Forte Q1 2025 Market Report

Key Points

• The crypto market ended 2024 at all-time highs, but macroeconomic factors and fears of a trade war led to a reversal in market sentiment and a broad sell-off in risk assets. In addition, Trump’s plans for a bitcoin strategic reserve received a divided response and ended up being a sell-the-news event.

• The Trump administration has begun the move towards a crypto-friendly regulatory environment in the US, but the details have yet to take shape. Those details can have significant consequences for the market, as we saw with MiCA’s impact on the stablecoin market.

• The sunnier regulatory outlook is leading to a resurgence in interest from TradFi firms, with strong growth in stablecoins and RWA tokenization.

Macro Trend

• Despite the crypto market roaring to all time highs in December 2024, the total crypto market cap declined 18.6% in Q1, largely driven by macroeconomic factors, erasing the majority of the gains made since the reelection of Trump.

• Concerns of a trade war fueled by the imposition of tariffs by the Trump administration resulted in a decline in market sentiment and a broader market sell-off.
• Impending tariffs drove worries about slowing economic growth and rising interest rates, depressing overall economic sentiment and market outlook.
• Those tariff fears and uncertainty further drove a massive sell-off in high risk assets across crypto assets and the broader stock market, resulting in liquidations and a sharp reversal in sentiment that exacerbated the market rout.

• Further volatility in the market arose from speculation about the prospects of a bitcoin strategic reserve announced by the Trump administration, while the plan itself resulted in mixed sentiment, with some praising the administration and others disappointed.
• Trump initially announced plans for a crypto strategic reserve that included assets like BTC, ETH, SOL, ADA, and XRP. Although this announcement sparked rallies for the five named cryptocurrencies, it also drew criticism over whether some of these altcoins should be in a strategic reserve, given their high centralization and limited developer activity.
• Trump’s executive order to establish a strategic bitcoin reserve received mixed sentiment from industry participants but ultimately led to increased sell pressure as the market remained cautious due to the lack of clear details.
• Advocates praised the administration for making America a global crypto leader and for differentiating bitcoin as the premier cryptocurrency compared to other altcoins.
• Critics were disappointed about the lack of clarity regarding purchases of bitcoin compared to holding onto seized bitcoin. It remains unclear whether the reserve will be able to allocate funds to the reserve for purchases.
• The establishment of the Strategic Bitcoin Reserve reflected and further drove an increase in appetite for bitcoin reserves on a state level and internationally, as more governments see and consider the value of diversifying their asset reserves through crypto assets.

• Despite market volatility, Q1 saw notable M&A deals along with a substantial increase in crypto funding. Q1 saw $5.82B in funding, a 45% Q/Q increase, and the largest quarterly funding amount since Q3 2022, according to The Block Pro.
• As the regulatory environment eases, it appears that crypto exchanges and broker/dealers are increasingly interested in M&A as the industry heads towards integrated multi-asset investment platforms.
• Kraken acquired futures platform NinjaTrader for $1.5B in the largest deal ever between a crypto and TradFi company.
• The crypto industry also saw renewed investor activity with DWF Labs establishing a $250M liquid fund and Haun Ventures seeking $1B to launch two new crypto-focused funds.

Regulatory Trend

• In the US, the Trump administration is leading an overhaul of the regulatory approach to crypto, easing the path for crypto in the US.
• In addition to seeing the controversial former chair and frequent crypto opponent, Gary Gensler, step down from his role, the first few months of the Trump administration saw the formation of a new crypto task force at the SEC dedicated to “developing a comprehensive and clear regulatory framework for crypto assets”, headed by the friendlier face of Hester Peirce. More substantively, the SEC repealed accounting guidance it had issued previously that made holding crypto expensive for banks, clearing the way for banks to increase their involvement with crypto.
• The administration similarly paved the way for crypto with an executive order directing agencies to establish friendly policies to put the industry on more solid footing in the U.S. The administration’s momentum was reflected in the legislature as well, with stablecoin legislation moving forward and predictions of more comprehensive pro-crypto regulation by the end of the year.
• The biggest shift, though, came in the courts. Under Gary Gensler, the SEC favored regulation by enforcement, taking action against several high-profile crypto companies. Since Gensler’s departure, that has changed. The SEC has scaled down its crypto enforcement unit and dropped cases against, among others, Kraken, Coinbase, Metamask, Uniswap, OpenSea, Gemini and Justin Sun, and Robinhood. While the dropped suits don’t provide any information about the SEC’s framework going forward, it gives confidence to industry actors, allowing them to plan for the future with reduced risk of enforcement actions.

• Across the pond, the EU’s Markets in Crypto Assets regulation (MiCA) came into full force, reshaping the EU crypto landscape.
• While the implementation gave clarity to the industry, the change saw some losers, as exchanges delisted noncompliant coins for EEEA users.
• One of the biggest of these losers, and the most consequential for the broader crypto landscape, was Tether, which saw itself delisted by Binance and Coinbase Europe. As a large stablecoin issuer, Tether must keep 60% or more of its reserves in a low-risk commercial bank within the EU, a challenge for an issuer with Tether’s large capitalization and global adoption.
• Tether saw its market cap and market share of the total ethereum stablecoin supply drop, while that of rival Circle’s USDC surpassed a market cap of $60 billion, its record high.

TradFi’s Time to Shine

• With a friendlier administration and accompanying regulatory environment, TradFi firms have returned to crypto in waves.
• The strongest growth has been in RWA tokenization, with a spate of notable projects announced, including Fidelity’s stablecoin and on-chain US treasury fund and Apollo’s tokenized private credit fund.
• RWAs have also seen traction globally, such as China’s CPIC tokenized fund rollout and Revolut launching a mobile crypto exchange app for European users, signaling that the increased institutional interest is not just a result of the Trump effect.
• Institutional interest drove stablecoin market cap to all-time highs and USDC in particular, a stablecoin that prioritizes compliance, gained about 5% of market share during Q1.

• As RWA momentum continues to grow, analysts expect the sector to experience substantial growth, with assets in tokenized investment products predicted to reach $317B in 2028 and yield-bearing stablecoins growing from 6% to 50% of market share.