Bitcoin is on the move to its first annual decline since 2022, a change that has been observed to show the degree to which the largest cryptocurrency of the world has become part of the global economies. Previously viewed as protection against conventional finance, in 2025, bitcoin acted as a risky financial instrument, increasing and decreasing in value with stocks, policy statements, and investor moods. This year started with hope and historical peaks and now seems to end on a much definite note of caution.
The first months of 2025 were characterized by the new enthusiasm about bitcoin and the crypto market in general. The re-election of a President in the U.S., Donald Trump, a crypto-friendly candidate was a major psychological boost to investors who had long anticipated a more receptive regulatory atmosphere. Prices spared up as confidence was restored as most players in the market felt that political support might at last bring sanity and legitimacy to the business. This hope drove Bitcoin to a new all-time high of over $126,000 at the beginning of October, which strengthened the view that crypto had reached its new stage of mainstream acceptance.
That trust was not much. Later in the year the market started to be controlled by macroeconomic realities. The tensions in trade were repeated when the Trump administration declared new tariffs as the imposition of duties on Chinese imports and threats on exporting important software. Such developments shook not only the equity market but also the cryptocurrencies, which responded very quickly and in a negative way. Following the release of tariffs in October, the price of bitcoin collapsed in a few days, leading to over $19 billion in liquidations in leveraged crypto positions. The magnitude of this liquidation was the biggest sell-off in the history of the crypto market and can also be seen as a harsh lesson to how policy shocks can put digital assets at risk.
By mid December, bitcoin had been trading at approximately 87,000 and was targeting to close over 6% on the year, even though a few weeks ago it had soared to historic highs. It also was experiencing its lowest monthly results since the middle of 2021, a trend that disturbed long-term investors and those who had just joined. Those who have been through the bitcoin cycle before, the volatility was not new. However drivers in the rear had a different feeling, and it was more rooted in economic situations, rather than crypto-specific ones.
There was the same turbulence in the traditional financial markets in 2025. The big stock indices surged to historic highs again and again, then crashed back down amid interest rates, trade policy, and viability of soaring valuations in artificial intelligence-related stocks. This state of doubt formed a feedback mechanism between equities and cryptocurrencies increasing the fluctuations in asset prices. According to one market observer, the concept of crypto as a closed and isolated ecosystem became more and more hard to sustain.
According to XS.com, a senior market analyst, Linh Tran, it was found that in 2025, bitcoin began to show the qualities of a risk asset in the world financial system, and in particular, its correlation to the U.S. equity market is significant in a variety of periods.
This increasing correlation is a major change in the identity of bitcoin. Most of the early history of bitcoin was marketed as an alternative investment which was not essentially tied to stocks and bonds. The latter supported that story by the time that crypto prices started to move without being tied to traditional markets. The recent years however have witnessed influx of retail investors and institutional players that has altered the dynamics. Bitcoin is now treated by pension funds, hedge funds and listed companies as a diversifier within a broader portfolio, responding to the same signals as equities e.g. interest rate expectations and macroeconomic data.
Consequently, the price action of bitcoin in the year 2025 tended to follow the changes in the risk appetite of the investors. Bitcoin went up when markets were confident and liquidity was flowing. As people started being afraid of tariffs, inflation or overpriced tech stocks, bitcoin dropped alongside equities. This trend indicates that cryptocurrencies are possibly in an older and also less open, but still more restrictive, period of commercial conduct, wherein returns are much tougher to maintain with favorable economic circumstances.
Another layer of complexity was created by regulatory developments in Washington which added complexity to the year. During the first year of the Trump administration, the crypto industry was able to win several remarkable cases. The U.S. Securities and Exchange Commission were fast to dismiss actions initiated by the previous administration against large participants including Coinbase and Binance. Another significant action by lawmakers was a groundbreaking legislation to create federal regulations of dollar-pegged stablecoins, which has been a long time coming to introduce regulatory clarity.
It was highly celebrated in the industry and gave more strength to the belief that the political environment had changed to the favor of crypto. The fact that Trump publicly adopted digital assets, as well as the fact that his family is involved in crypto businesses, contributed to the further mainstreaming of the sector. The extent to which the industry was politically involved has been disclosed later on in campaign finance data, showing that crypto companies and executives contributed over 245 million during the 2024 election cycle in the support of pro-crypto candidates.
However, under the water, there are major issues that still exist. Among the most important legislations on the market structure, exemptions to some SEC regulations, which many of the executives consider critical to the long-term expansion, remain pending. In the absence of these reforms, there is some fear by some industry leaders that uncertainty in regulation may reoccur, eating up innovation and investor confidence. The euphoric atmosphere that accompanied initial successes in regulation is thus checked by the fact that structural problems cannot be addressed in one day.
To investors, 2025 was a wake-up call regarding the changing position of bitcoin in the financial system. The year represented the strength, in relation to both adoption and political relevance, and weakness of the asset in terms of global economic forces. Bitcoin no longer exists on the margins, it responds to identical headlines that shake the stock markets, currencies, and commodities.
