Since hitting a record-high valuation of about $3.73 trillion in mid-December 2024, the cryptocurrency market has traded rangebound as investors look for clues to gauge whether 2025 will usher in favorable conditions for an extended bull run.
There are several crypto market risks investors need to watch out for. The pace of the U.S. Federal Reserve’s rate cut cycle and crypto regulations are among them.
Key Takeaways
- Risk asset markets are pricing the US Fed to cut rates at a slower pace than previously expected.
- MicroStrategy’s critics believe that the firm’s aggressive strategy exposes crypto market investors to operational risks at the firm.
- Introduction of new laws could lead to market volatility, crackdowns on certain types of cryptocurrencies, new compliances and restrictions on DeFi activities.
- Crypto networks may also risk technological obsolescence if they fail to keep up with their rival.
- Donald Trump, the incoming US president, has made several promises to the crypto industry, which might affect the market in 2025.
- Show Full Guide
Crypto Risks to Be Aware of in 2025
1. US Fed’s Rate Cut Cycle
The institutionalization of crypto has resulted in liquidity becoming the chief driving force of cryptocurrency markets.
Since September 2024, the US Fed has been cutting interest rates much to the delight of market investors. However, the latest US labor market data has indicated that the US economy is growing at a faster-than-expected rate, stoking fears of sticky inflation in the world’s largest economy.
Risk asset markets are now pricing the US Fed to cut rates at a slower pace than previously expected. James Knightley, Chief International Economist at ING, wrote in a research note:
“A January no change decision from the Fed is now guaranteed – the market is pricing less than 1bp of a 25bp rate cut – and the risk of an extended pause has increased with the market no longer fully discounting a rate cut until September.”
🔎 Has price discovery died in today's markets? @samcallah explains why liquidity, not fundamentals, drives Bitcoin’s price—and how it affects investors.
👉 Is Bitcoin just a macro play now?
🎙️ Listen now: https://t.co/erOP8U0pYq pic.twitter.com/2xzwFa8sB1
— Laura Shin (@laurashin) September 26, 2024
2. Microstrategy’s Leveraged Bitcoin Play
MicroStrategy has become the largest corporate holder of Bitcoin (BTC), with holdings worth over $41 billion as of January 2025. The company uses a mix of equity and debt financing to fund its Bitcoin acquisition.
To-date, the company has pumped in over $27.9 billion into the Bitcoin market. The firm is now looking to raise $42 billion through equity and fixed-income instruments to buy Bitcoin over the next three years.
MicroStrategy’s critics believe that the firm’s aggressive strategy exposes crypto market investors to operational risks at the firm and makes Bitcoin vulnerable during bear markets. 21shares said in a report:
“That said, if MicroStrategy’s stock price were to decline significantly, it could trigger a scenario where debt holders exercise their rights to convert their debt into equity. This forced conversion might pressure the company to take drastic measures to meet its financial obligations, potentially including selling its Bitcoin.”
Thoughts on MSTR Liquidation Risk:
The only liquidation risk I can see is via their convertible debt offerings:
1) If convertible debt buyers do not convert to shares before maturity, it forces MSTR to sell BTC to reimburse debt holders.
2) This would happen if MSTR doesn't… pic.twitter.com/GFIOeAqQPL
— Willy Woo (@woonomic) November 27, 2024
3. Crypto Regulations
News related to crypto market regulations has mainly been positive over the last three months of 2024. Donald Trump’s US presidential election win has brought in hope that the US will introduce crypto-friendly laws in 2025.
In 2024, the US House of Representatives passed crypto bills such as the Financial Innovation and Technology for the 21st Century Act (FIT 21). Crypto enthusiasts will be hoping that 2025 will bring in regulatory clarity to the industry.
Introduction of new laws could lead to market volatility, crackdowns on certain types of cryptocurrencies, new compliances and restrictions on decentralized finance (DeFi) activities.
FIT21 Bill Likely Dead 🥳
Bullish DeFi https://t.co/guKe5ZE4Ir pic.twitter.com/Ddy5lmtIAL
— matthew sigel, recovering CFA (@matthew_sigel) November 7, 2024
4. Donald Trump
The incoming US president has made several promises to the crypto industry. Investors are most optimistic about Trump’s plan to create a strategic Bitcoin reserve in the US. Trump has also hinted at favorable regulatory treatment of DeFi and regulatory clarity.
Any delays or non-realization of these promises will hurt investor sentiment and could result in a market correction. A change of heart from Trump could also slow down institutional participation and hinder exchange traded fund (ETF) listing of cryptocurrencies such as Ripple (XRP) and Solana (SOL).
JUST IN – Trump, if President, pledges to form a Bitcoin Reserve, using 210,000 Bitcoin seized by the Department of Justice, as the core of a new “Strategic National Bitcoin Stockpile.” pic.twitter.com/ucvlyP3BDx
— Disclose.tv (@disclosetv) July 27, 2024
5. Technological Risks
Cryptocurrency blockchains are constantly looking to improve their performance via technical upgrades to achieve scale. Failures and bugs arising from system upgrades can result in network outages, smart contract vulnerabilities, centralization risks, and other unknown risks.
Crypto networks may also risk technological obsolescence if they fail to keep up with their rival. Negative sentiment over a crypto project’s long-term viability will lower demand for its token among investors.
One of the biggest and longest-standing UX pain points in Ethereum (approve then swap) will be solved in 2025.
Not to mention all of the other things coming along with the below upgrades (smarter EOA's, sponsored gas payments, advanced permissions etc). pic.twitter.com/JaXjsadxzm
— sassal.eth/acc 🦇🔊 (@sassal0x) November 20, 2024
6. Geo-Political Risks
Geo-political tensions present a key risk for risk asset markets. Escalations in the ongoing wars in Ukraine and Gaza can turn investors risk-averse.
Furthermore, Trump’s second term as the US president may bring in geo-political tensions related to tariffs and economic sanctions. Trump has already voiced interest in buying Greenland from Denmark, regaining control of the Panama Canal and making Canada the 51st state of the US.
The Tariffs, and Tariffs alone, created this vast wealth for our Country. Then we switched over to Income Tax. We were never so wealthy as during this period. Tariffs will pay off our debt and, MAKE AMERICA WEALTHY AGAIN! https://t.co/ZuAi9qCdai
— Donald J. Trump (@realDonaldTrump) January 3, 2025
The Bottom Line
2025 brings forth another year of uncertainties that investors must navigate through. Market risks arising from monetary policies, regulations and geopolitical tensions will dictate market sentiment and price action in the coming months.
Staying well-informed and preparing for these uncertainties can not only protect investor portfolios but will also allow individuals to capitalize on opportunities.