Crypto Market Outlook: 5 Things to Watch in 2025

Stablecoins are just getting started

Stablecoins have emerged as crypto’s killer app. In 2024, stablecoins’ market capitalization increased 48% to a new all-time high of $193B as of December 1, and some analysts project that this could grow to $3T over the next five years. Year-to-date, they’ve processed over $27T worth of transactions, about 3x more than over the same period in 2023. Stablecoins have delivered proven utility by facilitating faster and cheaper payments on a global scale for a broad range of users, from micro-entrepreneurs to the world’s biggest corporations. As stablecoins continue their surge, we are rapidly approaching the day when their first and primary use cases will be global capital flows and commerce, rather than trading. The tokenization of real-world assets looks set for significant growth

Tokenization continued to make significant progress in 2024, as tokenized real world assets (RWA) grew over 60% to $13.5B (excluding stablecoins) as of December 1, according to rwa.xyz. Firms are experimenting with using tokenized assets as collateral for other financial transactions, like those involving derivatives, which could streamline operations and mitigate risk. Moreover, the RWA trend is expanding beyond assets like US Treasuries and money market funds – finding traction with private credit, commodities, corporate bonds, real estate, and insurance as well.

Although these efforts face their own set of unique challenges, we believe that the cumulative effects of sustained investment and technological refinement in 2025 should set the stage for tokenization to emerge as a cornerstone of the current crypto market cycle. Eventually, we think tokenization can streamline the entire portfolio construction and investing process by bringing it onchain, although this may yet be a few years away.

ETFs have forever changed the supply-demand dynamics for crypto

After the record-breaking success of US spot bitcoin ETFs, the entire crypto market has been transformed. Almost every type of institutional investor – including endowments, pension funds, hedge funds, investment advisors and family offices – now owns crypto ETFs. As institutional adoption continues to increase, we think these holders will provide a long-term, stabilizing source of demand for the asset class.

Looking ahead, the industry is focused on the potential approval of spot ETFs for tokens like XRP, SOL, LTC, and HBAR in the US, but we think meaningful institutional demand may be limited to a small cohort of assets in the near term. Instead, we’re more interested in what could happen if the SEC lifted its mandate on cash rather than in-kind creations and redemptions of ETF shares or allowed these products to incorporate staking. These changes could enhance the potential rewards for ETF holders, help narrow bid-ask spreads, and improve price alignment between share prices and NAV, making the ETFs even more attractive to investors.

DeFi’s resurgence will propel it into a new era

Decentralized finance (DeFi) took some hits in the previous cycle, but a more sustainable and resilient ecosystem has emerged. Lending protocols are hitting all-time highs in total value locked (TVL), while decentralized exchanges (DEXs) are pushing their share of trading volumes – relative to centralized exchanges (CEXs) – to unprecedented levels. Innovative user applications like decentralized physical infrastructure (DePIN) and prediction markets are leveraging DeFi primitives to enable novel experiences. Moreover, the shift in the US regulatory landscape and the adoption of onchain verification could help provide a clear path for traditional institutional investors to participate in DeFi. All of this suggests that DeFi could extend its reach in the near future.

Regulation will finally shift from a headwind to a tailwind

After years of struggling with unclear, inconsistent regulations, the tides have turned and the US will soon usher in the most crypto-friendly Congress ever. A bipartisan, pro-crypto majority in both the House and Senate means that US regulation will provide a tailwind for crypto performance in 2025.

Crypto's emergence as an electoral issue underscores the urgency for policymakers to align with the evolving demands of this influential voting bloc, and we think that the odds of achieving a new legislative milestone are strong. Specifically, we expect to see the establishment of a comprehensive regulatory framework in the US, the introduction of sound stablecoin legislation, and an end to the era of regulation by enforcement. And the US isn’t the only jurisdiction poised to make regulatory progress. Many G20 countries and major financial hubs are writing rules to accommodate digital assets, which should help create more conducive environments for innovation and growth. Taken together, these moves can open the door for more people and institutions to confidently participate in the crypto economy.

A pivotal year

As the regulatory and technological landscapes evolve, we expect to see substantial growth in the crypto ecosystem as wider adoption drives the industry closer to achieving its full potential. The breakthroughs and advancements of 2025 could very well determine the long-term trajectory of the crypto industry for decades to come. This will be a pivotal year.

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