layer where unsophisticated users can access curated yield opportunities.
Lulo: A Solana-focused application offering yields on stablecoins and majors by dynamically allocating capital to selected DeFi protocols based on yield level. It automates yield level monitoring, switching between protocols and compounding.
Pendle: The first interest rate forward market that allows users to trade future yield for a fixed rate using its innovative YT/PT structure.
CeDeFi integration
The gap between CeFi and DeFi will continue to narrow as modern DeFi projects are bridging the user experience divide. Solana DEX Jupiter developed a mobile app to enable seamless trading on Solana for retail, while Hyperliquid delivers CEX-like experiences for trading perpetuals. Aerodrome, the leading DEX on Base, has extended its offerings into TradFi assets such as forex, inching closer to the vision of trading anything, anytime, anywhere on-chain.
However, mainstream adoption depends on regulatory clarity, particularly in distinguishing pure technology providers from broker-dealers. The recent IRS/Treasury requirement for DeFi front ends to report digital asset transactions will impose significant compliance burdens. Nonetheless, leading DeFi projects like Ethena, the third-largest stablecoin issuer, are proactively implementing solutions like transfer-restricted wrapper contracts to cater to institutional users’ compliance needs.
CeFi players are also tapping into opportunities in DeFi. BlackRock, alongside other TradFi giants, has launched tokenized treasury products like BUIDL and partnered with Ethena to back their new stablecoin, USDtb. This collaboration fast-tracks BUIDL’s integration into DeFi.
With Coinbase boasting 110 million users and Uniswap handling 30–90% of Coinbase’s trading volume with only 18 million monthly active users, DeFi’s potential is evident. However, broader adoption hinges on regulatory frameworks. As these frameworks evolve, CeFi and DeFi innovators are developing creative solutions to access each other’s clients and capital, paving the way for a unified financial future.
Top 100 MCAP Winners
SPX6900 (+53.80%)
Fartcoin (+47.03%)
Ethena (+34.14%)
Virtuals (+32.95%)
Stellar (+27.72%)
Top 100 MCAP Losers
Bitget (-17.94%)
Hyperliquid (-14.73%)
OKB (-7.60%)
BNB (-2.29%)
LEO (-1.42%)
About Decentral Park
Decentral Park is a founder-led cryptoasset investment firm comprised of team members who’ve honed their skills as technology entrepreneurs, operators, venture capitalists, researchers, and advisors.
Decentral Park applies a principled digital asset investment strategy and partners with founders to enable their token-based decentralized networks to scale globally.
The information above does not constitute an offer to sell digital assets or a solicitation of an offer to buy digital assets. None of the information here is a recommendation to invest in any securities.
About the Author
Kelly is Co-Portfolio Manager and Head of Research at Decentral Park Capital. Investing across sectors with a thesis driven, deep research approach.
Prior to this, Kelly has led research and product efforts at CoinDesk Indices and Fidelity Digital Asset Management. Kelly has been a TradFi investor for 15 years before joining the crypto space.
You can follow Kelly on Twitter and LinkedIn for more frequent analysis and updates.