After three consecutive quarters of decline, can the crypto market find a stabilization window in Q3?

Original Author: Ashrith Rao

Original Translation: Saoirse, Foresight News

The crypto market has just experienced its worst quarter since 2022. Combined with the market trend from July to date, let's sort out the various dilemmas that urgently need to be reversed in the third quarter.

If the market continues to decline for three consecutive quarters, this cannot simply be defined as a correction.

The total market capitalization of cryptocurrencies shrank by $304.8 billion, a drop 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 by over 52% to its lowest point since September 2024.

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

Stablecoins, once the most stable growth sector in the industry since 2023, have experienced their first contraction in over three years, with market cap declining by 1.6% to $305.1 billion.

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

Compared to the scale of total losses, the structural impact suffered within the market is more worthy of attention.

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

Many experts have reached a consensus: In the second quarter, Bitcoin and US stocks weakened simultaneously. This wasn't a passive follow of the stock market; in terms of trend, it even replaced risky stocks. During the rebound phase of the S&P 500 index, Bitcoin and related risk assets consistently underperformed 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 correlated to the Nasdaq index.

The current situation is completely different: affected by persistent redemptions from spot ETFs, the Federal Reserve's tightening policies, and massive sell-offs by corporate treasury Strategy, the entire crypto industry is undergoing a process of active deleveraging. Strategy's previous strategy of continuously accumulating Bitcoin was a significant factor supporting the bullish market expectations in 2024.

Complete Reversal of ETF Fund Flows

US Bitcoin spot ETFs attracted $2.02 billion in inflows 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 outflows in June approached nearly $4.5 billion, setting the worst monthly performance on record for this asset class.

This is by no means a secondary signal that can be ignored. The subscriptions and redemptions of ETFs directly correspond to real buying and selling behavior 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, one of Wall Street's most bullish institutions on crypto assets in 2025, announced on July 1 that it was lowering its 12-month Bitcoin price target from $112,000 to $82,000.

However, some early signals suggest this cycle of capital outflows may be nearing its end.

Data from Santiment shows that the cumulative ETF outflows have exceeded $8.5 billion since May 6. Historical patterns indicate that capital outflows of this magnitude often correspond to a phase of bottom-selling, rather than the start of a new major downturn.

Glassnode data shows: despite ongoing institutional capital outflows, Bitcoin long-term holders began accumulating coins again in early July.

When the market nears a cyclical bottom, the divergence in operations between retail and institutional investors often becomes more apparent than during 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 flowed in over three days. However, this recovery was difficult to sustain, and capital turned to outflows again, with a single-day net outflow of approximately $85 million on July 8.

In the first three weeks of July, Bitcoin prices oscillated within the $56,000–$64,000 range, testing the $63,700–$64,000 resistance level multiple times, but failing to break through and pulling back each time.

Now the entire market's focus is entirely on the Federal Reserve, with market attention highly concentrated on a single factor. The June Federal Open Market Committee (FOMC) meeting kept the interest rate target range at 3.5%–3.75%, which was also the first FOMC meeting chaired by Kevin Warsh.

The benchmark interest rate has remained unchanged since December 2025. Nevertheless, several Fed officials have signaled the possibility of rate hikes within the year. Warsh himself did not provide clear policy guidance. This stance is far more hawkish than the market anticipated, explaining why non-yielding assets like Bitcoin struggle to sustain upward trends.

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

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

The asset sell-off in June was initially promoted 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, pressured by balance sheet constraints, follow suit in selling Bitcoin, the entire industry could lose institutional capital support.

Regulatory Progress: Areas of Stagnation and Where Progress Has Been Made

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

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

The bill had an informal target date of July 4 for consideration. After failing to advance as planned, market expectations deteriorated sharply: in February, the market estimated an approximately 82% probability of the bill being enacted within 2026; by mid-July, the probability had fallen to the 40%–45% range. The Senate was originally scheduled to discuss the bill on June 1, but it ultimately did not proceed as planned.

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

To reach the 60-vote threshold needed to end a filibuster in the Senate, support from 7 Democratic senators is required. However, internally within the Democratic caucus, only two senators have publicly expressed support for the bill.

Analysts from Stifel and Beacon Policy Advisors warn that if no progress is made in July, substantial advancement of the bill could be delayed until 2027. At that point, the Senate will recess, and the US midterm elections will be approaching.

The current ambiguity in regulatory rules is continuously impacting the price trends of crypto assets.

When allocating capital, investors are increasingly weighing the risks arising from long-term unclear regulatory jurisdiction. This has pushed up the risk premium for all crypto products, even the most conservatively designed projects.

This uncertainty continues to affect core areas such as token issuance, asset custody, and exchange registration.

Consequently, during this quarter, industry capital is no longer being broadly diversified. Instead, capital is concentratedly flowing towards a few companies capable of consistently generating profits.

Few Bright Spots, But Substantive Growth Exists

While most sectors of the market are contracting, only two segments are bucking the trend and expanding. This phenomenon reflects a shift in real market demand.

The prediction market experienced a surge, with nominal trading volume rising 48.7% year-on-year to $113.8 billion. June was a watershed month for the sector, with monthly trading volume approaching $50 billion to $53 billion, setting a new monthly record.

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

The sector is growing rapidly with clear target customers, but it is highly constrained by laws and policies.

On June 10, the US Commodity Futures Trading Commission (CFTC) released a new draft rule, 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 some real-time in-game events.

Meanwhile, several state governments are embroiled in complex legal disputes with prediction markets, and Arizona has already filed a formal lawsuit. The legal disagreements may ultimately need to be resolved 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, related lawsuits at the state level persist, and a complete legal framework has not yet been established.

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

Even within a下行周期, Real World Asset (RWA) tokenization continues to develop steadily. Tokenized assets issued by 177 entities have a total on-chain value of approximately $28.1 billion.

The growth driver for this sector comes from the fundamentals of physical collateral assets that generate yield, making it independent of the fluctuations in the crypto market risk cycle. This development characteristic is very similar to the trend of institutional ecosystem building in the prediction market.

Core Factors Determining the Third Quarter's Direction

Despite Warsh's reluctance to provide 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 consider the CLARITY Act before the August recess. Proponents of the bill are hoping for a revised version to be introduced around July 20. The practical obstacles are very prominent: the bill still needs 7 Democratic votes to pass smoothly. Wall Street consensus has shifted, with the outlook changing from 'quite likely' to 'too close to call.'

Looking at various indicators, the market currently lacks the basis for an extreme sharp decline.

Although the market's profit-making effect has significantly weakened, with on-chain fees across major mainstream sectors dropping by an average of 44.6% in June, Bitcoin's price continues to hug its 200-week moving average. The long-term support structure has not been broken.

The market's trading logic has changed: participants no longer rely solely on various narrative hype. Trading decisions are more centered around price trends, policy choices, and interest rate expectations. It is difficult for a broad rally driven purely by optimistic sentiment to emerge.