Investing.com — Cryptocurrencies are poised to continue their momentum after nearly doubling total market cap in 2024, but wider adoption in 2025 will depend on how effectively the crypto-friendly Trump administration can establish a clearer regulatory path for cryptocurrencies to thrive.
"This year [2024] was a strong one for crypto, registering a 90%+ increase in total market cap," Citi Research noted in its 2025 outlook. "Markets are optimistic on the regulatory front given the incoming U.S. administration’s crypto-friendly views and personnel."
The dramatic gains in 2024 were fueled by the launch of spot Bitcoin and Ethereum ETFs, which collectively drew $36.4 billion and $2.4B in net inflows through Dec. 19, respectively. These flows have been the most significant driver of crypto returns, Citi said, expecting this trend to continue in 2025.
But the outlook remains far from straightforward. While the incoming administration under President-elect Donald Trump is widely seen as pro-crypto, the potential for meaningful regulatory reform is still uncertain.
"The 'Trump boost' from the regulatory lens is not necessarily a de-regulation story ... some market participants reckon the incoming administration may seek to replace more regulators who it deems as having crypto-skeptical track records, and promote those whose views better align with that of his administration," Citi said.
Trump had signaled a willingness to step away from the current administration’s "anti-crypto crusade," which he criticized for stifling innovation. His proposed policies include a shift from enforcement-focused regulation to a more legislative-based approach, aiming to reduce uncertainty for both investors and issuers.
In a sign that the winds of change are in motion, Trump has nominated crypto-friendly Paul Atkins to replace SEC head Gary Gensler, who is set to step down from his role on Jan. 20.
The regulatory environment holds sway for crypto adoption, Citi said, pointing to several other metrics including trading/flows, on-chain metrics and total value locked in decentralized finance as key measures to monitor.
The regulatory framework will be an important determinant for adoption,” Citi said, flagging the prospect of increased transparency on regulation bringing other cryptocurrencies into the investor spotlight.
"One consequence of the potential change in the regulatory regime is that crypto may mean much more than just Bitcoin," Citi added.
Citi warns, however, that macroeconomic factors could disrupt this optimistic narrative as policy uncertainty threatens to spark a volatility in risk assets.
" Macro (BCBA:BMAm) may turn less favorable over the rest of the year [2025] given heightened U.S. policy uncertainty and forecasted equity volatility," it said.