It was the best of times …
It was the best of times; it was the worst of times...
Bitcoin and Ether traded at all-time highs in October yet had one of the worst Q4s on record.
April saw a historic drop in the global markets, yet crypto finished the month positive.
The price of bitcoin moved more this year than ever, to go essentially nowhere.
And then we saw a major piece of legislation for stablecoins passed into law, favorable changes in the SEC, and a "crypto czar" taking the reins in the White House as the president launched his own meme coin. Even with all that, sentiment towards year end has never been poorer.
What a paradoxical year was 2025.
2025 was a year of broken dreams and broken promises. Despite a modest yearly decline which belied the brutality of the market in the year that was, it is unsurprising that sentiment finished at rock bottom. Almost every strategy, theme and narrative that had prevailed in years gone by performed poorly.
Politically and fundamentally the news in crypto was never better; the price still declined.
Momentum and directional strategies were hammered by the endless market chop, forever moving but going nowhere. For every $1 in price change since the start of the year, bitcoin actually moved $89!
At times a breakout looked likely only to be rocked by macro geopolitical shocks.
Convenient narratives like digital gold failed as actual gold skyrocketed and bitcoin languished.
The "great, new, hope" Solana flopped - with a decline in monthly active address by 70%, as did its much-feted digital assets treasury companies and ETFs.
And finally, the supposed four-year cycle for bitcoin bull markets was practically a non-event.
On the positive side, Ethereum, written off for dead by the crypto commentariat mid-year, proved its mettle and rebounded strongly, buoyed by major DAT purchases and outstanding technical upgrades. That was a difficult call in April when the price was at lows not seen since the FTX collapse and tariff uncertainly loomed large, but we stuck with our thesis throughout and avoided capitulation at market lows.
It’s worth delving deeper into the destruction of narratives, the biggest casualty of which being the purported four-year bitcoin cycle. In the market, you always have to beware of comforting narratives promising to impose order on chaos, and in crypto there is none more prominent than the four-year cycle. This particular narrative assumes a four-year periodicity driven by the bitcoin halving. Over the past decade or more, the boom - bust cycles have neatly matched the bitcoin emissions algorithm which halves the number of bitcoins earned by miners every four years.
The justification for the belief that this emission cycle has some causal connection to price is pretty flimsy since it involves fitting a curve through essentially only four points since bitcoin’s inception. Moreover, the significance of each of these four points declines each cycle with emissions representing a smaller and smaller fraction of existing supply. Nevertheless, the narrative persists, with many traders expecting a preordained bull market in 2025 which never arrived and a bear in 2026.
The other narrative popular at the beginning of the year, often pushed by vested interests, was that Ethereum is an antiquated technology, and the nimbler Solana would surely surpass it. We believed that this narrative was naive, at best, failing to account for Ethereum's longevity, network effects, and decentralization, which are what make this space actually interesting. We held an overweight position in Solana for a number of years expecting a recovery as it shed its FTX association and moved back down towards benchmark weights as this overly aggressive fervor peaked.
The final narrative prevalent towards year end was that of tax loss harvesting from ETFs. This is one that we believe has a lot more credibility. Our research shows that ETF flows are strongly correlated with same day BTC price moves. For every billion dollars in ETF flows we expect to see 3.2% change in price. It's possible that the large outflows in Q4 2025 were from tax loss harvesting, which is plausible since stocks, gold, silver, tech and almost anything else was up on the year, leaving crypto has the best avenue to realize some offsetting losses. We will be keenly watching ETF flows in January, as a reversal there should result in price gains.
The Year Ahead
Looking forward to the year ahead, the most important question is - has anything fundamentally changed other than the price? The answer is certainly yes, and for the better. If you continue to believe in this space, as we do, then it may represent an opportunity relative to other overpriced assets. We expect stablecoins to continue to make inroads into traditional finance. DeFi continues to grow, and we expect areas like prediction markets to catch fire this year. On chain perpetual swap markets like Hyperliquid and Lighter will grow in usage and representations of equities on these decentralized markets will become increasingly popular.
We expect large cap tokens to continue to outperform based on institutional acceptance and network effects. The separation from overpriced copycat assets should continue, which we see as healthy. There will also be opportunities for a very small number of quality assets with smaller market caps to outperform, although we expect these to be relatively rare.
All said, a lot of seeds were planted in 2025, most notably the GENIUS act, the upcoming Clarity Act, and institutional interest in crypto ETFs with the pipe now primed for flows. 2026 we expect will be the year these seeds begin to bear fruit.