Q1 2025 Crypto Market Review: Regulatory Easing and Innovative Iteration Amidst Macroeconomic Turbulence

crypto market Q1 2025 Review: Macroeconomic Turbulence and Innovation Stealth

At the beginning of 2025, the cryptocurrency market unveiled itself amidst a complex interplay of optimism and uncertainty. The industry holds multiple expectations for the new year: the potential benefits of a shift in the Federal Reserve's monetary policy, a second wave of the AI technology revolution, and the new government's commitment to a "crypto-friendly" regulatory framework, all seen as catalysts for breakthroughs in the industry. However, by the end of the first quarter, the market presented a stark picture of "strong macro narratives with high volatility and deep micro innovations in hibernation."

The global macro economy has become the core variable that dominates market rhythm. The Federal Reserve is struggling to weigh between repeated inflation and recession risks. The unexpected hype around recession and interest rate cut expectations in March briefly boosted risk appetite, but it failed to offset the liquidity panic caused by the bursting valuation bubble in the stock market. The new government has fulfilled its campaign promises, promoting national strategic reserves of Bitcoin and digital assets, as well as implementing the "Digital Asset Regulation Clarification Act," releasing structural benefits for the industry. However, the parallel between policy dividends and lenient law enforcement has also intensified market disputes over the "cost of compliance transformation."

After Bitcoin broke through the historical high of $100,000 again in January, it encountered a 30% deep correction, exposing the market's funds to a phase of profit-taking on the "halving narrative." The overall performance of the altcoin market has been lackluster, but the emergence and delivery of products such as RWA and user entry points, which attract capital and user increments, still inject underlying innovative momentum into the industry. It is worth noting that certain trading platforms are accelerating their layout of the DEX ecosystem, promoting seamless access for users to DeFi and other dApps scenarios through on-chain liquidity aggregation and account abstraction technology, and for the first time allowing platform users to trade DEX assets directly within their accounts. This paradigm shift of "integration of centralized and decentralized" could 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 market. The positive correlation between the crypto market and the stock market has been increasingly strengthened, and the movements of stock indices directly determine the direction of the crypto market to some extent. Although Bitcoin has been dubbed "digital gold," cryptocurrencies are currently more inclined towards being risk assets rather than safe-haven assets, and are more influenced by market liquidity.

The core of the macroeconomy lies in the balance between inflation and the strength of the economy. Market transactions are based on expectations for the future: if inflation is too high or the economy is too strong, the Federal Reserve will likely delay interest rate cuts, which is detrimental to the capital market; conversely, if the economic performance is too weak, it may trigger a risk of recession, which is also detrimental to market confidence and capital flow. Therefore, the macroeconomy needs to find a delicate balance between strength and weakness in order to provide a favorable environment for the capital market.

The government has significantly reduced the number of staff in government agencies, which has directly led to an increase in the unemployment rate. At the same time, the new tariff policy has exacerbated inflationary pressures by directly raising the prices of affected goods and the costs of related service industries, increasing the likelihood of an economic recession in the United States.

This series of policies has increased the unstable factors in the market, leading to greater volatility in the capital market. Considering the high gains brought by the 2024 Q4 election market and the potential risks of market pullbacks due to huge short-term fluctuations, some investment institutions have reduced their investment plans in Q1 2025, focusing more on exploring OTC strategies and channel expansion. However, considering that such policies may not be merely economic regulation tools, but rather the government's intention to increase its negotiating chips in political negotiations with other countries, or deliberately create chaos to achieve specific political and economic goals, that is, by creating signs of economic recession to force rapid emergency interest rate cuts, thus achieving a win-win situation in alleviating national debt problems and stimulating economic growth and capital market performance, market participants still have a positive outlook on the subsequent performance of the crypto market.

In the first quarter, the crypto market showed a high sensitivity to macroeconomic data. In January, the overall macroeconomic data in the United States was strong, but the market's response was relatively stable. In February, the crypto market experienced severe fluctuations due to discrepancies between macroeconomic data and expectations. In March, the overall improvement in macroeconomic data led to a recovery in market sentiment, but the better-than-expected performance of the core PCE triggered fluctuations once again.

In summary, in the first quarter of 2025, the macroeconomic data from the United States had a significant and variable impact on the crypto market. Economic strength in January led to a muted market reaction, while inflation exceeding expectations in February caused a sharp decline in interest rate cut expectations and a substantial drop in Bitcoin. The improvement in economic data in March prompted a brief rebound, but the core PCE exceeding expectations again triggered a pullback. The new tariff policy, by exacerbating inflationary pressures, increased market uncertainty and could become an important factor in prompting policy adjustments. Looking ahead, the trends in the crypto market will remain highly dependent on macroeconomic data and policy directions, and investors need to closely monitor the dynamics of inflation and employment data to accurately grasp market trends.

The new government's encryption currency policy and its impact

An executive order signed in March 2025 mandates the establishment of a strategic Bitcoin reserve, primarily funded by approximately 200,000 Bitcoins ( seized from criminal or civil forfeitures, valued at around $18 billion ), and prohibits 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 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 subsequently viewed the reserve as relying solely on forfeited assets with no new purchase plans, leading to a rapid price decline. In the long term, this could inspire other countries to follow suit, pushing Bitcoin toward becoming an international reserve asset. Additionally, a range of non-Bitcoin digital assets could also be included in digital asset reserves. This signifies a transition of cryptocurrencies from marginalized assets to national strategic tools. Despite short-term market setbacks, 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 arena.

In terms of regulation, the new government is pushing for the dismissal of the SEC chair and the establishment of a crypto asset working group to clarify the classification standards for securities and non-securities tokens, as well as terminating lawsuits against certain companies. Additionally, the controversial accounting standard SAB 121 has been abolished, reducing the financial burden on businesses. The regulatory environment has significantly loosened, accelerating the entry of institutional investors; traditional financial institutions such as banks are permitted to conduct crypto custody services, promoting the compliance process in the industry. This series of regulatory policies has changed the ecology of the U.S. crypto and financial industries through deregulation, restructuring frameworks, and promoting legislation. In the short term, policy dividends may accelerate technological innovation and capital inflows; however, in the long term, it is necessary to be vigilant about systemic risks and the complexities of global regulatory games. In the future, the effectiveness of policy implementation will depend on multiple variables including judicial challenges, economic cycles, and political games.

In terms of stablecoin development, the new government has established a federal regulatory framework for stablecoins, allowing stablecoin issuing institutions to access payment systems, and explicitly prohibiting the issuance of central bank digital currency ( CBDC ), in order to maintain the innovation space for private encryption currencies. The application of stablecoins in cross-border payments has accelerated, and the internationalization path of the US dollar has expanded; the market share of private stablecoins has increased, and the integration with the traditional financial system has deepened.

In terms of tariff policy, in February 2025, the government signed the "Reciprocal Trade and Tariff Memorandum", requiring the tariff rates of all U.S. trading partners to be consistent with those of the United States, and imposing tariffs on countries that implement a value-added tax system. This memorandum serves as a framework document for the adjustment of U.S. trade policy, aimed at reducing America's trade deficit and addressing issues of trade inequality and imbalance. Subsequently, Canada, Mexico, the European Union, and others quickly took countermeasures, leading to a spiral increase 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. The order aims to reduce America's trade deficit, promote the return of manufacturing, and protect the U.S. economy and national security, requiring higher reciprocal tariffs on countries with the largest trade deficits with the U.S. This move triggered swift countermeasures from the countries most affected, particularly China, which immediately took corresponding countermeasures, resulting in a formal entry into a phase of serious divergence and friction in the economic and trade relationship between the two parties.

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. Most critically, the United States will have to face the pressure of imported inflation. Monetary policy has fallen into a dilemma, with expectations for interest rate cuts being postponed. The tariff policy has also forced companies to shift production to Latin American countries such as Mexico, but issues of infrastructure and labor shortages in the U.S. hinder the return of manufacturing. Industries reliant on global supply chains, such as automobiles and electronics, have been severely impacted, multinational corporations are under increased profit pressure, and technology giants' stock prices in the stock market have seen corrections. Emerging markets face challenges in accommodating the transfer of industrial chains and are unlikely to fully fill the demand gap from the U.S. in the short term. The tariff war has also weakened trust in the U.S. dollar as an international trade settlement currency, leading to a decline in ten-year Treasury bond prices and a corresponding rise in yields. Behind this is also the government's plan to reduce debt spending and borrowing costs, prompting some countries to begin exploring de-dollarization paths. In the financial markets, global financial markets, including U.S. stocks, A-shares, and Nikkei, have generally fallen sharply, and market liquidity is facing enormous pressure.

The new government's cryptocurrency policy, through regulatory easing and strategic reserves, has boosted market confidence and attracted capital inflows in the short term, but in the long term, it is necessary to be wary of the risks of mining power centralization and policy fluctuations. The tariff policy, although named "America First," has led to the fragmentation of the global trade system, raising inflation and exacerbating expectations of economic recession, forcing capital to flow from risk assets to safe-haven assets like gold. These two policies together 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 cryptocurrency industry, leveraging its political background and capital operations. This project is viewed as a "barometer" of the new government's crypto-friendly policies, with its asset allocation and strategic partnerships interpreted by the market as a "presidential selected portfolio," attracting investors to follow suit. In the short term, this may exacerbate the market's reliance on "political narratives," driving price fluctuations of specific tokens, while in the long term, vigilance is needed regarding the risks of policy reversals. Additionally, the USD stablecoin launched by the project in March 2025 emphasizes compliance and institutional-level custody, and if it successfully penetrates cross-border payment and DeFi scenarios, it may weaken the market share of existing stablecoins, while also promoting the digitization of the dollar and consolidating the United States' dominant position in the global financial system.

In addition, the operation of the project benefits from the new government's policy adjustments, providing a compliance template for similar projects, lowering the compliance threshold for the industry, and attracting traditional financial institutions to participate in encryption 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 encryption currencies, such as BTC, ETH, AAVE, etc., thus connecting with the new