Crypto Market 2025: From Extreme Volatility to Capitulation Point

The year 2025 marks a period filled with shocks for the crypto ecosystem, but behind Bitcoin’s relatively moderate achievements, most tokens are experiencing prolonged and dramatic downturns. According to Pantera Capital, a leading investment firm in the digital asset space, the current market conditions have reached a sentiment level historically associated with capitulation—a panic selling phase where asset holders lose confidence and liquidate positions to prevent further losses.

Disparity in Performance Reaching Extreme Levels

The most striking phenomenon in the crypto markets last year was the extreme divergence in performance across asset segments. Bitcoin ended the year with a relatively controlled decline of about 6%, while Ethereum fell around 11%. However, the picture changed drastically for altcoins—Solana plummeted 34%, while the broader universe of tokens outside BTC, ETH, and SOL experienced nearly a 60% slide, with the average token down about 79%.

These figures reflect extreme concentration in capital flows. The crypto market capitalization excluding Bitcoin, Ethereum, and stablecoins declined about 44% from its peak at the end of 2024. Pantera describes 2025 as a very narrow market, where only a small fraction of the entire token ecosystem yields positive returns, while the majority remain under ongoing selling pressure.

Macro Pressures and Structural Factors Trigger Market Capitulation

Such a deep decline is not solely caused by price volatility. Pantera identifies several fundamental factors driving this capitulation phase. First, macroeconomic shocks play a crucial role—including uncertain policy trends, tariff threats, and changing risk appetites in global markets. This year has been marked by a series of fluctuations related to policy developments and monetary expectations, creating ongoing uncertainty.

Second, technical factors also contribute. A large liquidation wave in October wiped out over $20 billion in notional leverage positions—an amount surpassing the Terra/Luna collapse and even the FTX crisis. This pressure forced position holders to exit, accelerating bearish sentiment.

However, the most profound dimension of Pantera’s analysis concerns structural questions about token value accumulation. Many governance tokens lack clear legal claims over cash flows and residual value—a fundamental issue that sets them apart from traditional financial assets. This dynamic explains why digital asset equities have far outperformed governance tokens during this period.

On-Chain Fundamentals Weaken Amidst Questions of Token Value

On-chain analysis reveals further weakening. In the second half of the year, blockchain health metrics show declines across various indicators—transaction costs decrease, application revenues compress, and the number of active addresses declines. Although stablecoin supply continues to grow, overall fundamental momentum weakens, reflecting lower user activity and market consolidation.

This trend reinforces the thesis that the market is in a deep consolidation phase, with many participants having experienced psychological and financial capitulation. The duration of the decline now matches previous crypto bear market patterns, indicating that the worst phase may have passed or is nearing its peak.

Market Capitulation Opens Opportunities for Capital Allocation Rotation in 2026

Pantera Capital sees 2026 as a potential turning point in the market cycle, provided that fundamentals stabilize and market interest expands beyond Bitcoin. Instead of providing specific price targets, the firm projects a significant shift in capital allocation.

According to the analysis, Bitcoin, stablecoin infrastructure, and crypto-related equity exposure are positioned to benefit first if sentiment improves. Paul Veradittakit from Pantera emphasizes that next year’s growth will focus on real-world asset tokenization, AI-driven blockchain security, bank-backed stablecoins, prediction market consolidation, and crypto IPO waves—rather than a return to broad speculation on high-volatility tokens.

Meanwhile, amid ongoing macroeconomic turbulence, Bitcoin is trading more like a high-beta risk asset than a hedge. Trapped in a bearish consolidation about 30% below the October peak and struggling to break through key resistance at $89,000, market anticipation for new catalysts remains. The sharp recovery of the US dollar and strength in commodities, especially gold reaching record highs, also weigh on crypto sentiment.

However, the capitulation phase that has occurred may actually lay a healthier foundation for long-term growth in 2026, provided blockchain fundamentals and institutional adoption continue to develop as projected.