Q1 2025 Crypto Market: New Policies Drive Amid Economic Uncertainty

The complex situation of the Crypto Assets market

At the beginning of 2025, the Crypto Assets market showed a complex situation under the influence of multiple factors. The market had high hopes for the New Year, expecting a shift in Federal Reserve policies, advancements in artificial intelligence technology, and a friendly regulatory framework from the new government to drive industry development. However, by the end of the first quarter, the market exhibited characteristics of extreme volatility on a macro level and relatively slow micro-level innovations.

The global economic situation has become a key factor driving market trends. The Federal Reserve is striving to find a balance between recurring inflation and recession risks. The unexpected expectations of recession rate cuts in March briefly boosted market sentiment, but failed to offset the liquidity concerns triggered by the valuation adjustments in US stocks. The new government has fulfilled its campaign promises by launching a Crypto Assets national strategic reserve program and a digital assets regulatory bill, bringing positive signals to the industry. However, the coexistence of these favorable policies with a relaxation of regulatory enforcement has also raised concerns in the market about the costs of industry transformation.

After Bitcoin broke the historical high of $100,000 in January, it experienced a 30% correction, showing investors' profit-taking from the "halving market." The overall performance of the altcoin market has been mediocre, but innovative products have still emerged in areas such as real-world assets (RWA) and user entry, injecting new vitality into the industry. It is worth noting that some major centralized exchanges have begun to layout decentralized trading ecosystems by integrating on-chain liquidity and simplifying user operations, allowing traditional users to more easily participate in decentralized finance and other application scenarios. This trend of merging centralized and decentralized systems could become an important factor driving the next phase of growth in the industry.

The impact of the economic environment on the market

In the first quarter of 2025, the economic situation in the United States had a profound impact on the Crypto Assets market. With the launch of the Bitcoin ETF, the correlation between the Crypto market and the US stock market has further strengthened, and the performance of the Nasdaq index has largely influenced the performance of Crypto Assets. Although Bitcoin was once regarded as "digital gold," it is currently more inclined to be a risk asset, highly sensitive to changes in market liquidity.

The core of the economic environment lies in the balance between inflation and economic growth. If inflation remains high or the economy overheats, the Federal Reserve may delay interest rate cuts, which would be detrimental to the capital markets; conversely, if the economy is too weak, it may trigger concerns about recession, which would also undermine market confidence. Therefore, finding this balance is crucial for the capital markets.

Some policies of the new government, such as cutting government personnel and adjusting tariff policies, have directly affected employment rates and inflation levels. These policies have increased market uncertainty, leading to heightened volatility in the capital markets. Considering the gains brought by the previous elections and the potential risks of a pullback, some investment institutions adopted a more conservative investment strategy in the first quarter, focusing more on over-the-counter trading and other businesses.

However, these policies may not only be simple economic regulation measures, but also aimed at increasing international negotiation leverage or forcing the Federal Reserve to adopt more aggressive interest rate cuts. Therefore, although the market may face challenges in the short term, the Crypto Assets market still has development potential in the long term.

Policy Changes and Their Impact

The new government signed an executive order in March 2025, requiring the establishment of a strategic Bitcoin reserve. This initiative aims to enhance the legal status and liquidity of Bitcoin, while showcasing the United States' leadership in the digital assets space. Although the initial news drove Bitcoin prices up significantly, the price quickly fell as the reserves relied solely on confiscated assets with no new purchase plans. In the long run, this move could inspire other countries to follow suit, promoting Bitcoin as an international reserve asset.

In terms of regulation, the new government has adopted a more lenient attitude. A dedicated Crypto Assets task force has been established, clarifying the classification standards for securities and non-securities tokens, and terminating lawsuits against certain crypto enterprises. At the same time, some controversial accounting standards have been abolished, easing the financial burden on businesses. These measures have significantly improved the regulatory environment, attracting more institutional investors, and traditional financial institutions have also been permitted to conduct crypto custody services.

In the field of stablecoins, the government has established a federal regulatory framework that allows stablecoin issuing institutions to access the Federal Reserve payment system, while explicitly prohibiting the issuance of central bank digital currency to protect the innovation space of private Crypto Assets. These measures have accelerated the application of stablecoins in cross-border payments and expanded the market share of private stablecoins.

The new government's tariff policy has had a significant impact on global trade and the economy. The trade memorandum and tariff executive order signed in early 2025 aim to reduce the U.S. trade deficit but have triggered retaliatory measures from major trading partners, leading to a rise in global tariff barriers. These policies have increased production costs, accelerated supply chain restructuring, and may trigger imported inflation. The Federal Reserve faces a policy dilemma, with expectations for interest rate cuts being deferred. At the same time, these policies have also affected the international status of the dollar, prompting some countries to explore de-dollarization paths.

WLFI project supported by the Trump family

World Liberty Financial (WLFI) project has had various impacts on the Crypto Assets industry since its launch in 2024, due to its political background and capital operations. The market views WLFI as a barometer of government encryption-friendly policies, and its investment portfolio is interpreted as "presidential selection," attracting a large number of following investments. However, this may also exacerbate the market's dependence on political narratives, increasing the risk of policy fluctuations.

The USD stablecoin USD1 launched by WLFI in March 2025 emphasizes compliance and institutional-grade custody, with the potential to be applied in cross-border payments and decentralized finance, possibly affecting the market landscape of existing stablecoins while promoting the digitization of the dollar.

The operational model of WLFI provides a reference for the interaction between government and business for other projects, but it also needs to seek a balance between compliance and decentralization principles. The project heavily invests in various Crypto Assets, resonating with the government's "strategic encryption reserve" policy, which may attract more capital attention to digital assets and promote digital asset reserves as a new market hotspot.

Evolution of the exchange ecosystem

As the crypto market matures, the boundaries between centralized exchanges and decentralized applications are becoming increasingly blurred. Mainstream exchanges, leveraging their user base and technological accumulation, are beginning to enter the Web3 wallet market. Some wallet products launched by exchanges not only provide a high-quality user experience but also achieve a close integration with exchange accounts, lowering the threshold for users to access Web3 services.

The latest wallet feature from a well-known exchange allows users to purchase on-chain assets directly within the platform, breaking traditional boundaries between centralized and decentralized trading. At the same time, some native encryption projects have also made breakthroughs in the wallet field, such as UniversalX, which solves the challenges of multi-chain asset management and trading by integrating wallets and trading platforms.

The integration of centralized and decentralized exchanges signifies that the Crypto Assets market is moving from opposition and fragmentation towards collaborative symbiosis. This transformation not only enhances efficiency and inclusiveness but also brings new regulatory, security, and governance challenges. In the future, participants who can find a balance between the efficiency of centralization and the security of decentralization may lead the development direction of the next generation of financial infrastructure.