The truth behind the current cryptocurrency market

Author: Ben Fairbank, Co-founder and CEO of RedFOX Labs; Translation: Shaw Golden Finance

2025 Year-End Market Reflection Guide

We all severely misjudged the market. I admit first that I didn’t anticipate how it would develop. Honestly, I thought by this point we would already be at the tail end of a crazy bull market, or at least close to it, but this bull market hasn’t even started yet.

In late summer 2025 (U.S. summer), senior analysts and Wall Street banks predicted a new “Monthly Bull Market” for the cryptocurrency market. Goldman Sachs and JPMorgan’s forecasts showed Bitcoin prices could surge above $220,000, even approaching $250,000. Fundstrat’s models predicted even higher. However, the market experienced a brutal reversal, with Bitcoin dropping 30% from its peak of $126,000 on October 6 to around $84,000 within just six weeks. If you felt caught off guard or thought this was some kind of magic, you’re not alone. The collective misjudgment of this cycle is the first lesson of today’s story.

The Invisible Hand Behind Global Economic Trends

The crises of 2025 followed one after another, defying expectations. Ongoing conflicts in Ukraine and Gaza, U.S.-China competition, and turmoil in Sudan all dampened public sentiment. Additionally, financial fraud and corruption scandals played out worldwide.

• Trade Protectionism Policies. In October, U.S. President Trump announced a 100% tariff on Chinese imports in retaliation for China’s restrictions on rare earth exports. This news caused the S&P 500 to lose $1.5 trillion in market value within minutes and triggered a massive sell-off in the cryptocurrency market.
• Tariffs Triggering Stagflation Threats. Independent analysts warned that aggressive tariffs could spark stagflation. As a macroeconomic report stated, worsening geopolitical tensions and tariff threats are imminent, shifting Bitcoin’s role from “high-beta tech stocks” to a non-sovereign store of value and a hedge against financial system weaponization. But when exactly will this happen, and how?
• Global Monetary Policy Squeeze. Who doesn’t like this kind of squeeze? The Fed cut interest rates to 3.50%-3.75% in December and hinted at possibly pausing quantitative tightening (QT), but the Bank of Japan is expected to raise its policy rate to 0.75%, potentially disrupting yen arbitrage trades that fund leveraged crypto positions. These opposing moves are squeezing global liquidity from both sides, creating a tricky situation.
• Tough Employment Data and Weak Economic Growth. In November, U.S. non-farm payrolls increased by only 64,000 jobs, and the unemployment rate soared to 4.6%, a four-year high. Wage growth stagnated at 3.5%. Investors interpreted these data as both signaling recession risks and hinting that the Fed might intervene, increasing market volatility rather than clarity. Clearly, everyone is confused.
• Quantitative Tightening Ending Soon? Many analysts expect the Fed to end QT by late 2025 or early 2026, reducing reserves to around $2.7 trillion to $3.4 trillion. Ending QT would reintroduce liquidity into the markets, which historically supports risk assets like Bitcoin. However, if QT ends due to a recession, this positive effect might be temporary, so we hope that’s not the case.

This turbulent macro backdrop has shaken the simple narrative of “only rising.” When policymakers swing between stimulus and tightening, geopolitical tensions impact supply chains, and crypto’s performance is less like digital gold and more like a high-beta macro asset. This may disappoint those crypto enthusiasts who focus solely on technology.

October 2025: Market Flash Crash Reshapes the Cycle

The October 11 crypto market flash crash was the most significant event of this cycle. It was partly triggered by Trump’s tariff bombshell, unrelated to Binance, with over $19 billion in leveraged positions forcibly liquidated within 24 hours. Bitcoin plunged nearly 10% intraday, briefly breaking below $110,000, while many altcoins tumbled 30% to 60%. About 1.6 million traders were affected, yet no one paid much attention. The event was downplayed as if nothing happened, with no further comment. However, the shock was no less than any major global attack or disaster, and such an event should be thoroughly investigated and held accountable.

Order book analysis shows that the real disaster was caused by mechanical operations. Amberdata’s legal report found that 70% of liquidation losses occurred within just 40 minutes, with up to $9.89 billion in deleveraging compressed into a series of algorithmic trades. At the peak, $3.21 billion disappeared in 60 seconds, with over 93% of orders being forced sells. Open interest shrank by $36.7 billion, order book liquidity evaporated by 98%, and bid-ask spreads soared 321 times. In other words, macroeconomic news ignited the fuse, but leverage was the real bomb.

Leverage: The True Engine of Volatility

The growth of crypto has led to complex products like perpetual futures, on-chain leverage protocols, high-frequency trading bots, etc. These tools amplify gains but also losses. The “Crypto Crash” report states that when stop-loss levels are triggered, $17 billion in long positions are forcibly liquidated. Even after the crash, U.S. spot Bitcoin ETFs saw about $3 billion in outflows in November. On decentralized exchanges (DEX) like HyperLiquid, margin traders often use 10x to 50x leverage, and within just 24 hours, about $2 billion in positions were forcibly liquidated. So, you can blame those responsible for triggering the crisis, but without such high leverage, none of this could happen.

High leverage shortens market memory; price swings no longer trend but become sharp and piercing. Order books thin out, and algorithmic liquidations outpace human reactions. The clean, exhilarating upward moves of previous cycles have been replaced by intense squeezes and sell-offs. Those pure long investors expecting explosive gains may never see that day—not because leverage trading has stopped, but because the market structure has changed—at least on the surface.

Missing “Top” and the Four-Year Cycle

For veterans who have experienced the past four crypto cycles, the absence of a traditional blow-off top is confusing. Historically, Bitcoin peaks roughly 12-18 months after halving events. In April 2024, Bitcoin halved again, and by October 6, 2025, about 17.5 months later, it reached a peak, consistent with historical patterns. However, this rally did not follow a parabolic rise as expected but stagnated amid macroeconomic storms. The 50-week moving average quickly reversed downward, leading many to believe a bear market had begun.

The reality is even messier. Bitcoin is now down 13% from January 1, underperforming gold and tech stocks—hardly logical. But I believe, the halving cycle has not been broken; it’s just extended and distorted by external shocks like tariffs, liquidity crunches, interest rate differentials, and the boom-and-bust cycles of AI. In the past, once macroeconomic headwinds eased, the halving effect would reassert itself.

Not the End, but a Transition Toward Tokenized Finance

Many see this crash as a negation of crypto. However, beneath the price volatility, 2025 has seen more structural progress than any previous year—think about that carefully. Pantera Capital lists achievements such as governments supporting crypto, the SEC (SEC) abolishing SAB 121, the signing of stablecoin legislation, Coinbase being included in the S&P 500, and multiple blockchain companies going public successfully. On-chain value of real-world assets (RWA) has grown by 235%, and stablecoin market cap has increased by $100 billion. Clearer regulations now allow banks to custody crypto assets off-balance sheet.

Tokenization is poised to drive the next wave of adoption. Forbes predicts that 2026 will be “the year of tokenized RWA,” including tokenized funds, government bonds, and other tools that address settlement delays and capital efficiency issues. Tokenization will redefine crypto from a speculative asset class to a new form of ownership representation and shift activity from trading to infrastructure building. In 2026, regulatory changes like the “GENIUS Act” and government-backed stablecoin initiatives will further encourage institutional participation.

From this perspective, this correction is not a total abandonment but the final re-pricing before entering a more mature phase. Investors are shifting from meme tokens to tokenized bonds, on-chain equities, and real-world assets. Liquidity drained by QT and leverage unwinding could quickly return once the Fed stops shrinking its balance sheet.

Trump, Politics, and Midterm Catalysts

Politics always influences markets, and the upcoming 2026 U.S. midterms are no exception. I personally see this as Trump’s Plan A. Axios reports that Trump and his advisors are nearly obsessed with the belief that the U.S. economy will “take off like a rocket” in early 2026. This optimism stems from the “One Big Beautiful Bill” signed in July 2025, extending the 2017 tax cuts and introducing new tax relief for tip earners, overtime workers, and parents. Treasury Secretary Scott Bessent predicts significant tax refunds, with workers possibly receiving up to $2,000, which many will treat as chips, while businesses can deduct capital expenditures. These measures are expected to stimulate consumption and investment.

Market strategists expect stocks, especially AI and energy sectors, to rise before the midterms. However, Trump’s protectionist tariffs also push up consumer prices and worsen inflation. AInvest data shows that in 2025, effective tariffs surged to 18%, causing a 17% decline in global markets and a 14% drop in Australian stocks. Historically, due to political uncertainty, U.S. stocks have fallen an average of 17% in midterm election years. Investors hoping for a bull run before the midterms should be aware that policies aimed at boosting growth, like tax cuts and deregulation, also carry inflation and fiscal risks. Markets could surge on optimism or sharply retreat on inflation fears. It’s like a seesaw—who’s heavier?

Employment Data, QT, and the “Pregnancy Pause”

Looking into 2026, the fate of crypto may hinge on two major factors: employment trends and liquidity policies. The weak November jobs report highlights the U.S. slowdown. In response, the Fed cut rates and paused QT. Analysts expect QT to end entirely by early 2026, expanding bank reserves and supporting risk assets. Historical cycles show that when the Fed shifts from tightening to neutral or easing, Bitcoin often rises. So, this is a factor worth watching.

Meanwhile, the December rate cut had little impact on Bitcoin’s price—almost none—despite the dovish stance from the Fed. Bitcoin remains below $90,000, indicating that liquidity constraints and ETF capital outflows still pressure the market. Honestly, what we see in the market now is different from what’s happening behind the scenes. Investors are waiting for clear signals on inflation, wages, and the Fed’s next move. As Aussies say, this is our current “pregnancy pause.”

What Lies Ahead?

No one truly knows. If they did, they wouldn’t have missed the October market crash, right? But we can draw some lessons:

1. Macroeconomic factors are crucial. Crypto is no longer an isolated speculative playground; it’s intertwined with geopolitics, fiscal policy, and central bank liquidity. Besides on-chain metrics, keep a close eye on tariffs, central bank meetings, and employment data.
2. Leverage amplifies pain. The October liquidation wave shows that high leverage can wipe out billions in minutes. Future rebounds may be stronger, but as long as 10x to 50x leverage persists, sell-offs will be more brutal.
3. Tokenization is a structural trend. Even with falling prices, RWA tokenization, stablecoins, and regulatory clarity are growing. Their applications are shifting from speculative trading to infrastructure that could underpin the global financial system.
4. Politics is a double-edged sword. Trump’s policies might stimulate short-term growth and trigger a rally before the midterms, but tariffs and deficits could backfire. Investors should prepare for market volatility ahead of 2026 midterms.
5. Hope, but stay humble. With QT ending and labor markets weakening, explosive growth in 2026 is possible. But if it doesn’t happen, we must face reality: perhaps we no longer understand this market. Perhaps it no longer belongs to us.

Cryptocurrency remains an emerging and rapidly evolving experiment. To navigate the present, we must find a balance between data and conviction, macro awareness and technological optimism. Sometimes, the most honest approach is to admit we misjudged the current state but still believe in future transformation. Or, we can blindly remain optimistic until everything goes smoothly. The choice is yours.