Crypto markets are expected to be more dynamic in 2025, according to a Sygnum Bank report, with tailwinds from institutional demand and policy changes.
Following a late year boost, cryptocurrency markets have delivered a phenomenal 2024. Bitcoin is up more than 120 percent year-to-date and continues to reach new all-time highs recently after passing $100,000.
According to a report by digital asset specialist Sygnum Bank, 2025 could continue to see tailwinds due to two major factors: institutional Bitcoin demand and policy shifts, especially under the Donald Trump administration.
Multiplier Effect
On institutional demand, the report notes relatively minor inflows into exchange-traded funds (ETF) have an outsized market impact due to limited liquid supply. Analysis shows that for every $1 billion of inflow into such passive vehicles invested in Bitcoin, there is a corresponding price movement of 3-6 percent.
This multiplier effect could be amplified with the entrance of very large institutional investors. Few US state pension funds have already invested in crypto assets while multiple states have introduced bills to direct pension funds to consider allocations in the digital asset class.
«Many traditional institutional investors – those with the largest pools of assets under management – are just beginning their crypto journey. Our analysis shows how even relatively modest allocations from this segment can fundamentally alter the crypto asset ecosystem,» said Martin Burgherr, chief client officer at Sygnum Bank.
Policy Shifts and Regulatory Clarity
Backing this institutional demand is positive policy shifts and greater regulatory clarity. Several proposed bills are expected to be key contributors including the FIT21 crypto bill, the Bitcoin Act, the Payment Stablecoin Act and legislation supporting self-custody, mining and decentralized finance.
«Regulatory clarity with the potential legislative moves in the US will be transformative for the crypto industry, while the treatment of Bitcoin as a central bank reserve asset would catalyze unprecedented demand,» noted Katalin Tischhauser, author of the report and Sygnum's head of research. «Tailor-made regulation that fits disclosure requirements to the nature of the asset class would be particularly powerful.»
Market Risks
However, there are risks that could impact market stability next year. Firstly, inflationary pressures loom as US government deficit and debt growth continue to outpace GDP growth, coupled with proposed tax cuts and increased tariffs. Secondly, there is a reversal of traditional market dynamics as the pattern of bond yields rising on rate cuts has become more common, signaling that the Federal Reserve has little room to maneuver.
«As a result […] we may see a more dynamic crypto market that plays a deeper role in the global economy,» the report added.