Graphing Digital Assets

Month in Review — February 2025

February Fallout

February was a challenging month for the markets, marked by macroeconomic uncertainty. Digital assets were no exception. Trump’s tariff threats, shifting monetary policy expectations, and fading post-election optimism kept investors on edge.

We can point to several key market catalysts (top graph):

  • Feb 1: Trump signed executive orders imposing tariffs on Canada, Mexico, and China, set to take effect on February 4, triggering a selloff as risk appetite weakened.

  • Feb 3: Trump delayed tariffs on Canada and Mexico by one month, sparking a brief market recovery—but uncertainty remained.

  • Feb 21: The Bybit hack further rattled the market, despite speedy confirmation that user funds were secure. The fear surrounding the incident contributed to a crypto selloff.

  • Feb 27-28: The decrease of the prior week was compounded by Trump’s announcement that tariffs on Mexican and Canadian imports will go into effect in March. Markets plunged further, with the Crypto Fear & Greed Index plummeting to 10 (Extreme Fear)—its lowest level this cycle (bottom graph). Significant liquidations occurred, and bitcoin briefly fell below $79k, marking its largest weekly drop since the FTX collapse.

Bitcoin finished the month -17.69%, ether -32.23%, and altcoins -27.45%, wiping nearly $800 billion from crypto market cap by month’s end. Equities also struggled, with the S&P 500 TR Index down -1.30%.

The market had begun to rebound as we entered March with Trump’s announcement of a strategic crypto reserve. While Trump signed an executive order to establish a bitcoin strategic reserve on March 6, investors were disappointed to learn the reserve would comprise tokens seized by the government with no plan to buy more bitcoin. This news came as the digital asset community awaits outcomes from the first-ever White House crypto summit to be held on March 7.

At the time of this writing, bitcoin had rebounded to above $90K and the Fear and Greed Index climbed back up to 34 (Fear). Yet confusion around trade policy persisted as Trump delayed some tariffs on Mexican and Canadian imports just as they went into effect.

While we can anticipate ongoing turbulence amid unclear policies, sharp corrections are not uncommon in bull markets before resuming a more modest uptrend.

Sources for top graph: hourly bitcoin prices from Coinbase and S&P500 TR Index daily close prices from Yahoo Finance; source for bottom graph: https://alternative.me/crypto/fear-and-greed-index/; . As of March 7, 2025.

U.S.-domiciled Digital Assets Dominate

Optimism surrounding the U.S. regulatory environment for digital assets has been steadily building. With concrete changes already unfolding in February, it’s clear that regulatory shifts are becoming a reality, strengthening the outlook for U.S.-domiciled digital asset products.

Recent Regulatory Developments:

  • The SEC dropped its case against Coinbase and motioned to dismiss its appeal over DeFi protocols being classified as brokers, signaling a more favorable regulatory stance. Furthermore, the SEC asked for public input on more than 100 key crypto-related questions, indicating a proactive approach in shaping the industry’s future.

  • The FDIC released 175 documents related to its oversight of banks engaged in crypto-related activities, signaling that U.S. regulators are laying the groundwork for clearer rules around financial institutions working with digital assets.

  • Trump announced plans for a U.S. crypto reserve, with BTC, ETH, XRP, SOL, and ADA included, positioning the U.S. to take a leadership role in digital asset adoption. 

The Advantage for U.S.-domiciled Products:

  • ETF Filings Surge: Optimism for increased crypto ETF approvals has driven a surge in filings, with 47 active crypto ETF applications in the U.S. as of January 31 (top graph). State Street forecasts that crypto ETFs in North America will surpass precious metal ETFs by the end of 2025.

  • U.S. Tokens Outperforming: Since the U.S. presidential election, U.S.-domiciled digital assets like XRP, SOL, and AVAX have outperformed their global counterparts (bottom graph), signaling market confidence in the regulatory clarity and capital advantages for U.S. products.

With regulatory changes underway, the U.S. is positioning itself as a leader in the space, giving U.S.-domiciled digital asset products a clear edge.

Source for top graph: Binance Research February 2025 Research Report. Source for bottom graph: MarketVector.

Artificial Intelligence Powers DeFi

The DeFi space is experiencing rapid transformation, driven by both increasing competition and new technological innovations.

One of the most compelling developments is the convergence of Decentralized Finance (DeFi) and Artificial Intelligence (AI), known as DeFAI, a sector that is quickly gaining traction, boasting a market capitalization nearing $1 billion. We’ve highlighted the top 10 DeFAI projects by market cap in the top graph. DeFAI leverages AI to optimize trading strategies and automate risk management, enhancing on-chain decision-making within DeFi. This emerging trend signals a fundamental shift in the DeFi space, one that is poised to reshape its next phase.

As the technology continues to evolve and newer platforms emerge, Ethereum, once the undisputed leader in decentralized finance, is now facing increasing competition. Over the past year, Ethereum has seen a gradual decline in its DeFi TVL market share (bottom graph) and has recently been overtaken by Solana in terms of DEX trading volume. While these developments may seem concerning for Ethereum’s dominance, this shift is a positive sign for the industry, as competition is essential for fostering innovation, driving improvements in scalability, security, and efficiency. The DeFi market, projected to grow to $231 billion by 2030, is primed for expansion, but it will only be able to accommodate such large-scale investments once these foundational improvements are made.

Furthermore, the regulatory landscape is evolving to support the growth of DeFi. A notable development in February saw Telcon become Nebraska’s first digital asset bank, the first financial institution explicitly authorized to connect consumers to DeFi. This regulatory momentum, coupled with advancements in infrastructure and AI integration, signals that the DeFi space is poised for accelerated growth, positioning itself as a critical component of the broader financial ecosystem.

Source: DeFAI Market Cap as of February 28, 2025 for DeFAI tokens from CoinMarketCap; TVL Share of Top Blockchains from The Block.