Crypto Investors Celebrated for Most of 2025. Then Came the Hangover. — WSJ
By Vicky Ge HuangThe festive mood that powered the crypto market in early 2025 gave way to a hangover.Bitcoin, the largest cryptocurrency, finished the year below $88,000 after retreating more than 30% from early October, when it peaked at above $126,000. Since then, digital assets have lost more than $1 trillion in market value.Crypto's fourth-quarter slump stands in contrast to Wall Street, where all three major indexes posted double-digit annual returns. The divergence is forcing a reckoning among crypto investors and analysts to scrap their once-bullish projections in favor of a more-cautious outlook."The sentiment is pretty dire across fund managers and retail investors, " said Santiago Roel Santos, chief executive of Inversion, a crypto-investment firm. "I think the most uncomfortable phase of crypto has begun, where prices lag while adoption continues to increase."Some industry insiders have said that prices don't tell the full story of 2025. Washington came to embrace a crypto industry it once eyed suspiciously. A second Trump administration appointed crypto-friendly regulators and implemented a series of pro-growth policies. The president and his family went all in by launching their own crypto ventures, including a pair of memecoins.Wall Street fueled a boom in the sector, financing public listings for such firms as Circle Internet Group and rolling out products that have increasingly made digital currencies a part of everyday investors' portfolios.While much of 2025 was a victory lap for crypto, some analysts now warn that a bear market has taken hold and is here to stay. Bitcoin has experienced a sharp slowdown in demand, which could drive prices as low as $56,000 in the year ahead, according to Julio Moreno, head of research at the data provider CryptoQuant.The shift is visible in the numbers. Bitcoin exchange-traded funds, which fueled the rally for most of the year, became net sellers in the fourth quarter, unloading around 73,000 bitcoins since Oct. 10, Moreno said. The so-called bitcoin-treasury companies have mostly halted their buying sprees after investing billions of dollars in stockpiling the digital currency. Even the industry's biggest bulls are showing signs of caution: Michael Saylor's Strategy has signaled that it might be open to selling bitcoin under extreme conditions to protect its shareholders.Crypto traders are losing their appetite for risk. The 365-day moving average of funding rates, the average fees traders have paid to bet on crypto price gains over the past year, has dropped to its lowest level since December 2023. Such a shift typically occurs during bear markets, indicating that investors are becoming increasingly cautious and are scaling back their bets, according to CryptoQuant.What overshadowed crypto in 2025 was the world's obsession with artificial intelligence, according to industry executives. For most of the year, Wall Street and Silicon Valley placed significant bets on the rise of AI, which sucked up capital and investor attention, leaving the crypto market starved for the new investment it needed to sustain its rally.Shares of Nvidia, long regarded as the epitome of the AI trade, gained 39% in 2025, compared with bitcoin's 6% decline. Meanwhile, highly anticipated initial public offerings from AI companies such as Anthropic could continue to dominate market attention.Even bitcoin miners — the companies that own warehouses of specialized computers that unlock new bitcoins — are changing their business models to cater to AI. Many have repurposed their power supplies, land and cooling systems to power artificial-intelligence models, simply because hosting AI has become far more profitable than mining for digital currencies."Billions of dollars that would have gone into crypto has been invested in AI instead, both in public and private markets," said Eliézer Ndinga, global head of research at the crypto-asset manager 21Shares. "Crypto is no longer the only cool kid around the block."The bigger U.S. economic picture is contributing to the wave of uncertainty. As the job market weakens and price pressures remain elevated, investors are increasingly playing it safe by pulling their money out of risky bets such as crypto and moving it into traditional investments such as stocks and bonds.Still, many crypto proponents are waiting for the tide to turn in 2026. The passage of the Genius Act, the first major crypto law in U.S. history, has generated a frenzy of interest in a type of dollar-pegged cryptocurrency called stablecoin. The landmark measure has sparked a race on Wall Street to tokenize, or transform, real-world assets ranging from stocks to office buildings into digital tokens on the blockchain.In Washington, a more-ambitious crypto bill is gaining momentum. If the Clarity Act is passed into law in 2026, it would offer the industry its first comprehensive federal rulebook and give crypto companies a regulatory pathway. The bill could trigger a wave of Wall Street adoption, giving major banks and asset managers the confidence to integrate digital assets into mainstream financial services and products, according to industry executives. The Senate is expected to debate the bill in January."Crypto's talked about this for years, but it didn't actually have the infrastructure, it didn't have the track record, it didn't have the regulatory framework," said Brett Tejpaul, co-chief executive of Coinbase Institutional. "Now we're there. This is literally the tipping point."Write to Vicky Ge Huang at [email protected]