Source: Pantera Capital Blockchain Letter April 2025
Author: Cosmo Jiang, Partner at Pantera Capital; Translated by: AIMan@ Jinse Finance
A series of events in the cryptocurrency space and the broader macro environment have impacted the market in 2025. Large macro forces are clearly dominant, with risk appetite continuing to retreat across most sectors and asset classes. While digital assets are leading the way in growth-oriented investing, they are far from immune to their impact.
2025 started off optimistically, with political attitudes turning in favor of cryptocurrencies, driving crypto prices higher from the November election to January. However, after Bitcoin and Solana hit all-time highs in January, Trump’s inauguration turned into a classic “buy the rumor, sell the news”. Both the S&P 500 and Bitcoin fell 15-20% (although Bitcoin has since recovered). But if you look internally, high-growth and small-cap stocks performed even worse. For example, Ethereum, the second-largest coin by market cap, fell 47%. The pullback can be largely attributed to macro factors, as well as some issues unique to digital assets.
From a macro perspective, markets are concerned about increasing policy uncertainty and stagflation, a combination of slowing economic growth and rising inflation. Trump continues to push his tariff agenda (currently, a 90-day suspension of “reciprocal” tariffs above the 10% base rate, excluding China), which has already lowered consumer confidence, corporate earnings, and GDP forecasts. This started with his first executive order at his inauguration, but markets didn’t really take him seriously until the first round of tariffs against Mexico, Canada, and China took effect on February 1. Since then, each major tariff announcement has led to a market decline, culminating in “Liberation Day” on April 2.
While tariffs have been the biggest driver of price action, other headwinds have emerged, such as the Department of Government Efficiency (DOGE). The impact of DOGE is difficult to quantify, but qualitatively it has had a significant impact on the mindset of government employees and the businesses that serve the government. Given that government spending has accounted for 23% of GDP and 25% of new jobs in recent years, any DOGE-driven spending cuts will have a real short-term impact on the economy. Whether these policies are good or bad, the speed and magnitude of the changes are very different from previous administrations. The market is worried about uncertainty, and we have seen the default response: sell off and take more defensive positions.
Furthermore, the stock market was supported by optimism about unlimited demand for AI hardware from a fundamental growth perspective. But that optimism took a hit after the market began to price in the impact of DeepSeek’s achievement. All public AI-related stocks — and AI-related tokens — were sold off sharply, with many falling by more than 50%.
The digital asset industry has also faced some unique challenges. The first is the bursting of the memecoin bubble. This wave of declines began after Trump launched his own memecoin, and the decline accelerated further after the uproar caused by Argentine President Javier Milei and the manipulated LIBRA memecoin incident.
There has been much debate about whether these events are good or bad — or perhaps a bit of both. The good news is that high-profile figures like Trump are bringing attention and new users to the space, inspiring copycats from the Web2 world. Tokens are the most disruptive form of capital formation we have ever seen, and I hope this inspires more creative and productive token issuance in the future.
On the other hand, meme coins reinforce the casual observer's perception of cryptocurrencies: that cryptocurrencies are full of scams and are a joke, which damages the reputation of developers who are serious about building cryptocurrencies. They also siphon liquidity and attention away from other tokens. And, because meme coins are often luring, it's hard for other tokens to recover once the craze fades.
The second-largest outlier of the quarter was the hack of Bybit, the world’s second-largest exchange. While no customer funds were lost — Bybit successfully recouped the losses — it still undermined confidence in the overall market structure.
When you put all of these events together, you can see how they act as a drag on the market.
Cryptocurrency price performance
The sell-off was widespread. In the first quarter, the median token price fell by more than 50%, and so far this year, almost 100% of tokens are down. It is important to note that this price action is similar to the trend of the S&P 500 and its underlying components.
We believe the market is increasingly focusing on fundamentally sound tokens, and we are seeing this trend reflected in relative performance. Year-to-date, fundamentally sound tokens (i.e. tokens with revenue and cash flow) have outperformed tokens without revenue by 8 percentage points. Memecoin and AI have also underperformed other tokens.
As painful as it may be, we believe that capital destruction of fundamentally worthless tokens is healthy.
Price performance, put in historical context
We have been through pullbacks like this many times before. This is common in broader bull markets.
In the last uptrend from 2020 to 2022, BTC had five major corrections of more than 20%. Other coins have experienced corrections of 40% to 50%. This happens from time to time even in a strong market.
We’ve already had three such pullbacks during the current long-term uptrend — including the one we’re in now. Each time, getting shaken out was a mistake. In fact, in the past week, Bitcoin’s price rallied back to $95,000, with most of the gains occurring on Wednesday. For those with a long-term investment horizon, being able to withstand this kind of volatility is a huge advantage.
When analyzing quarterly changes in cryptocurrency market capitalization, large declines are usually followed by strong rebounds, as shown by the arrows.
Q1 2025 was the worst quarter for cryptocurrencies since the summer of 2022, when markets plunged across the board. While past experience may not be predictive of the future, sharp declines are almost always followed by strong rebounds — though the magnitude of the rebound depends on current market conditions and, crucially, whether the overall trend remains upward.
Are you greedy when others are fearful?
On April 15, 2025, I hosted a crypto market outlook call to discuss my thoughts on the cryptocurrency markets. I talked about some of the indicators tracking market sentiment that we believe have reached all-time highs, indicating that some of the worst of the sell-off is over. While the market did rebound from the bottom, I wanted to share my thought process on how I was monitoring market sentiment at the time:
“The U.S. economic policy uncertainty index is at its highest level in 40 years, similar to levels during the COVID-19 pandemic and higher than at any time since the survey began in the 1980s, including higher than during the 9-11 attacks and the 2008 financial crisis.
Uncertainty causes risk allocators to retreat. At this juncture, you need to ask yourself whether the environment will become more uncertain. In the historical context, this seems unlikely, and instead we should have reverted to the mean.
“The Crypto Fear and Greed Index considers a variety of factors, including technical momentum and social media sentiment, to calculate an overall index score of the degree of greed and fear among market participants.
“During the sell-off, we have once again reached extreme levels of fear not seen since the bear market trough and the FTX crash in late 2022. Whenever markets reach these extreme levels, negative sentiment typically signals a local bottom in prices and a good point for future returns.
Next is the Bitcoin futures funding rate, which shows the ratio of long and short participants in the futures market. The Binance Bitcoin futures funding rate shows that there are more shorts long in this market. This has only happened during market downturns in previous cycles, usually before a big rebound, like in late 2023 and late 2024.
The final indicator is the AAII Investor Sentiment Survey - A weekly survey conducted by the American Association of Individual Investors (AAII) shows that more than 60% of investors are pessimistic about the next six months. This has only happened three times since the survey began in the 1980s, during the sharp market corrections in 1990, 2008, and 2022.
Summarizing current market sentiment, these charts show that whether focusing specifically on cryptocurrency sentiment, crypto native positions and leverage, or broader retail investor sentiment and policy uncertainty, we have reached historical extremes. It is expected that we may have passed the early stages of an aggressive sell-off based on this sentiment.
– Cosmo Jiang, General Partner, Pantera Capital, Crypto Market Outlook Call
The impact of macro events on cryptocurrencies
Interest rates and liquidity conditions are favorable for risk assets
At the same time, favorable interest rate and liquidity conditions are positive for risky assets.
The 10-year Treasury yield has been steadily declining since hitting a high in 2023, and has fallen sharply in recent days. Rates have stayed higher for longer and may continue to do so amid high inflation, but more importantly, the overall trend is downward. The Trump administration - especially Treasury Secretary Bessant - has spoken about the importance of lower long-term interest rates, and their policy actions are aimed at achieving this goal. Lower long-term interest rates are essential for the United States to maintain spending financing and are also good for risk asset valuations.
Liquidity conditions are also continuing to increase globally. Europe and China are now implementing stimulus measures after a period of tightening. We may be on the verge of a shift to quantitative easing. Both Treasury Secretary Bessant and Fed Governor Collins have spoken on this in the past few weeks in response to the bond market turmoil caused by the surge in long-term bond yields. Their natural response will be to provide liquidity support, and then the world's largest economies will work together. Increased liquidity is good for risk assets.
If we compare global liquidity to the price of Bitcoin, it is clear that the main upward trends in the price of Bitcoin occur during periods of increased liquidity. In periods of stress, which are usually caused by tightening liquidity, Bitcoin falls back along with all other assets. Therefore, we believe that rising global liquidity is an important indicator to monitor.
Another look at the four-year cycle of cryptocurrency
This is a historic moment in the global economy: the S&P just had its worst week and its best week — back to back. Typically, Bitcoin’s price sees major moves in response to major macro events, which also typically coincide with global liquidity cycles. In 2012, it was the Eurozone sovereign debt crisis. In 2016, it was Brexit. In 2020, it was the economic collapse brought on by the COVID-19 pandemic. Many people blame Bitcoin’s price cycles on the halving, but another explanation is that every four years, some major macroeconomic event occurs that happens to support Bitcoin’s bull run. We are at such a moment again.
Recent macroeconomic events are turning into a crisis of confidence in the dollar. Many point to rising long-term Treasury yields as a harbinger of bond market turmoil or capital flight as foreign companies and entities move savings out of the dollar. Bitcoin's main function is that it is a non-sovereign store of value. This does not necessarily mean that the price must be stable, but it is seen as an attractive alternative and diversification tool in an increasingly uncertain world. This de-dollarization certainly confirms this argument.
Early signs of relative strength for cryptocurrencies
We are starting to see signs of digital assets performing better in short periods of time. Digital assets have outperformed stocks and the US dollar relatively so far in April. Solana and Bitcoin are up while US stocks are down. It’s still early, but just as digital assets were the first to pull back, they could also be the first to bottom out.
Positive industry developments are being overlooked
Furthermore, we should keep in mind that many positive industry developments have been overlooked amid the price volatility. In terms of policy actions, this includes the White House appointing a “crypto czar” and establishing a digital asset task force, establishing a strategic Bitcoin reserve, revoking stringent regulations such as SAB-121 and the DeFi broker rule, and the SEC dismissing more than a dozen lawsuits against large companies. Arguably, the cryptocurrency industry has experienced the most positive headlines in history, many of which are structural changes, and yet, it has experienced its worst quarter since 2018. We believe that this good news has certainly not been priced in by the market, but has simply been ignored by market volatility.
Fundamentals are improving
Most importantly, digital assets require real adoption and usage to sustain. Blockchain businesses are currently generating billions of dollars in revenue. Real Economic Value — a measure of total demand and value capture for L1 blockchains — was $1.5 billion last quarter, an annualized $6 billion. During the same period, total revenue from on-chain applications was approximately $3 billion, an annualized $10 billion. Daily active addresses (a measure of user activity) continue to hit new highs. As more people choose to use cryptocurrencies for payments and savings, stablecoins and on-chain stablecoin transfer volumes are also hitting all-time highs. Innovation in key investment focus areas such as stablecoins, artificial intelligence, DePIN, and DeFi continues to be strong in the early stages. We expect these fundamental metrics to trend upward as more people discover the exciting applications and opportunities that on-chain offers.
in conclusion
All in all, it was a challenging quarter with huge macro forces clearly taking over and causing risk appetite to pull back sharply. The biggest concern remains uncertainty surrounding tariffs and their impact on the global economy. The market outlook remains highly uncertain, which is reflected in sentiment indicators that are at historically low levels. However, these sentiment signals also suggest that we may have passed the most aggressive point of selling.
After we get through this tariff-driven volatility, I believe investors will begin to appreciate all of the long-term tailwinds and strong fundamentals, and I still expect digital assets to perform strongly this year. As a pioneer of growth assets, cryptocurrencies are the first to pull back, but they may also be the first and fastest to rebound.
