The truth behind the current cryptocurrency market

Author: Ben Fairbank, co-founder and CEO of RedFOX Labs; Compiled by: Shaw Bitcoin Vision

A guide to market reflection at the end of 2025

We all seriously misjudged the market, and I’ll be the first to admit that I didn’t expect it to turn out this way.To be honest, I originally thought that by this time we would be at the end of a crazy bull market, or at least close to it, but this bull market hasn’t even started yet.

In the late summer of 2025 (American summer), senior analysts and Wall Street banks are predicting that the cryptocurrency market will usher in a new round of“Bull of the Month”.Forecasts from Goldman Sachs and JPMorgan suggest that Bitcoin prices could soar above $220,000 and even approach $250,000.Fundstrat’s model predicts even higher.However, the market suffered a brutal reversal, with Bitcoin prices plummeting 30% from a peak of $126,000 on October 6 to about $84,000 in just six weeks.If you feel blindsided, or think this is some kind of witchcraft, you’re not alone.The collective misjudgment of this cycle is the first lesson of today’s story.

Global economic trends are the invisible hand behind the charts

In 2025, crises will come one after another, which is incredible.Ongoing conflicts in Ukraine and Gaza, competition between China and the United States, and unrest in Sudan have all depressed public sentiment.In addition, some financial fraud and corruption are also taking place around the world.

• protectionist trade policies.In October, U.S. President Trump announced a 100% tariff on Chinese imports in retaliation for China’s restrictions on rare earth exports.The news wiped out $1.5 trillion in market value from the S&P 500 in minutes and triggered a massive sell-off in the cryptocurrency market.

• Tariffs raise the threat of stagflation.Independent analysts warn that aggressive tariff policies could trigger stagflation.As one macroeconomic report put it, the worsening geopolitical situation and the looming threat of tariffs have transformed Bitcoin’s positioning from a “high-beta tech stock” to a non-sovereign store of value and hedging tool that weaponizes the financial system.Okay, but when exactly will that happen and how will it happen?

• Global monetary policy is under attack.Who doesn’t like this kind of attack?The Fed cut interest rates to 3.50%-3.75% in December and signaled a possible pause in quantitative tightening (QT), but the Bank of Japan is expected to raise the policy rate to 0.75%, which could disrupt the yen carry trade that funds leveraged cryptocurrency positions.These diametrically opposed moves squeeze global liquidity from two sides, creating a sticky situation.

• The employment situation is grim and economic growth is weak.U.S. nonfarm payroll employment increased by only 64,000 in November, while the unemployment rate soared to 4.6%, a four-year high.Wage growth has stalled at 3.5%.Investors interpreted the data as both a sign of recession risk and a hint that the Federal Reserve might intervene, adding to market volatility rather than clarity.Everyone seems confused.

• Is quantitative tightening coming to an end?Many analysts expect the Fed to end its quantitative tightening (QT) policy in late 2025 or early 2026, with its reserves falling to around $2.7 trillion to $3.4 trillion.Stopping quantitative tightening would allow liquidity to return to the market, which has historically supported risk assets like Bitcoin.However, if QT ends due to a recession, this benefit may only be temporary, so hopefully that’s not the case.

This turbulent macro backdrop shakes up the simplistic “up, not down” narrative.As policymakers waver between stimulus and tightening, and geopolitical tensions impact supply chains, cryptocurrencies are behaving more like a high-beta macro asset than digital gold.This may disappoint cryptocurrency enthusiasts who only focus on the technology itself.

October 2025: A cycle-changing market flash crash

The crypto market flash crash of October 11 was the most important event of this cycle.That day, more than $19 billion in leveraged positions were liquidated in 24 hours, partly due to Trump’s tariff news bombs and having nothing to do with Binance.Bitcoin fell nearly 10% intraday, falling below $110,000 at one point, while many altcoins plummeted 30% to 60%.1.6 million traders were affected, but no one really paid attention.The incident was treated lightly, as if nothing had happened and nothing needed to be said.However,It was as shocking as any major global attack or catastrophic event, if such an incident occurred, it should have been rigorously investigated and held accountable.

Order book analysis shows real disaster caused by mechanical operations.Amberdata’s forensic report found that 70% of liquidation losses occurred in just 40 minutes, and a deleveraging of up to $9.89 billion was compressed into a series of algorithmic operations.At the peak of one minute, $3.21 billion disappeared in 60 seconds, and more than 93% of the orders were forced sell orders.The volume of open interest plummeted by $36.7 billion, order book liquidity evaporated by 98%, and the bid-ask spread soared 321 times.In other words,Macroeconomic news lights the fuse, but leverage is the real bomb.

Leverage is the real engine of volatility

The growth of cryptocurrencies has given rise to complex products such as perpetual futures, on-chain leverage protocols, and high-frequency trading bots.These tools magnify gains as well as losses.The Cryptocurrency Crash report noted that $17 billion worth of long positions were forced to liquidate when stop losses were triggered.Even after the crash, U.S. spot Bitcoin ETFs saw around $3 billion in outflows in November.On the decentralized exchange (DEX) HyperLiquid, where margin traders typically use leverage ranging from 10x to 50x, approximately $2 billion in positions were liquidated in just 24 hours.So, you can blame those who caused the collapse all you want, but without such high leverage, it simply wouldn’t have happened.

High leverage will shorten market memory, and price fluctuations will no longer show a trend, but will become sharp and dazzling.Order books thinned and algorithms liquidated orders far faster than humans could react.The clean, euphoric rallies of past cycles were replaced by violent squeezes and selloffs.thosePure long investors expecting a surge may never see that day, not because leveraged trading has stagnated, but because the market structure has changed.– At least that’s what it seems on the surface.

The missing “top” and the four-year cycle

For veterans of cryptocurrency cycles over the past four years, the lack of a surge top in the traditional sense is confusing.In past halving cycles, Bitcoin usually peaked around 12 to 18 months after the block reward was halved.In April 2024, the Bitcoin block reward was halved again, and by October 6, 2025, the price peaked approximately 17.5 months later, in line with historical patterns.However, instead of going parabolic as expected, the rally stalled amid macroeconomic storms.The 50-week moving average quickly reversed downwards, leading many to believe that a bear market had begun.

The reality is even worse.Bitcoin is now down 13% from its price on January 1st, underperforming gold and technology stocks, which is simply incredible.But I think,The halving cycle has not been broken, but has been affected by external shocks such as tariffs, liquidity crunch, interest rate differentials, and the boom and bust cycle of artificial intelligence, which has led to the extension and distortion of the cycle..In the past, the effects of halvings have tended to resurface once macroeconomic headwinds subside.

This is not the end, but a transition towards tokenized finance

It would be easy to view this crash as a repudiation of cryptocurrencies.However, given the price volatility, cryptocurrencies have made more structural progress in 2025 than any year in history, so think about this carefully.Pantera Capital cited a series of achievements such as pro-cryptocurrency governments, the U.S. Securities and Exchange Commission’s (SEC) repeal of SAB 121, the signing of stablecoin legislation, Coinbase’s inclusion in the S&P 500, and the successful listing of multiple blockchain companies.The on-chain value of real world assets (RWA) increased by 235%, and the market cap of stablecoins increased by $100 billion.Thanks to regulatory clarity, banks can now hold crypto assets in off-balance sheet custody.

Tokenization promises to drive the next wave of adoption.Forbes predicts,2026 will be “tokenized RWA,” including tokenized funds, treasury bonds, and other instruments that can solve real-world problems such as settlement delays and capital inefficiencies.Tokenization redefines cryptocurrencies from a speculative asset class to an entirely new representation of ownership, and shift activity from trading to infrastructure development.In 2026, regulatory changes such as the GENIUS Act and state-backed stablecoin programs will further encourage institutional participation.

From this perspective,This pullback is not a complete abandonment, but rather a final repricing before entering a more mature stage..Investors are moving from online meme tokens to tokenized Treasury bonds, on-chain stocks, and real-world assets.The loss of liquidity caused by quantitative tightening and the unwinding of leverage may soon return once the Fed stops reducing its balance sheet.

Trump, Politics, and Midterm Election Catalysts

Politics will always seep into the market, and the upcoming 2026 U.S. midterm elections are no exception. I personally believe this is Trump’s Plan A.Axios reported that President Trump and his advisers almost fanatically believe that the U.S. economy will “take off like a rocket” in early 2026.The optimism stems from the signing of the One Big Beautiful Bill in July 2025, which extends the 2017 tax cuts and introduces new tax breaks for tip earners, overtime workers and parents.Finance Minister Scott Bessant has predicted a significant increase in rebates, with workers potentially receiving rebates of up to $2,000, with many using the money as leverage while businesses can take tax deductions for capital expenditures.These measures are expected to stimulate consumption and investment.

Market strategists predict thatStocks, especially AI and energy stocks, set to rise ahead of midterm elections.However, Trump’s protectionist tariff policies have simultaneously pushed up consumer prices and exacerbated inflation.Data from AInvest shows that the actual tariff rate will soar to 18% in 2025, triggering a 17% drop in global markets and a 14% drop in the Australian stock market.Historically, U.S. stocks have fallen an average of 17% in midterm election years due to political uncertainty.Investors hoping for a bull run ahead of the midterm elections should be aware thatPolicies such as tax cuts and deregulation aimed at stimulating economic growth also pose inflation and fiscal risks.Markets can rise sharply on optimism or fall sharply on rising inflation.The current market is like two fat men on a seesaw, it just depends on which one is heavier.

Jobs data, quantitative tightening and the ‘pregnancy pause’

Looking ahead to 2026, the fate of cryptocurrencies may depend on two major factors:Employment Trends and Mobility Policies.The weak November jobs report underscored the slowdown in the U.S. economy.In response, the Fed cut interest rates and paused quantitative tightening (QT).Analysts expect quantitative tightening to end completely by early 2026, which will expand bank reserves and support risk assets.Past cycles have shown that Bitcoin tends to rise when the Fed moves from tightening to neutral or easing.Therefore, this may be a factor worth paying attention to.

Meanwhile, December’s rate cut had little to no impact on Bitcoin prices, and in fact did almost nothing, with Bitcoin prices still hovering below the $90,000 level despite the Fed’s dovish stance.This lukewarm response suggests thatLiquidity constraints and ETF outflows remain pressure on markets.To be honest, the market performance we see is not the same as the market performance we cannot see.Investors are awaiting clarity on inflation, wages and the Fed’s next move.To use a familiar Australian slang term, this is the “pregnancy pause” we’re in right now.

What does the future hold?

No one really knows.If they had known, they wouldn’t have missed the market crash in October, right?But we can draw some lessons from it:

1. Macroeconomic factors are crucial.Cryptocurrency is no longer a secluded speculator’s paradise, it is closely linked to geopolitics, fiscal policy and central bank liquidity.I believe that in addition to paying attention to on-chain indicators, you should also pay close attention to tariffs, central bank meetings, and employment data.

2. Leverage amplifies pain.The wave of liquidations in October showed that high leverage can wipe out billions of dollars in wealth in minutes.Future rallies are likely to be stronger, but as long as 10x to 50x leverage persists, the selloff will be more brutal.

3. Tokenization is a structural trend.Even as prices fall, RWA tokenization, stablecoins, and regulatory clarity grow.Its applications are shifting from speculative trading to infrastructure that could underpin global finance.

4. Politics is a double-edged sword.Trump’s policies may spur short-term growth and set off a rally ahead of the midterm elections, but tariffs and deficit concerns could backfire.Investors should prepare for market volatility ahead of the 2026 midterm elections.

5. Have hope, but also stay humble.With the end of quantitative tightening and a softening labor market, explosive growth is still possible in 2026.But if we fail to do so, we have to face reality: perhaps we no longer understand this market.Maybe it doesn’t belong to us anymore.

Cryptocurrency is still a new and rapidly evolving experiment.To navigate the present, we must find a balance between data and belief, macro-cognition and technological optimism.Sometimes, the most honest thing to do is to admit that we misjudged the current situation but still believe that the future will bring change.Or, we can remain blindly optimistic until everything goes smoothly.This choice can only be made by you.