Beyond the Bitcoin and Cryptocurrency Bubble Debate: 5 Major Risks the Market Will Face in 2025

The old debate of whether Bitcoin is a “tulip bubble or not” has already been answered by reality. Since its inception over 15 years ago in 2008, Bitcoin has experienced a price increase of over 1,520,000 times, and the recent approval of spot ETFs has accelerated institutional investor participation. The “477 death proclamations” by some critics could not stop the upward trajectory of this asset.

However, behind this bullish backdrop, it is also true that 2025 carries risks that are equal to or greater than opportunities. Investors in the crypto market, including Bitcoin, are entering an era where they should be wary not just of short-term price fluctuations but of larger macroeconomic structural changes.

The Shift in the Federal Reserve’s Rate Cut Strategy

One of the biggest risk factors in 2025 is the change in the Fed’s monetary policy direction. At last month’s policy meeting, the Fed signaled a clear slowdown in the pace of rate cuts and suggested reducing the rate cut amount to 50 basis points in 2025. This decision immediately impacted the markets, causing a sharp decline in US stocks and the crypto market.

Currently, many market participants regard the Fed’s rate cut expectations as a key indicator of market trends. The slowdown in monetary easing could cool investor sentiment toward risk assets. Whether the market can sustain its upward trend into 2024 depends heavily on how much this policy shift influences the market.

Concerns Over Protectionist Trade Policies and GDP Growth

With the full-scale return of the Trump administration, the rekindling of trade wars is becoming a real possibility. Reports suggest that the US is considering imposing 100% tariffs on BRICS countries.

If trade conflicts intensify, they could disrupt global supply chains, increase inflationary pressures, and likely hinder GDP growth. Such uncertainties could make high-volatility assets like cryptocurrencies even more unstable, similar to a bubble.

Adjusting Expectations for Growth in the Technology Sector

NVIDIA (NVDA) is a symbol of the US tech sector, accounting for 20% of last year’s S&P 500 index gains. However, even in last month’s Q3 earnings report, the market’s overly high expectations received a muted response.

This trend suggests that the market has set extremely high expectations for NVDA and the entire tech sector. If next year’s earnings fall short of these expectations, it could have ripple effects across the entire market, posing a risk of broader downturns.

The Inevitable Resurgence of Inflation

As US policies shift toward prioritizing economic growth, a revival of manufacturing and expansion of the energy industry are expected. Several economists predict that the GDP growth rate in 2025 will remain around 3.0%, with some even suggesting acceleration.

If this growth scenario materializes, inflation is historically bound to reignite. The resurgence of inflation could exert pressure on the Fed to reverse its rate hikes, reducing the attractiveness of risk assets, including cryptocurrencies.

Rising Pressure on the US 10-Year Treasury Yield

The market is already showing signs of rising bond yields. The yield on low-risk domestic financial products has increased from around 2% to over 3-4%, indicating this trend.

The yield on the US 10-year Treasury continues to rise amid the Fed’s policy shift and growing inflation concerns. If this trend persists, yields could reach 5% by Q2 next year. Rising bond yields tend to depress the valuation of risk assets across the market, posing a significant headwind for the crypto market as well.

Market Strategy for 2025: Balancing Opportunities and Caution

Since January 2023, Bitcoin has shown an overall upward trend. Buying at any point during this period and holding until November 2024 could have yielded profits. However, in reality, many investors are often caught up in short-term price fluctuations and ultimately suffer losses.

2025 certainly contains various positive factors suggesting the start of a new cycle. But at the same time, the five major macroeconomic risk factors outlined above will likely significantly increase market volatility.

With the BTC ETF having less than a year of history, the acceleration of institutional investor participation and integration into national strategic reserves are creating a new stage beyond the old debate of a cryptocurrency bubble. However, the essence of investing remains unchanged. Maintaining strict position management and navigating market fluctuations with a long-term perspective are more important than short-term profit chasing.

The market in 2025 is indeed full of opportunities. But it is also a time to brace for greater volatility and structural adjustment risks.