Is It a Crypto Winter Now? Market Transformation After Regulatory Reform
- Core View: The current crypto market is not a "winter" in the traditional sense. It is driven by external macro factors causing volatility, and the market structure has become layered due to regulation, leading to changes in capital flow patterns. The next bull market requires both a killer application and a favorable macro environment to drive it.
- Key Elements:
- While historical winter patterns (major events → collapse of trust → brain drain) are still visible, the current market decline is primarily driven by external factors such as tariffs and interest rates, rather than an internal industry collapse.
- Regulation has segmented the market into three layers: regulated areas (e.g., RWA, compliant DeFi), unregulated areas (highly speculative), and shared infrastructure (e.g., stablecoins, oracles). Capital flow between these layers is restricted.
- Institutional capital entering via Bitcoin ETFs primarily stays within Bitcoin and regulated areas. The previous "trickle-down effect" has disappeared, weakening market interconnectedness.
- The next bull market requires a killer application in the unregulated space, on the scale of "DeFi Summer," which must successfully migrate to and be validated in the regulated space.
- A favorable macroeconomic environment (e.g., interest rate cuts, increased liquidity) is an indispensable external condition for a bull market, which the industry itself cannot control.
This report is authored by Tiger Research. As the market enters a downward cycle, skepticism towards the crypto market is growing louder. The question now is, have we entered a crypto winter?
Key Takeaways
- Crypto winters follow this sequence: Major Event → Loss of Trust → Talent Drain
- Past winters were caused by internal issues; current fluctuations are driven by external factors; it's neither winter nor spring.
- The post-regulation market is divided into three layers: regulated zone, unregulated zone, and shared infrastructure; the trickle-down effect has vanished.
- ETF capital stays within Bitcoin and does not flow out of the regulated zone.
- The next bull run requires a killer application scenario and a favorable macro environment.
1. How Did Past Crypto Winters Happen?
Source: Tiger Research
The first winter occurred in 2014. At that time, the Mt. Gox exchange handled 70% of global Bitcoin trading volume. A hack led to the disappearance of approximately 850,000 Bitcoins, causing a collapse in market trust. Subsequently, new exchanges with internal controls and audit mechanisms emerged, and trust began to recover. Ethereum also entered the market through ICOs, opening up new possibilities for vision and fundraising methods.
This ICO wave became the catalyst for the next bull market. When anyone could issue tokens and raise funds, the 2017 boom followed. Countless projects raised billions of dollars with just a whitepaper, but most lacked substance.
In 2018, regulatory policy measures were introduced in South Korea, China, and the US, the bubble burst, and the second wave of winter arrived. This winter didn't end until 2020. Post-COVID-19, liquidity flooded in, decentralized finance (DeFi) protocols like Uniswap, Compound, and Aave gained attention, and capital returned to the market.
The third winter was the harshest. Following the Terra-Luna collapse in 2022, Celsius, Three Arrows Capital, and FTX collapsed in succession. This wasn't just a price drop; the entire industry's structure was impacted. In January 2024, the U.S. Securities and Exchange Commission (SEC) approved spot Bitcoin exchange-traded funds (ETFs), followed by the Bitcoin halving and the emergence of Trump's pro-crypto policies, leading to another influx of capital into the crypto market.
2. The Crypto Winter Pattern: Major Event → Loss of Trust → Talent Drain
These three winters all followed the same pattern: first a major event occurs, then trust collapses, followed by a talent drain.
It always starts with a major event. For example, the Mt. Gox hack, ICO regulatory reforms, the Terra-Luna collapse, and the subsequent FTX bankruptcy. The scale and form of each event varied, but the outcome was the same: the entire market plunged into panic.
The shock quickly spread, leading to a collapse in trust. People who were just discussing the next development direction began to question whether cryptocurrency was truly a meaningful technology. The collaborative atmosphere among developers vanished, replaced by finger-pointing and arguments over who was to blame.
Doubt leads to a talent drain. The builders who once created new momentum in the blockchain space began to grow skeptical. In 2014, they moved to fintech and big tech companies. In 2018, they shifted to financial institutions and the AI field. They left to find places that seemed more secure.
3. Is This a Crypto Winter Now?
The pattern of past crypto winters is still visible today.
- Major Events:
- Trump Meme Coin Launch: Market cap surged to $270 billion in a day, then plummeted 90%.
- 10.11 Liquidation Event: The US announced 100% tariffs on Chinese goods, triggering the largest liquidation in Binance's history ($190 billion).
- Loss of Trust: Skepticism is spreading within the industry. Focus has shifted from the next product development to mutual blame.
- Talent Drain Pressure: The AI industry is booming, promising faster exits and greater wealth than crypto.
However, it's difficult to call this a crypto winter. Past winters often stemmed from within the industry. Mt. Gox was hacked, most ICO projects were exposed as scams, FTX collapsed. The industry itself lost trust.
Now the situation is different.
ETF approval kicked off the bull run, while tariff policies and interest rates triggered the decline. External factors both pushed the market up and pulled it down.
Source: Tiger Research
The builders haven't left yet either.
Real World Assets (RWA), Perpetual DEXs (Perp DEX), prediction markets, InfoFi, privacy. New narratives keep emerging and are still being created. They haven't shaken the entire market like DeFi did, but they haven't disappeared either. The industry hasn't collapsed; what changed is the external environment.
We never created spring, so there is no winter to speak of.
4. Post-Regulation Market Structure Changes
Behind this lies a significant shift in market structure brought about by regulation. The market has fragmented into three layers: 1) the regulated zone, 2) the unregulated zone, and 3) shared infrastructure.
Source: Tiger Research
The regulated domain covers RWA tokenization, exchanges, institutional custody, prediction markets, and compliant DeFi. These areas require audits, disclosures, and legal protection. Growth is slow, but capital is large and stable.
However, once entering the regulated zone, it's hard to achieve the explosive returns of the past. Volatility decreases, upside is limited, but downside is also limited.
On the other hand, the unregulated zone will become even more speculative in the future. Low barriers to entry, fast volatility. A 100x gain in one day followed by a 90% drop the next will become more common.
Yet, this space is not meaningless. Industries born in the unregulated zone are highly creative and, once validated, move into the regulated zone. DeFi did this, and prediction markets are now following suit. It's like a testing ground. However, the boundaries between the unregulated zone itself and the industries within the regulated zone will increasingly blur.
Shared infrastructure includes stablecoins and oracles. They are used in both regulated and unregulated zones. Institutional RWA payments and Pump.fun trades use the same USDC. Oracles provide data for tokenized bond verification and anonymous DEX liquidations.
In other words, as the market fragments, capital flows have also changed.
In the past, when Bitcoin rose, other cryptocurrencies would rise via a trickle-down effect. But now it's different. Institutional capital entering the market through ETFs stays within Bitcoin and stops there. Capital from the regulated zone does not flow into the unregulated zone. Liquidity only stays where value is validated. And even then, Bitcoin's value as a safe-haven asset versus risk assets has yet to be proven.
5. Conditions for the Next Bull Run
Regulatory issues are gradually being resolved. Developers are still building. So, two things remain.
First, a new killer use case must emerge from the unregulated space. It must create unprecedented value, like the "DeFi Summer" of 2020. AI agents, InfoFi, and on-chain social are candidate cases, but their scale is not yet sufficient to drive the entire market. We need to re-establish the process where experimental results from the unregulated zone are validated and enter the regulated zone. DeFi has done this, and prediction markets are now doing it.
Second, the macroeconomic environment is crucial. Even if regulatory issues are resolved, developers are building, and infrastructure is improving, development space remains limited if the macro environment is unsupportive. The "DeFi Summer" of 2020 saw explosive growth in the DeFi market as liquidity was released post-COVID-19. The post-ETF approval rally in 2024 also coincided with market expectations for interest rate cuts. No matter how well the crypto industry performs, it cannot control interest rates and liquidity. For the industry to gain recognition, the macroeconomic environment must improve.
The past "crypto bull market" where all cryptocurrency prices rose in sync is unlikely to reappear. Because the market has fragmented. The regulated zone grows steadily, while the unregulated zone experiences massive gains and losses.
The next bull run will eventually come, but not everyone will enjoy it.
