The promise of a new “golden age” for cryptocurrency under a Donald Trump presidency ignited a furious market rally, sending total digital asset valuations soaring by nearly $2 trillion. Traders and investors, buoyed by campaign rhetoric and subsequent executive actions, priced in a significant “policy premium” for a future of lighter regulation, clearer guidelines, and broader institutional access. However, this optimistic surge proved to be a fleeting mirage. After reaching a dazzling peak, the crypto market has now retraced much of its gains, bringing total market capitalization back to its starting point. This volatile journey has left many questioning the durability of policy-driven rallies and highlighted the enduring strength of the US dollar.
The Trump Effect: A Policy Premium Ignites the Market
Following Donald Trump’s campaign promises of a friendlier stance towards digital assets, the crypto market responded with fervent enthusiasm. Data from CryptoSlate showed the total crypto market value at approximately $2.4 trillion in October 2024, just weeks before the US election. By November 2024, this figure had surged towards $3.2 trillion. The underlying expectation was clear: a pro-crypto White House would usher in an era of reduced enforcement pressure, well-defined rules, and expanded opportunities for both retail and institutional participation. This sentiment fueled an extraordinary climb, with the market peaking at an astounding $4.379 trillion by early October 2025.
Indeed, once in office, the Trump administration moved swiftly to signal a pivot. While not an instant fix, these initial steps represented a significant shift in tone and policy. In late January 2025, an executive order established a cryptocurrency working group tasked with drafting a comprehensive regulatory framework for digital assets and evaluating the potential for a national digital asset stockpile. The order also addressed a US central bank digital currency, emphasizing limited federal involvement in retail digital money while creating more room for private sector tokens.
Banking policies also saw substantial changes, aiming to reduce hurdles for traditional financial institutions engaging with crypto:
- SEC Rescinds SAB 121: The Securities and Exchange Commission withdrew Staff Accounting Bulletin 121, guidance that the crypto and banking industries argued significantly increased the cost of custodying customer crypto assets.
- OCC Reaffirms Custody Rights: In March 2025, the Office of the Comptroller of the Currency issued Interpretive Letter 1183, explicitly reaffirming that national banks could provide crypto-asset custody. This allowed these institutions to participate in certain stablecoin activities and engage with distributed ledger networks without prior supervisory nonobjection.
- FDIC Eases Requirements: The Federal Deposit Insurance Corporation rescinded a 2022 notification requirement for FDIC-supervised institutions, clarifying that banks could engage in permissible crypto-related activities without prior FDIC approval.
- Fed Withdraws Guidance: By April 2025, the Federal Reserve withdrew certain guidance on bank crypto-asset and dollar token activities, including a 2023 supervisory letter that established a nonobjection process. The FDIC and the Fed also withdrew two joint statements on banking organizations’ crypto-asset-related activities, further streamlining the regulatory landscape.
A major legislative achievement arrived with the passage and signing of the Guiding and Establishing National Innovation for US Stablecoins Act (the GENIUS Act) on July 18, 2025. This landmark law established a federal regulatory framework for payment stablecoins, defining issuer categories and setting requirements for oversight. Additionally, the US House passed the industry-backed CLARITY Act in July 2025, a market structure bill designed to create a clearer federal framework for digital assets and expand the Commodity Futures Trading Commission’s (CFTC) oversight. These developments collectively fostered an environment where Bitcoin and the broader crypto industry appeared to thrive, propelling Bitcoin to a new all-time high of over $126,000.
From Peak to Plunge: The $2 Trillion Retracement
Despite the initial policy tailwinds, the crypto market’s extraordinary ascent proved unsustainable. Since its peak, the market has shed approximately $2 trillion, with a significant portion of this decline occurring in a single month. Market participants and analysts largely characterize this latest downturn as a complex unwinding of multiple factors, rather than a reaction to a singular negative headline.
Matt Hougan, Chief Investment Officer at Bitwise, articulated this perspective, arguing that the drawdown should be read as a “pileup of forces,” not a single culprit. He stressed that markets are inherently complex, and pullbacks are typically the result of several factors acting in concert.
Hougan’s analysis began with a cyclical viewpoint. Long-term investors, anticipating crypto’s traditional four-year pattern (three strong years followed by a down year), began selling to front-run the expected downturn. This dynamic can become self-fulfilling, as investors fearing a repeat of the cycle opt to lock in gains early rather than endure a potential pullback. Hougan estimated that these investors sold well over $100 billion in Bitcoin alone last year.
Furthermore, the market experienced a noticeable fading of retail-style “attention” flows, which often support speculative corners of markets during boom times. Crypto, in Hougan’s view, faced stiff competition for the spotlight. AI stocks, and more recently, precious metals, began drawing capital that might otherwise have rotated into the most volatile digital assets. While these retail investors could eventually return, their current pullback represents a significant reduction in demand.
Leverage also played a critical role in transforming the market’s downshift into a steep cliff. Hougan pointed to the devastating October 10 liquidation episode, a staggering $20 billion event that marked the largest leveraged blowout in crypto history. This event was exacerbated by Trump’s surprise announcement of a 100% tariff on all Chinese goods at 5:30 p.m. ET on a Friday, when many traditional markets were closed, prompting traders to use crypto to hedge risk, triggering a market-wide sell-off from which the crypto market has yet to fully recover.
Broader Washington policies and the macro backdrop further impacted Bitcoin. Hougan cited Trump’s January 30 nomination of Kevin Warsh to be the next chair of the Federal Reserve, a pick widely viewed as hawkish. Concerns within the Bitcoin community itself also emerged, with rising apprehension among some advocates that the community was not moving quickly enough to address the future risk posed by quantum computing. While Hougan considers quantum computing a long-term and solvable problem, he argued that a portion of long-term capital will remain cautious until concrete development steps are taken.
Finally, the pullback was reinforced by a pervasive risk-off sentiment across global markets. Sessions saw Bitcoin fall alongside sharp declines in gold and silver, with large technology stocks also experiencing significant losses. In such an environment, crypto continues to behave like a high-beta proxy for risk appetite, becoming highly vulnerable when portfolios de-gross.
Winners and Casualties of the Cycle
The volatile cycle created clear winners and casualties. The boom phase richly rewarded the core infrastructure of the crypto ecosystem, particularly businesses that monetize activity when prices and trading volumes surge.
- Exchanges and Derivatives Venues: These platforms benefited immensely as speculation returned. CoinGecko’s 2025 annual report estimated that centralized exchanges processed an astonishing $86.2 trillion in perpetual futures volume in 2025, while decentralized perpetuals reached $6.7 trillion. This structure operates like a toll road, with greater volatility generating higher fees and more liquidations.
- Stablecoin Issuers: These entities also emerged as significant winners and are expected to continue growing even as token prices decline. Traders and institutions consistently require dollar-denominated rails to move cash, settle trades, and park funds during periods of volatility. Treasury Secretary Scott Bessent believes these assets will become crucial buyers of US Treasuries in the coming years as they rapidly expand.
Conversely, the bust phase proved particularly harsh for businesses with embedded financial leverage and retail investors heavily exposed to the industry. Public companies that adopted Bitcoin and other tokens as a treasury strategy became focal points as prices plummeted. Shares of Strategy (formerly MicroStrategy), the bellwether of the corporate Bitcoin trade, fell dramatically from $457 in July 2025 to as low as $111.27, its lowest since August 2024. Strategy, holding 713,502 Bitcoin at an average cost of $76,052 per coin, posted a staggering $12.4 billion quarterly loss as Bitcoin’s decline forced a repricing of its crypto-heavy balance sheet. Other listed buyers, including the UK’s Smarter Web Company, Nakamoto Inc., and Japan’s Metaplanet, alongside firms tied to Ethereum and Solana strategies and even a company stockpiling a Trump-family token, also saw substantial declines.
This dynamic encapsulates the core contradiction of the cycle. While Trump’s pro-crypto posture initially anchored the post-election bid and validated parts of the political thesis through executive actions, shifts in banking guidance, and the stablecoin law, the market’s subsequent surge also accelerated the very structures that made crypto more sensitive to macroeconomic conditions, ETF flows, and leverage-driven bubbles. When these forces inevitably turned, the same “policy premium” that had inflated valuations proved remarkably easy to unprice, reinforcing the old adage that in times of uncertainty, the safety of the dollar often prevails.
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