After three consecutive quarters of decline, can the crypto market find a window of stabilization in the third quarter?

Original Author: Ashrith Rao

Original Translation: Saoirse, Foresight News

The crypto market has just experienced its worst quarter since 2022. Combined with the market trends from July onwards, let's sort through the various difficulties that urgently need to be reversed in the third quarter.

If the market declines for three consecutive quarters, it can no longer be simply defined as a correction.

The total market capitalization of cryptocurrencies shrank by $304.8 billion, a decline of 12.6%, falling to $2.1 trillion. Compared to the all-time high of $4.27 trillion set in October 2025, the current market cap has plummeted over 52%, hitting its lowest point since September 2024.

The average daily trading volume was $93.1 billion, down 20.9% year-over-year. Data from top compliant exchanges shows: perpetual contract trading volume decreased by 10% to $12.7 trillion; spot trading volume dropped by 27.9% to just $1.95 trillion.

Stablecoins, which had been the industry's most stable growth sector since 2023, have now experienced their first contraction in over three years, with market capitalization falling 1.6% to $305.1 billion.

All core indicators point to the same conclusion: capital is exiting the crypto market, not being reallocated within the industry.

More significant than the total loss scale is the structural impact the market has suffered internally.

At the end of June, Bitcoin's price fell to around $58,500, hitting a low for 2024, with a quarterly decline of 14.2%. Ethereum's performance was even more severe, dropping 25.4% in the quarter, with prices bottoming out around $1,625.

Many experts are forming a consensus: in the second quarter, Bitcoin weakened in tandem with the US stock market, but this was not a passive following of the stock market; its performance even substituted for risk stocks. During the rebound phase of the S&P 500, Bitcoin and related risk assets continued to underperform the broader market.

The correlation trading logic prevalent from 2024 to 2025 has collapsed. Back then, Bitcoin was viewed as a risk-on asset, with prices highly synchronized with the Nasdaq index.

The current situation is starkly different: affected by persistent redemptions from spot ETFs, the Federal Reserve's tightening policy, and massive Bitcoin sell-offs by corporate treasury Strategy, the entire crypto industry is undergoing an active deleveraging process. Previously, Strategy's continuous accumulation strategy was a significant force supporting the bullish market expectations of 2024.

Complete Reversal in ETF Fund Flows

US Bitcoin spot ETFs attracted $2.02 billion in April, but experienced massive redemptions in the following months, ultimately recording a net outflow of approximately $4.67 billion in the second quarter.

Capital flight in June approached $4.5 billion, marking the worst monthly performance on record for this category.

This is by no means a minor signal to be ignored. ETF subscriptions and redemptions directly correspond to real buying and selling actions in the market, not merely influenced by market sentiment; continuous capital redemptions mean that spot Bitcoin is consistently flowing to exchanges for sale.

The market experienced a significant pessimistic expectation adjustment: Citigroup, once one of Wall Street's most bullish institutions on crypto assets in 2025, announced on July 1st that it had lowered its 12-month Bitcoin price target from $112,000 to $82,000.

However, some early signals indicate that this capital outflow cycle might be nearing its end.

Santiment data shows that cumulative ETF outflows have exceeded $8.5 billion since May 6th. Historical patterns suggest that capital withdrawals of this scale often correspond to a selling phase near the bottom, rather than the start of a new major downturn.

Glassnode data indicates: despite ongoing institutional capital outflows, Bitcoin long-term holders resumed accumulation in early July.

When the market approaches a cyclical bottom, the divergence in operations between retail and institutional investors often becomes more apparent than in the middle of a crash.

In early July, ETF flows briefly reversed, recording a net inflow of $46.6 million, a short-term positive signal. Subsequently, driven by BlackRock's IBIT fund, $510 million entered the market over three days. However, this recovery proved unsustainable, with funds turning to outflows again, recording a net outflow of about $85 million on July 8th.

During the first three weeks of July, Bitcoin prices oscillated within the $56,000–$64,000 range, testing the resistance level at $63,700–$64,000 multiple times but failing to break through and retreating under pressure.

The entire market's attention is now focused entirely on the Federal Reserve, with market focus becoming highly singular. The Federal Open Market Committee (FOMC) meeting in June kept interest rates in the 3.5%–3.75% range, which was also the first rate-setting meeting chaired by Kevin Warsh.

The benchmark rate has remained unchanged since December 2025. Despite this, several Fed officials have signaled the possibility of rate hikes within the year, while Warsh himself offered no clear policy guidance. This stance is far more hawkish than the market anticipated and explains why non-yielding assets like Bitcoin struggle to sustain an upward trend.

Currently, almost all trading desks view the FOMC meeting on July 28–29 as the most important event of the third quarter. Two scenarios are projected: If the Fed signals a dovish stance, Bitcoin could stabilize in the $68,000–$84,000 range, providing a basis for ETF capital inflows; if the policy stance is hawkish, then $50,000–$56,000 could become the new oscillation center for Bitcoin.

Beyond this, corporate-held Bitcoin reserves constitute a unique tail risk for this cycle.

This asset sell-off in June was initially marketed as an exclusive operation aimed at acquiring dividends.

Over the past two years, the crypto industry has accumulated stable institutional capital support. However, if other corporate treasury entities, under balance sheet pressure, follow suit in selling Bitcoin, the entire industry could lose its institutional capital support.

Regulatory Progress: Stuck Areas and Fields of Advancement

From 2025 to early 2026, the industry strongly pushed for the legislation of the CLARITY Act. This bill aimed to delineate regulatory boundaries: the Commodity Futures Trading Commission (CFTC) would oversee digital asset commodities, while the Securities and Exchange Commission (SEC) would regulate digital asset securities.

The House passed the bill in July 2025 with 294 votes in favor and 134 against; in May 2026, it passed the Senate Banking Committee with a 15:9 vote. However, legislative progress has stalled since then.

The bill had an informal deadline of July 4th for review, and after failing to advance as scheduled, market expectations deteriorated sharply: in February, the market estimated the probability of the bill passing in 2026 at ~82%, but by mid-July, this probability had fallen to the 40%–45% range. The Senate was scheduled to discuss the bill on June 1st but ultimately did not proceed as planned.

Several points of contention remain unresolved: President Trump's crypto asset holdings and disclosure obligations, developer protections under Section 604 of the bill, and rules related to stablecoin yields.

To reach the 60-vote threshold required to overcome a filibuster in the Senate, support is needed from 7 Democratic senators, yet currently, only two Democratic senators have publicly expressed support for the bill.

Analysts at Stifel and Beacon Policy Advisors warn: if no progress is made in July, substantive advancement of the bill could be delayed until 2027. By then, the Senate will recess, and the US midterm elections will be approaching.

The current ambiguity in regulatory rules continues to impact the price trends of crypto assets.

When allocating capital, investors are increasingly factoring in the risk posed by the long-term unclear regulatory jurisdiction, which raises the risk premium for all crypto products, even the most conservatively designed projects.

This uncertainty persistently affects core aspects such as token issuance, asset custody, and exchange registration.

Consequently, industry capital in this quarter is no longer diversifying widely but is concentrating heavily on a few companies capable of generating stable profits.

Few Bright Spots, but Substantial Growth

While most sectors of the market are shrinking, only two sectors are expanding against the trend. This phenomenon reflects a shift in real market demand.

Prediction markets have exploded, with nominal trading volume rising 48.7% year-over-year to $113.8 billion. June marked a watershed moment for the industry, with monthly trading volume approaching $50 billion to $53 billion, setting a new monthly record.

Kalshi commands a 58.9% market share; over the past year, approximately 80%–87% of Kalshi's trading volume came from sports derivative contracts.

This sector is growing rapidly with a clear target customer base, but is highly constrained by legal policies.

The CFTC released a new draft rule on June 10th, opening a 45-day public comment period. The regulatory approach is to allow most sports trading markets to operate normally while prohibiting derivative contracts related to player injuries, referee decisions, and certain real-time in-game events.

Meanwhile, multiple state governments are embroiled in complex legal disputes with prediction markets, with Arizona having already filed a formal lawsuit. These legal disagreements may ultimately be decided by the Supreme Court.

Relying on a mature ecosystem of institutional partnerships, the sector continues to expand: Polymarket partnered with Dow Jones, and Kalshi partnered with Nasdaq. However, state-level lawsuits persist, and a complete legal framework has yet to be established.

Tokenized collectibles performed strongly in the second quarter, with trading volume surging approximately 143% quarter-over-quarter to a total of $1.4 billion. Collector Crypt saw particularly astonishing growth, with trading volume in June skyrocketing 317% to $406 million, over 12 times the trading volume of OpenSea NFTs in the same period.

Even in a downward cycle, Real World Asset (RWA) tokenization continues to develop steadily, with a total on-chain value of approximately $28.1 billion from tokenized assets issued by 177 entities.

The growth momentum for this sector stems from the fundamentals of yield-generating physical collateral assets, independent of the ups and downs of the crypto market's risk cycle. This development characteristic is very similar to the institutional ecosystem building trend observed in prediction markets.

Key Factors Determining the Third Quarter's Direction

Despite Warsh's reluctance to offer policy guidance and the dot plot signaling a bias towards tightening, the market still views the July 28–29 FOMC decision as the most important event of the quarter.

It is currently uncertain whether the Senate can review the CLARITY Act before its August recess. Bill supporters hope to release a revised version around July 20th. The practical obstacles are stark: the bill still needs 7 Democratic votes to pass. Wall Street consensus has shifted, with the outlook changing from "relatively likely" to "too close to call."

Based on a comprehensive look at various indicators, the market currently lacks the foundation for an extreme crash.

Although the market's profit-making effect has significantly weakened, with on-chain fees for major mainstream sectors averaging a 44.6% decline in June, Bitcoin's price remains close to the 200-week moving average, and the long-term support structure has not been broken.

The market's trading logic has changed: participants no longer rely solely on narrative hype. Trading decisions are now more centered around price trends, policy choices, and interest rate expectations. A broad market rally fueled purely by optimistic sentiment is unlikely to occur.