2025 started harshly for crypto, prompting fears of a new crypto winter. After a significant market drop, venture capital inflows have decreased sharply. Key insights from a recent report suggest caution but signal potential recovery in the latter half of the year. Bitcoin shows some strength despite falling prices, while Ethereum faces tougher challenges. Overall, investors are urged to adopt a defensive strategy while being ready for opportunities as sentiment shifts.
The cryptocurrency market has faced a tumultuous start to 2025, suggesting a potential onset of a new crypto winter. After an optimistic December 2024, where the market peaked at $1.6 trillion, a staggering 41% decline followed in the first quarter, dropping the valuation to around $950 billion. The plunge has been attributed to a combination of global economic uncertainties, trade tensions, and tighter monetary policies, causing venture capital investments in the sector to plummet back to 2017-2018 levels.
A recent report titled “Charting Crypto,” produced by Coinbase Institutional in partnership with Glassnode, stresses the need for caution. Yet, analysts are not entirely pessimistic. They believe that should market sentiment change for the better, a swift recovery could take place, and expectations for the latter half of 2025 look somewhat brighter.
The report features insights from key players in the market. Grayscale points out that fees from decentralised applications are rising, suggesting continued demand despite overall market conditions. Tephra Digital indicates that many major brokers are still restricting exposure to Bitcoin ETFs and that a policy shift could potentially escalate investments significantly. Meanwhile, Multicoin Capital celebrates Solana’s remarkable growth, reporting it generated more revenue in the first quarter than all other Layer 1 and Layer 2 blockchains combined.
Bitcoin, while experiencing some stress, has shown moments of resilience. Its price fell below $90,000, but the liquidity for long-term holders has increased, implying many are choosing to accumulate rather than offload. The Net Unrealized Profit/Loss (NUPL) metric has dipped to 0.47, suggesting a shift from investor denial to anxiety, with over 4 million BTC now in loss positions.
Ethereum’s plight appears more daunting. The price of ETH plummeted by 45% in the first quarter, with the liquid supply rising by 15%, implying greater selling pressure. Additionally, transaction fees have dropped by 54%, even though the transaction count remains steady, and over 40 million ETH are currently in losing positions.
ETF fund flows present mixed signals. Bitcoin ETFs saw positive inflows into early 2025 but then faced a downturn. Ethereum’s spot ETFs have been erratic, lacking a clear trend. Despite declines in futures and options market volumes compared to late 2024’s highs, these markets remain stable overall.
Interestingly, correlations between cryptocurrencies and US stock markets have risen, but crypto continues to show low or negative correlation with other traditional assets like gold and bonds. This could indicate that Bitcoin and Ethereum might start to diverge from traditional assets during high volatility phases. Volatility among Bitcoin, Ethereum, and Solana remains elevated but not extreme, with Solana experiencing the sharpest movements.
The decentralised finance (DeFi) landscape, however, remains resilient. The Total Value Locked (TVL) on Ethereum has reached $48 billion, and Layer 2 solutions like Arbitrum and Optimism are thriving, aided by the recent “Dencun” upgrade, which has led to lower transaction costs.
Coinbase and Glassnode suggest potential catalysts that could shift the market dynamics for the better, including a halt to the Fed’s quantitative tightening, which may boost global liquidity, and fiscal stimulus from major economies. Conversely, escalating trade tensions or fresh economic shocks could worsen the current situation.
In summary, the report advises a defensive strategy for the near term while staying alert for any shifts in sentiment. Given the inherent volatility and cyclical nature of the crypto market, opportunities can spring up unexpectedly, rewarding the prepared investor. As we move into the second quarter of 2025, the question remains: are we indeed entering a prolonged crypto winter, or is the ecosystem gearing up for another surprise?
