6 factors that could make or break cryptocurrencies in 2025: Citi

• The cryptocurrency industry has had a busy year, largely driven by Trump’s election victory.
• Citi analysts say they are monitoring a variety of factors that define the industry.
• Here are 6 factors that could make or break cryptocurrencies in 2025.

Crypto has just had a busy year.

tens Bitcoin ETFs The industry’s rally began in January, making it easier for investors to trade Bitcoin. In September, a host of central bank interest rate cuts and other policies Added to the assembly before Paving the way for a growth economy.

But there has never been a more important development for digital assets Donald Trump Winning on Election Day. Trump championed cryptocurrencies during his election campaign, and since winning the election, he has chosen several crypto supporters to lead his administration, including Paul Atkins As Chairman of the Securities and Exchange Commission.

These moves helped push Bitcoin above the key level $100,000 threshold for the first time ever, with Alternative coins Gain strength too.

The orgasm had paid the total Cryptocurrency market capitalization to $3.4 trillion — nearly double its size from a year ago, despite the sell-off that followed hawkish comments at last week’s Fed meeting.

“This year has been strong for cryptocurrencies, recording a 90%+ increase in total market cap,” Citi analysts led by Alex Saunders said in a note on Friday.

Will cryptocurrencies continue their bull market in 2025? A Citi analyst note cited six key factors that will help determine the price of cryptocurrencies next year, including ETF activity, regulation and the future market for a type of cryptocurrency known as stablecoins.

Supportive macro background

Analysts said they expect the current macro backdrop to continue to support risky trading in the first quarter, but cautioned that the outlook beyond that is less certain. They said the outlook could change depending on Trump’s economic policies and stock volatility.

“The macroeconomy may become less favorable over the rest of the year given increased uncertainty in US policy and expected volatility in stocks,” they said.

Continued flows into ETFs

Analysts expect strong inflows into cryptocurrency ETFs in their first year of trading to continue through 2025, providing an additional engine for cryptocurrency growth.

Spot Bitcoin ETFs have seen inflows of $36.4 billion since they began trading in January, while spot Bitcoin ETFs have taken in $2.4 billion since hitting the market in July.

ETFs got the green light from the SEC this year after a years-long approval process, and they have helped make cryptocurrency trading easier. By buying into funds, investors can access the price movements of Bitcoin and Ethereum without having to purchase the coins themselves.

“These flows have been the most important driver of cryptocurrency returns, and we expect this to continue in 2025,” the analysts said.

Cryptocurrencies occupy a place in multi-asset portfolios

Portfolio allocation will also be key to future returns. Analysts said Bitcoin would add value Multi-asset portfolios During this year’s march. However, it remains a volatile and risky asset, with allocations greater than 3% contributing 10% or more of the total portfolio risk.

As a result, Citi analysts say crypto returns would have to be priced a few percentage points above expected returns for stocks to justify a 1% portfolio allocation, and much higher for a larger stake.

“For a 5% allocation, performance should be higher — double digits using the S&P’s long-term risk-reward trade-off, or 21% using recent returns where higher reward/risk means investors need to be well compensated for their take,” the analysts wrote. Additional risks.

Issuing stablecoins

Analysts said continued issuance of stablecoins, which received a boost after Trump’s election victory amid renewed enthusiasm in the industry, would help create a healthier cryptocurrency market.

Stablecoins aim to maintain a stable price over time – often tied to a fiat currency such as the US dollar – which means they are less volatile than cryptocurrencies such as Bitcoin, as long as the issuer of the stablecoin has sufficient collateral to actually back it.

Analysts say the entry of more stablecoins into the space could threaten Tether’s leadership in the long-standing stablecoin leader, particularly from the new partnership between Circle and the centralized exchange. Binance.

“Innovations, partnerships and new entrants in the stablecoin space pose a risk to Tether’s dominance,” they said.

They add that these developments are likely to help stablecoins continue to lead the way in decentralized finance.

“We largely view the diversification of the stablecoin market as a positive as it will reduce the potential for systemic risk from a particular issuer,” the analysts said, adding that “broader adoption of stablecoins with use cases beyond crypto trading is likely to be a driver.” Wider DeFi Engagement Factor.”

Adoption is more widespread

The most important topic to track is adoption, analysts said.

While ETF activity and broader volumes have improved, and the market capitalization of stablecoins has risen, broader adoption is needed to achieve returns beyond the post-election euphoria, they said.

Analysts said they are monitoring bitcoin volumes, stablecoin market values, and increased adoption in countries with currency problems, such as Türkiye, Argentina and Venezuela.

Less regulation

Finally, analysts said regulation will be a dominant topic next year as Trump takes office. The incoming US President has appointed several pro-crypto candidates to his cabinet. Its policies remain unclear, although the industry generally expects lighter regulation, which may lead to its wider adoption.

“The result is likely to be a shift from regulation by enforcement to a more legislation-based approach,” the analysts said, adding that it is “not a story of deregulation, but more of simply removing headwinds.”