Q1 2025 Crypto Market Review: Macroeconomic Fluctuation and Innovation Integration

At the beginning of 2025, the crypto market started with optimism and uncertainty. The market had high hopes for a shift in Federal Reserve policy, the AI technology revolution, and the new government's regulatory framework. However, the first quarter presented a pattern of "macroeconomic fluctuations and micro innovations."

Global macroeconomic factors have become the core driving force of the market. The Federal Reserve is weighing inflation against the risk of recession, and the unexpected recession rate cut expectation in March briefly boosted the market but failed to offset the panic triggered by the bursting of the U.S. stock market valuation bubble. The new government has promoted the national strategic reserve of Bitcoin and implemented digital asset regulatory legislation, bringing structural benefits to the industry, but it has also intensified the debate over the costs of compliance transformation.

After Bitcoin broke the $100,000 mark in January, it adjusted by 30%, indicating that funds are locking in profits from the "halving market". Altcoins performed generally flat, but innovative products like RWA still inject vitality into the industry. It is worth noting that some major trading platforms are accelerating their layout of decentralized ecosystems, promoting seamless access for users to DeFi and other application scenarios through the aggregation of on-chain liquidity and account abstraction technology. This fusion model of centralization and decentralization may become the key to the next growth cycle.

Macroeconomic Environment and Impact

In the first quarter of 2025, the macroeconomic environment in the United States has a profound impact on the crypto market. The positive correlation between the crypto market and the US stock market has strengthened, and the trend of the Nasdaq to some extent determines the direction of cryptocurrencies. The core of the macroeconomic environment lies in the balance between inflation and economic strength, and the market trades on expectations for the future.

The new government’s large-scale layoffs of government personnel have directly led to an increase in the unemployment rate. At the same time, tariff policies have driven up the prices of affected goods and the costs of related services, exacerbating inflationary pressures and increasing the likelihood of a recession in the United States. These policies have added instability to the market, resulting in greater fluctuations in the capital market.

Considering the price increase brought about by the election trends in the fourth quarter of 2024 and the potential short-term retracement risks, some institutions have scaled back their investment plans in the first quarter of 2025, turning their attention to exploring over-the-counter trading strategies. However, these policies may also be aimed at increasing political negotiation leverage or deliberately creating chaos to achieve special purposes, such as pressuring the Federal Reserve to quickly cut interest rates to alleviate debt issues and stimulate the economy. Therefore, the market remains optimistic about the subsequent performance of the crypto market.

In the first quarter, the crypto market was sensitive to economic data. The January data was overall strong but the market was stable; the inflation in February exceeded expectations, leading to a significant drop in Bitcoin; the improvement in March data caused a brief rebound, but the core PCE exceeding expectations triggered another decline. Looking ahead, the trajectory of the crypto market will still heavily 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 Cryptocurrency Policy and Its Impact

The new government signed an executive order in March to establish a strategic Bitcoin reserve, funded by approximately 200,000 confiscated Bitcoins. This move aims to elevate the status of Bitcoin and enhance its legitimacy and liquidity. In the short term, Bitcoin's price surged over 8%, but then fell back due to the reserve relying solely on confiscated assets. In the long run, this move could trigger imitation by other countries, promoting Bitcoin as an international reserve asset.

In terms of regulation, the new government is pushing to dismiss the SEC chairman, establish a crypto asset working group, clarify the distinction between securities and non-securities tokens, and terminate lawsuits against certain enterprises. The regulatory environment has significantly relaxed, institutional investors are accelerating their entry, and traditional financial institutions are authorized to conduct crypto custody business. In the short term, policy benefits may accelerate innovation and capital inflow; in the long term, it is necessary to be vigilant against systemic risks and global regulatory games.

In terms 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. The application of stablecoins in cross-border payments is accelerating, expanding the path for the internationalization of the US dollar.

The new government's tariff policy has led to an increase in global trade costs and a reduction in the scale of international trade. The United States is facing import inflationary pressures, and the Federal Reserve's monetary policy is in a dilemma. The tariff policy forces companies to relocate production to other countries, but the shortage of domestic infrastructure and labor in the U.S. hinders the return of manufacturing. Global financial markets are generally declining, and liquidity is under pressure.

Some DeFi projects closely related to the government have had a multidimensional impact on the industry since their launch. These projects are seen as policy "barometers," with their asset allocation 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; in the long term, one should be wary of the risks of policy reversals. The dollar stablecoins launched by these projects emphasize compliance and institutional-level custody, which may weaken the market share of existing stablecoins while promoting the digitization of the dollar.

Overall, the new government's encryption policy boosts market confidence and attracts capital inflows in the short term through regulatory easing and strategic reserves, but in the long term, it is necessary to be wary of the risks of computational power centralization and policy fluctuations. Although the tariff policy is named "domestic priority," it leads to the fragmentation of the global trade system, increases inflation, and exacerbates expectations of economic recession, forcing funds to flow from risk assets to safe-haven assets. This highlights the contradictions and games between the digital economy and the transformation of the real economy.

Integration and Connectivity of Exchanges and Decentralized Platforms

As the industry evolves, the boundaries between centralized exchanges and decentralized applications are becoming increasingly blurred. Some mainstream exchanges are leveraging their advantages to enter the Web3 wallet market. For example, a certain exchange's wallet excels in product experience, successfully attracting a large number of users. Another exchange's Web3 wallet is closely integrated with exchange accounts, allowing for rapid transfers between on-site assets and the Web3 wallet, reducing users' security concerns. This wallet also allows on-site users to directly purchase on-chain assets, breaking traditional boundaries.

At the same time, some native encryption projects have also made breakthroughs in the wallet field. For example, a certain network has launched a product that integrates wallet and trading platform functions, addressing the challenges of multi-chain asset management and trading, and has gained market recognition.

The integration of centralized and decentralized platforms is not only a technological innovation, but also a milestone in the crypto market's shift from "opposition and division" to "collaborative symbiosis." This transformation brings new challenges in regulation, security, and governance, while enhancing efficiency and inclusiveness. In the future, participants who can better balance the efficiency of centralization and the advantages of decentralization may dominate the development direction of the next generation of financial infrastructure.