The year 2024 is set to be a breakthrough year for the cryptocurrency industry. With Donald Trump elected as President of the United States and the approval of spot Bitcoin ETFs, the total market capitalization of the crypto market reached $3.4 trillion, nearly double that of last year. Citigroup analysts have compiled six key factors that could influence the direction of the cryptocurrency market in 2025 in their latest report.
1. Support from the Macroeconomic Environment
Citigroup analysts pointed out that the current macroeconomic backdrop will still support the performance of risk assets at the beginning of 2025. However, the subsequent market trend will depend on the economic policies of the Trump administration and stock market volatility.
"As uncertainty in U.S. policy increases and predicted stock market volatility rises, the support from the macroeconomic backdrop may weaken in the coming year."
2. Continued Net Inflows into Spot ETFs
The approval of Bitcoin and Ethereum spot ETFs is seen as a significant driver of market growth in 2024, and this trend is expected to continue into 2025. Since trading began in January 2024, Bitcoin ETFs have attracted $36.4 billion in capital inflows, while Ethereum ETFs have attracted $2.4 billion since their launch in July.
"These capital inflows are the most important driver of returns in the crypto market, and we expect this trend to continue into 2025."
3. The Role of Crypto Assets in Diversified Portfolios
The allocation of cryptocurrencies in portfolios will become key to future returns. Analysts point out that Bitcoin can add value to a diversified portfolio, but its high volatility also comes with significant risks. For a 5% allocation, the return rate needs to reach double digits to compensate for the risks.
"Returns from cryptocurrencies need to exceed the expected returns from stocks in order to occupy a higher proportion in the portfolio."
4. Expansion of the Stablecoin Market
Citigroup predicts that stablecoin issuance will continue to grow in 2025, fueled by the renewed enthusiasm in the industry following Trump's election. The diversification of stablecoins could threaten Tether's market dominance, especially as Circle establishes new partnerships with Binance.
"Innovation, collaboration, and the entry of newcomers will challenge Tether's market leadership."
Analysts pointed out that the diversification of the stablecoin market helps reduce systemic risk and promotes widespread adoption of decentralized finance (DeFi).
"The diversification of the stablecoin market will reduce the systemic risks posed by a single issuer and drive broader DeFi participation."
5. Broader Market Adoption
Widespread adoption is viewed as central to the continued growth of the crypto market. Analysts state that although ETF activity and trading volume have improved and the market value of stablecoins is increasing, accelerating the broad adoption of the market is essential for achieving long-term returns.
Analysts are particularly focused on countries with unstable currency values such as Turkey, Argentina, and Venezuela, which may become important driving forces for cryptocurrency adoption.
6. Changes in the Regulatory Environment
With the Trump administration about to take office, the regulatory environment is expected to change. Trump has appointed several officials who support cryptocurrencies to his cabinet, which may lead to a shift in the regulatory framework from 'enforcement-led regulation' to 'legislation-driven regulation.'
"This is not a relaxation of regulation, but rather the removal of obstacles to market growth."
Source
