The global liquidity structure is differentiated, why has the crypto market become the tail end?

Author: ODIG Invest, X

Reprint: White55, Mars Finance

Since mid-2025, the cryptocurrency market has shown overall high volatility and downward pressure, with major asset prices continuously retracing and trading volumes shrinking, accompanied by a lack of investor confidence. As of yesterday, the total global cryptocurrency market capitalization was approximately $3.33 trillion, down about 20-30% from the peak at the beginning of the year. BTC's dominance rate remains stable at around 55%, with volatility reaching as high as 40%, far exceeding that of 2024. Market sentiment is cautious.

On-chain data from CryptoQuant shows that exchange BTC reserves have decreased by about 8% since the beginning of August, and the USD value of reserves has dropped from around 300 billion to 250 billion in November. This indicates that investors are withdrawing funds from exchanges (turning to self-custody or safe-haven assets), reinforcing sell-off signals.

Mainstream Token prices briefly rebounded in the first half of 2025, then entered a correction period starting in October, with further declines in November. The prices of the Top 50 Tokens have almost fallen back to the levels seen after the FTX collapse in 2022.

Summarize the current state of the cryptocurrency market in 2025, including:

Mainstream tokens such as SOL, ETH, and BTC have returned to the prices of December 2024; the four-year cycle theory has failed, and industry participants need to adjust and adapt.

Token Supply Explosion: Over the past four years, most token issuance models have been low circulation and high FDV. After the meme craze, the number has rapidly increased; currently, new projects are launched every day, with a massive supply in the market, and funds are becoming increasingly cautious. Unless new buyers keep pouring in, it is not enough to offset the large-scale unlocking tide of projects.

The market has entered the concept reuse period: lack of innovation; there are a large number of non-essential technologies;

Difficulties in project implementation: the incentive and adjustment effects of the economic model are poor; many projects have not found a product-market fit (PMF);

Airdrop fatigue: Airdrop tokens are immediately exchanged for stablecoins by users;

The trading difficulty has significantly increased: for any asset that is worth trading and has sufficient liquidity, competition will be exceptionally fierce.

Tight capital chain: VC investments have shrunk, and total financing accounts for only about half of 2024, leading to a tight capital chain for project parties.

Frequent issues arise within the industry: 10.11 “Black Swan” event; frequent hacker attacks (losses exceeding $2 billion in the first half of the year); Layer 1 chain congestion events, etc.

DeFi yields decline: Compared to 2024, DeFi yields have fallen below 5%.

This is more like a structural adjustment, similar to 2018, but on a larger scale. It almost puts every market participant in difficulty, whether they are users, traders, meme creators, entrepreneurs, VCs, quantitative institutions, and so on.

Especially after Black Friday on October 11, many crypto traders and quantitative institutions have suffered losses, and the hidden worries of institutional collapses still exist. This incident means that speculators / professional traders / retail investors all face financial losses.

The participation of traditional financial institutions is concentrated in BTC and payments, RWA, DAT strategies, etc., which is relatively disconnected from the Altcoin market. Bitcoin spot ETFs performed strongly in October, with a net inflow of $3.4 billion, setting a historical record, but there was a large-scale outflow of funds in early November, which to some extent reflects the profit-taking behavior of the market when prices are high.

Currently, with the market expectations following the end of the government shutdown, official liquidity is expected to return. How will the crypto market perform in the last two months of 2025?

The increasingly clear direction is: BTC and stablecoins.

BTC: The macro liquidity cycle replaces the halving narrative

As market consensus gradually shifts, analysts believe that the global liquidity cycle, rather than merely the Bitcoin halving event, is the core driver of the bull-bear transition.

According to Arthur Hayes' recent core idea “the four-year cycle is dead, and the liquidity cycle is eternal.” He believes that the past three rounds of bull and bear markets have been highly correlated with the large-scale expansion of the dollar/RMB, and the period of low-interest credit easing. Currently, the accumulation of U.S. Treasury bonds is growing exponentially, and to dilute the debt, the standing repurchase facility (SRF) will become the government's main tool; an increase in SRF balance means a simultaneous expansion of the global fiat currency supply. Under “invisible quantitative easing,” the upward trend of BTC will not change.

It is believed that the Standing Repo Facility (SRF) will become a primary tool for the government, as current monetary market conditions persist and the accumulation of government bonds grows exponentially. The balance of the SRF will continuously rise as the lender of last resort. The growth of the SRF balance signifies a simultaneous expansion of the global fiat currency supply, which will reignite the Bitcoin bull market.

Raoul Pal's cycle theory also points out that the end of each crypto cycle is due to monetary tightening policies. From the data, the total global debt has reached approximately $300 trillion, with about $10 trillion (mainly U.S. Treasury and corporate bonds) nearing maturity. To avoid a surge in yields, large-scale liquidity injections are required. According to his model, each additional $1 trillion in liquidity could be associated with a 5-10% return on risk assets (stocks, cryptocurrencies). A refinancing scale of $10 trillion could inject $2-3 trillion of new funds into risk assets, thereby strongly driving up BTC.

The above ideas are all under the dominance of the global central bank liquidity cycle, providing a macro environment for long-term appreciation of scarce assets like BTC.

Stablecoins: Towards Financial Infrastructure

Another main narrative for 2025 is stablecoins, whose value is based on “real adoption” rather than “speculative narratives.”

The latest favorable policy has been released: the U.S. Congress is pushing to grant the CFTC (Commodity Futures Trading Commission) greater jurisdiction over the cryptocurrency spot market. The CFTC is expected to introduce a policy early next year that may allow stablecoins to be used as tokenized collateral in the derivatives market. This will first be piloted at U.S. clearinghouses and will come with stricter regulations, opening the door for stablecoins to enter the core area of traditional finance.

The scale of stablecoins is rapidly expanding, far exceeding market expectations. Major institutions in the United States have taken the lead in positioning themselves, aiming to build a new payment network centered around stablecoins.

In the face of the explosion of real-world application scenarios, the value of stablecoins is “stably demonstrated” in scenarios such as cross-border transfers, exchange rate risk control, and corporate settlement and allocation.

Over the past year, it has achieved a balance between speed, cost, and compliance, initially forming a compliant, low-cost, and traceable global funding channel, which is gradually becoming a financial settlement layer usable in the real world. Stablecoins, as infrastructure, are solidifying their status through regulation and practical applications, providing stable liquidity for the entire crypto economy.

This also provides insights for entrepreneurs: startup teams need to consider “nativizing stablecoin” in their business processes, the target market should aim at “stablecoin applicable groups”, and based on this, find a product that truly fits the market - product-market fit (PMF).