Citi analysts predict make or break factors for crypto in 2025

Citi analysts predict 2025 will be a transformative year for crypto, driven by ETF growth, stablecoin adoption, and a more supportive regulatory shift despite macroeconomic uncertainty.

According to Business Insider’s report, Citi analysts led by Alex Saunders stated in a Friday note, “This year was a strong one for crypto, registering a 90%+ increase in the total market cap”.

The cryptocurrency market surged in January 2024, with a dozen Bitcoin spot ETFs launching. Thanks to these funds, investors could trade Bitcoin more easily, fueling a positive outlook in the industry. Moreover, the central bank’s rate cuts, along with other policies, encouraged economic growth in September.

On Election Day, Donald Trump’s victory was the most significant moment for digital assets. Trump himself was very supportive of cryptocurrencies, and winning his campaign generated a wave of optimism. He appointed many crypto advocates to key positions, and he named Paul Atkins to head the Securities and Exchange Commission (SEC).

Bitcoin reached $100,000 for the first time, thanks in part to Trump’s crypto-friendly stance. Altcoins also benefitted.

The surge propelled the total cryptocurrency market to $3.4 trillion, almost double its value last year, even after some turbulence ensuing from the Federal Reserve’s hawkish comments.

A favorable economic environment, but how long?

Citi analysts believe high-risk trades will stay up through early 2025 against the current backdrop. However, they warn that the outlook could change later in the year as uncertainty persists over what Trump will do about the economy and stock market volatility.

The Citi analysts said that “macro may turn less favorable over the rest of the year given heightened US policy uncertainty and forecasted equity volatility.”

Continued growth of spot ETFs as a game changer for crypto

It’s been a game-changer for the launch of Bitcoin and Ethereum spot ETFs. After years of scrutiny from the SEC, these crypto funds have made buying and selling cryptocurrency as easy as tracking prices without having to own the coins.

Since July, Bitcoin ETFs have seen $36.4 billion in inflows, while Ethereum ETFs have seen $2.4 billion.

“These flows have been the most significant driver of crypto returns, and we expect this to continue in 2025,” the analysts stated.

Crypto as a part of a multi-asset portfolio

Another focus point is the role of crypto in diverse portfolios. During this year’s rally, analysts also noted that adding Bitcoin to multi-asset portfolios did add value. Still, it’s too volatile an option. With allocations larger in percentage, crypto needs to yield much higher rates of returns than equities in the first place to justify that risk.

“For a 5% allocation, performance needs to be higher – double-digits using the S&P’s longer-term risk-reward trade-off, or 21% using recent returns where the high reward/risk implies investors need to be compensated well for taking additional risks,” the Citi analysts’ note explained.

The Rise of Stablecoins

The momentum for stablecoins, i.e., cryptocurrencies pegged to the stability of assets like the U.S. dollar, is increasing.

Trump’s victory generated optimism in the robust market for stablecoins, stimulating new issuances and partnership plans. One example is a partnership between Circle and Binance, which can threaten Tether’s lead in the space.

Citi analysts see diversification as a positive step, as “it will lessen the potential for systemic risks from a specific issuer. ” They also consider how more stablecoins could be used in wider use cases to spur more adoption of decentralized finance (DeFi).

Sustained growth is only possible through adoption

According to the analysts, digital asset adoption has to grow if the crypto rally is to continue. Though trading volumes are high and stablecoin values have grown, widespread use of cryptocurrencies is essential.

Citi analysts are monitoring Turkey, Argentina, and Venezuela, all of which are facing economic instability that has driven more people to the cash.

Citi analysts expect regulation to take a pivotal turn in 2025

Trump’s administration will change the regulatory landscape. The industry is hoping for lighter regulations, and his administration has several pro-crypto appointees. But analysts forecast this will be about clarity rather than full deregulation.

“The result is likely to be a shift from regulation by enforcement to a more legislative-based approach.” Analysts added it’s “less a de-regulation story; more so a removal of headwinds.”

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