Kaiko Report Highlights Key Drivers of Q1 Crypto Market Decline and Outlook for Q2

Bitcoin and other crypto assets faced headwinds in the first quarter of 2025 as global economic tensions intensified. After a strong start to the year driven by optimism over President Donald Trump’s return and supportive macroeconomic expectations, the crypto market struggled with a sharp drop in trading volumes.

According to a new report by Kaiko, the tariff measures introduced by the Trump administration contributed to increased volatility and risk-off behavior among market participants.

Crypto Q1 Volume and Liquidity Performance

Bitcoin, which had rallied to new highs in January, has now fallen by over 25% from its peak, ending the quarter down approximately 12%. Ethereum and the top altcoins also saw declines, with AI and memecoins posting average losses above 50%.

Weekly volumes for BTC, ETH, and other major tokens averaged $266 billion, down 30% from levels seen in late 2024. Kaiko attributed much of the decline to offshore exchange activity falling and traders pulling back due to rapid market swings and uncertainty.

U.S.-based exchanges maintained strong market depth despite broader selloffs, buffering the impact on Bitcoin’s liquidity. Platforms like Coinbase, Kraken, and CEX.IO collectively comprised 60% of BTC’s market depth in Q1.

This allowed BTC to outperform many altcoins, which suffered from both reduced demand and thinner liquidity. Kaiko noted that this environment favored larger-cap assets and further highlighted the resilience of BTC compared to other riskier assets in the crypto space. The report noted:

Altcoin volatility surged in early 2025, reaching multi-year or all-time highs for certain tokens, notably Cardano’s ADA. Bitcoin’s volatility also rose, from 34% in February to 51% in March, though it stayed below the peaks observed during last August’s carry trade unwinding. The growing volatility gap between Bitcoin and altcoins may discourage risk-averse traders from entering the market in the near future.

The Path Ahead: Outlook For Q2

Looking forward, Kaiko analysts believe the second quarter could offer renewed opportunities. The White House’s recent decision to delay tariff implementation by 90 days has already sparked a short-term rally, suggesting sensitivity to macroeconomic developments remains high.

More importantly, structural tailwinds are building: the expansion of the stablecoin market, pending ETF approvals for altcoins, and the appointment of pro-crypto SEC Chair Paul Atkins could all support a recovery

In addition, the stablecoin sector, led by USDT and USDC, has grown 33% since late 2024, now exceeding $230 billion in supply. Historical data from Kaiko suggests that expansions in stablecoin supply often precede broader crypto rallies.

With over 40 crypto-related ETF applications pending review and two stablecoin bills gaining momentum in Congress, the potential for renewed institutional participation is rising.

Kaiko’s report concluded that if market volatility subsides and regulatory clarity improves, Q2 may mark a shift in sentiment. While risks remain from geopolitical tensions and economic policies, the combination of macro catalysts and maturing infrastructure may pave the way for renewed growth, particularly for Bitcoin.

Featured image created with DALL-E, Chart from TradingView