The crypto market's relative tranquility in early 2025 feels like the proverbial calm before the storm, with next week’s positive catalysts likely to energize what has been a flattish market.
Excitement is quickly building around a more favorable regulatory and policy environment for crypto effectively starting as the new administration takes office next week. BTC is reaching the top of its trading range it has been over the past couple of months. The flagship crypto asset took a brief but notable dive below $90k before staging a quick recovery.
Beyond a fleeting panic over potential U.S. government token sales, macro factors have been steering crypto price action over the past few weeks. This comes on the back of the 10-year yield’s steady upward march since October, pushed by a cocktail of long-term uncertainties: fiscal policy, trade dynamics, and election-related concerns. Meanwhile, stubborn inflation has forced markets to dial back their rate-cut optimism for 2025, now pricing in just one cut instead of several. The December CPI, however, print offered a glimmer of hope, coming in slightly better than expected and reigniting hopes of multiple cuts.
The correlation between BTC and major equity indices (S&P 500 and Nasdaq) has surged from 0.25 to around 0.60 in just a couple of months. As the chart below illustrates, these correlation levels are approaching the peaks we witnessed in 2024, suggesting crypto's industry-specific topics temporarily took a back seat to broader market forces.
The relentless march higher of legacy Layer-1s like XRP, ADA, and LTC has been more surprising. As we noted in a previous analysis, this rally bears all the hallmarks of retail-driven enthusiasm. Part of the recent trigger is related to rumors that XRP could be included in the potential strategic reserve, but there’s reason to believe these are unlikely to materialize.
It’s important, however, not to read too much into market signals year to date given the notably thin trading conditions.
Crypto markets are not yet fully back from their holidays, with trading volumes painting a particularly telling picture. Current crypto turnover stands at a sobering 25-35% below what we witnessed in early December's bustling sessions.
For perspective, BTC spot trading volumes in December regularly surpassed $30 billion - even touching an impressive $50 billion peak on one particularly active day. In contrast, 2025 has yet to see a single session break through the $30 billion threshold.
This volume drought isn't limited to Bitcoin alone. As the chart below illustrates, the same pattern of subdued activity is playing out across other major cryptocurrencies, affecting both spot and futures markets. Feedback from our trading desks suggests that this trend is also notable among institutional crypto circles.
But these lackluster liquidity dynamics are very likely to change starting next week. Expectations are running hot for the potential regulatory unlocks coming once the new administration takes office on Monday. Trading volumes are ready to surge as months of pent-up anticipation finally meet concrete policy action.
While the exact sequence of regulatory changes remains uncertain, market signals are flashing increased optimism. The most liquid BTC strategic reserve prediction market has climbed to 40% probability - a notable jump from last week, though perhaps overly optimistic. More realistic early wins could come from the SEC: a swift reversal of SAB 121 to ease bank crypto custody, a review and potential freeze of non-fraud litigation, and perhaps a bit later on ETF-related improvements like allowing in-kind creations and redemptions for crypto ETFs and the allowance of staking for ETH spot ETFs.
There is good reason to expect important market shifts starting next week.
The centrality of U.S.-related market topics is already clear in market dynamics even if most of the trading volume still takes place in offshore markets. As the chart below shows, the share of global spot BTC and ETH trading during U.S. trading hours is brushing an all-time high of almost 60%.
Liquidity trends could once again serve as a compass for confirming this potential new market phase. The playbook that served us well through market recent regime changes should prove valuable here as well. We'll be watching for the first signals in volume patterns across spot and derivatives markets, followed closely by order book dynamics to gauge market sentiment.
