However, Sygnum Bank also highlights potential risks, including macroeconomic instability, Tether's dominance in the stablecoin market, meme coin bubbles, and geopolitical tensions.
Bitcoin (BTC) could experience significant price increases in 2025, driven by a surge in institutional investment.
A new report from Switzerland-based crypto-focused asset manager Sygnum Bank is titled “Crypto Market Outlook 2025.” Released on December 12, it highlights several factors contributing to this potential upswing.
Bitcoin’s Scarcity Drives Institutional Demand and Price Volatility
Traditional institutional investors, such as pension and sovereign wealth funds, are beginning to allocate capital to crypto assets. Their increased participation could trigger substantial demand.
This institutional demand is met with a minimal supply of Bitcoin, especially considering a significant portion is held by long-term investors and rarely traded. This scarcity amplifies the impact of any investment, potentially leading to substantial price appreciation as demand increases.
Sygnum’s analysis of Bitcoin exchange-traded fund (ETF) investments reveals interesting trends. The effect on Bitcoin’s price varies when $1 billion flows into these ETFs (representing about 0.1% of Bitcoin’s total value). Smaller investments of $3.5 to $4.5 billion mid-year caused 3-4% price changes for every $1 billion invested. More significant investments of $11 to $12 billion, made earlier this year and recently, led to more substantial price swings of 4.5 to 6% per $1 billion.
“Accounting for the estimated inflows into spot Bitcoin indicated by increases in stablecoin market capitalization, we estimate a 20-30x multiplier on every US dollar of inflow, with the multiplier increasing with the size of the flows,” Sygnum expects, adding:
“As institutional inflows accelerate, coupled with the multiplier effect and Bitcoin’s reflexivity, this is likely to lead to another year of very strong performance for Bitcoin.”
Positive Political Climate Fuels Institutional Demand
The growing institutional demand is further supported by a favorable political climate, particularly in the U.S., where the incoming administration has signaled a positive stance on crypto and potential regulatory reforms.
BRICS countries are also softening their stance on crypto. Russia is actively encouraging the use of cryptocurrencies in transactions, while there are signs that China’s crypto ban may be relaxed, as per the report.
Signum analysts estimate that “major transitions in the economic order are likely to be marred by periods of uncertainty and risk, increasing the demand for safe-haven assets and alternative payment mechanisms.” They find it unsurprising that gold prices have reached repeated all-time highs all year, with the silver price increasing in tandem. “This has increased the demand for Bitcoin as well, with US plans for a Bitcoin reserve now giving further impetus to the already ongoing diversification from precious metals to Bitcoin.”
Potential Risks and Challenges on the Horizon
The Sygnum report also paints a picture of 2025 as a potential “watershed year” for the crypto industry, with institutional investment in digital assets becoming normalized, regulatory clarity emerging, and the use of stablecoins and tokenized assetsentering the mainstream.
However, despite the optimistic outlook, the report acknowledges potential challenges hindering the crypto market’s progress.
These include macroeconomic factors like inflation, which has been stickier than hoped at 2.1%. Potential instability in the macro environment could also cause a sell-off in risk assets, as the report states:
“Although a bear market in risk assets can also lead to a rotation into crypto from other assets, based on past track record, a “sell everything” approach is more likely.”
Another concern is the concentrated risk associated with Tether’s (USDT) dominance in the stablecoinmarket. After the 2023 US banking crisis, Tether’s previous 45-50% dominance has increased to 75%.