Why Is Crypto Going Down, and Will It Bounce Back in 2025?

Cryptocurrency prices have retreated sharply in the past few weeks, bringing the total market capitalization of all coins from almost $4 trillion earlier this month to $3.46 trillion. So, why is crypto going down, and will it bounce back in 2025?

Cryptocurrency prices have crashed sharply in the past few days, with Bitcoin dropping by over 13% from its highest level this month. So, what’s happening, and will crypto bounce back in 2025?

Here’s a closer look at crypto prices.

Most coins and tokens have plunged hard in the past few days. For example, Bitcoin price has dropped by over 13% from its highest level this month, meaning it is in a technical correction. Ethereum has tumbled by almost 17% from the year-to-date high, while Solana is in a bear market after falling by 26% from its all-time high.

Meme coins, which were the biggest stories of the year, have also fallen sharply. For example, most Solana memecoins have crashed, bringing the market cap to $19 billion, down from the year-to-date high of over $25 billion.

But what’s pushing crypto prices lower?

This performance is mostly because of the ongoing profit-taking among investors after what has been a successful year for digital coins. In most cases, cryptocurrencies and stocks often drop in the final days of the year after having a good year. Indeed, the S&P 500 and Nasdaq 100 indices have also retreated recently.

Second, crypto is crashing because of the Federal Reserve and the growing fear that the bond vigilantes are coming. The Federal Reserve has hinted that it will deliver two cuts next year, down from four. As a result, US bond yields have continued rising, with the 30-year moving to 4.65%.

There is a risk that the bond market will sink stocks and cryptocurrencies in 2025, especially if Trump succeeds in some of his policies. He has pledged to cut taxes, deport millions, and impose huge tariffs, all of which are highly inflationary.

I’ve argued that most asset markets appear overvalued, bordering on frothy. Stocks, corporate bonds, single family housing, crypto and gold, quickly come to mind. But what could be the catalyst for them to selloff? How about a meaningful correction in the Treasury bond market.

Third, cryptocurrencies are down because of the concept of mean reversion, where assets often drop to move back to their historical averages. In line with this, the crash of most altcoins is that they have moved to the markdown phase of the Wyckoff Method. This old strategy identifies stages in which assets go through, including accumulation, markup, distribution, and markdown.

Will Bitcoin and other altcoins recover in Q1?

Bitcoin and other altcoins may recover in Q1 for three key reasons. First, as shown below, Q1 is usually the second-best quarter for Bitcoin after Q4. Its average return is 56%, second only to Q4’s 85%. Therefore, there is a likelihood that these coins will rebound in the next few weeks to resume the gains made in 2024.

Second, the crypto industry could benefit from a $16 billion tailwind since the FTX Estate will start its payments in January. Most of these funds are now in the form of stablecoins like USDT and USDC. Many recipients will likely buy Bitcoin and other altcoins.

Further, Donald Trump will be sworn in January. This will be followed by the approval of Paul Atkins as the head of the Securities and Exchange Commission (SEC). Such a move will lead to more enthusiasm about cryptocurrencies, which will push them higher.