According to a report last Friday by Citigroup analysts led by Alex Sanders, 'This year has been a strong year for cryptocurrency, with total market capitalization growing by over 90%.' Will cryptocurrency continue the bull market in 2025? The report points out that six key factors will help determine cryptocurrency prices in the coming year, including ETF activity, regulation, and the future market of cryptocurrencies known as stablecoins.
Cryptocurrency has just passed a sensational year. In January, a dozen Bitcoin spot ETFs kicked off the bullish trend in the Bitcoin industry, making trading Bitcoin more convenient for investors. In September, a series of interest rate cuts and other policies from the Federal Reserve paved the way for economic growth, further boosting the crypto market.
But for digital assets, nothing is more important for the development of events than Donald Trump's victory on election day. Trump has advocated for cryptocurrency during his campaign, and since taking office, he has appointed several cryptocurrency supporters to lead the government, including Paul Atkins as the chairman of the Securities and Exchange Commission. These initiatives helped Bitcoin break through the critical threshold of $100,000 for the first time in history, and the prices of all tokens are also rising.
This optimism has pushed the total market capitalization of cryptocurrencies to $3.4 trillion, nearly double that of last year, despite hawkish comments from the Federal Reserve meeting last week that triggered a sell-off at one point.
Will cryptocurrency continue to shine in 2025? According to a report by Citigroup analysts, six key factors will help determine cryptocurrency prices next year, including the macro economy, ETF activity, asset allocation, broader adoption, regulation, and the future market of stablecoins.
Favorable macro backdrop
Analysts indicated that they expect the current macro backdrop to continue supporting high-risk trading in the first quarter, but warned that the outlook thereafter is less certain. The outlook may shift depending on Trump's economic policies and stock market volatility.
They noted: 'Given the increasing uncertainty in U.S. policy and the expected volatility in the stock market, the macroeconomic environment may become less favorable for the remainder of this year.'
Funds continue to flow into spot ETFs
Analysts expect strong inflows into cryptocurrency spot ETFs in their first year of listing to continue through 2025, providing further momentum for cryptocurrency growth.
Since trading began in January, Bitcoin spot ETFs have seen inflows of $36.4 billion, while Ethereum spot ETFs have garnered $2.4 billion since their launch in July.
After several years of approval processes, ETFs received approval from the U.S. Securities and Exchange Commission (SEC) this year, making cryptocurrency trading more accessible. By purchasing these funds, investors can understand the price movements of Bitcoin and Ethereum without directly buying Bitcoin.
Analysts stated: 'These fund flows have been the most important driver of cryptocurrency returns, and we expect this to continue into 2025.'
A place in multi-asset portfolios
Portfolio allocation will also be key to future returns. Analysts indicated that during this year's rally, Bitcoin will add value to multi-asset portfolios. Nevertheless, it remains a highly volatile high-risk asset, and an allocation above 3% constitutes 10% or more of total portfolio risk.
Thus, Citigroup analysts stated that the return on cryptocurrency needs to be several percentage points higher than the expected return on stocks to justify a 1% portfolio allocation; if the allocation is larger, the return on cryptocurrency needs to be much higher.
Analysts wrote: 'For a 5% allocation, performance needs to be higher; according to the long-term risk-return trade-off standard of the S&P, performance needs to reach double digits, or according to recent return rates, performance needs to reach 21%, as higher returns/risks mean investors need to be well compensated for taking on additional risk.'
Stablecoin issuance
Analysts stated that the continued issuance of stablecoins has been boosted following Trump's election, which will help create a healthier crypto market.
The purpose of stablecoins is to maintain a stable price over time, typically pegged to fiat currencies like the U.S. dollar, which means that as long as the stablecoin issuer has sufficient collateral to back it, the volatility of stablecoins is less than that of cryptocurrencies like Bitcoin.
Analysts stated that more stablecoins entering this space could threaten the long-standing leadership of stablecoin leader Tether, especially with the new partnership between Circle and centralized exchange Binance. They said: 'Innovation, partnerships, and new entrants in the stablecoin space pose a threat to Tether's dominance.' However, they added that these developments could help stablecoins continue to lead decentralized finance.
Analysts stated, 'We largely view the diversification of the stablecoin market as positive, as it could potentially reduce systemic risks posed by specific issuers,' and 'the widespread adoption of stablecoins in use cases beyond crypto trading could be a driving factor for broader DeFi participation.'
Wider adoption
Analysts stated that the most important theme to track is the adoption rate.
They indicated that although ETF activity and broader trading volumes have improved, and the market value of stablecoins has also risen, broader adoption is still needed to generate returns that surpass post-election excitement.
Analysts stated that they are monitoring the number of Bitcoins, the market value of stablecoins, and the increasing adoption of Bitcoin in countries like Turkey, Argentina, and Venezuela, where there are currency issues.
Less regulation
Finally, analysts noted that with Trump taking office next year, regulation will become a major theme. The incoming U.S. president has appointed several pro-cryptocurrency candidates to his cabinet. This part of the policy remains unclear, but the industry generally expects regulation to be more lenient, which could drive broader adoption.
Analysts stated: 'The outcome may shift from enforcement-based regulation to a more legislative-based approach.' They added that it's 'not a story of loosening regulations; rather, it's about eliminating adverse factors.'