Analysis
Market outlook
Bitcoin's 2025 outlook: the moment of truth for nation-state adoption?

Bitcoin's 2025 outlook: the moment of truth for nation-state adoption?

Henry Fisher

Senior Content Specialist

15 minute read

|11 Dec 2024

Table of contents

1.
2024 recap
2.
Nation-state adoption
3.
Corporate and institutional demand
4.
A new Bitcoin cycle?
5.
Warning lights
6.
Conclusion

As the dust settles on a transformative 2024, Bitcoin’s momentum shows no signs of slowing. Building on the catalysts of the previous year, two major forces are poised to shape Bitcoin’s trajectory: nation-state adoption and the growing influence of large-scale players, including corporations and institutions. These factors have the potential to redefine market dynamics, overshadowing traditional drivers such as the halving cycle and the influence of retail investors.

Here’s a closer look at the central factors likely to define Bitcoin's path in 2025.

2024 recap

In 2024, Bitcoin experienced a remarkable rise, appreciating approximately 120% between January 1 and December 5. At the time of writing, Bitcoin recently reached the historic milestone of $100,000 on December 5.

This growth has been primarily supported by three historic events: the approval of Bitcoin spot ETFs on January 10, the Bitcoin halving on April 20 and the election of Donald Trump on November 5.

The introduction of spot ETFs broadened accessibility for investors, while Trump’s pro-crypto stance signalled a favourable political outlook, both of which visibly boosted Bitcoin’s price. In contrast, the halving, which reduced the rate of new Bitcoin supply, initially had a less positive effect. Following the halving, Bitcoin's price trended sideways and then fell by approximately 25% over the next five months.

These factors are interconnected and difficult to separate, but their influence will likely persist throughout 2025.

Nation-state adoption

The nation-state adoption of Bitcoin, which is the process of integrating Bitcoin into national financial systems, could play a significant role in shaping Bitcoin's price path in 2025. To date, this type of adoption has taken place across three main areas: national reserves, legal tender status, and government Bitcoin mining operations.

Proactive pioneers

El Salvador and Bhutan have made the most proactive moves in adopting Bitcoin officially. In 2021, El Salvador became the first country to declare Bitcoin legal tender. Although its use as a medium of exchange remains limited, the country's government has steadily increased its Bitcoin holdings, which now total ~6,150 BTC as of November 25, according to Van Eck.

The Salvadoran government has also pioneered Bitcoin mining, using geothermal energy sourced from volcanic activity. Bhutan has been mining Bitcoin since 2019, utilising its hydroelectric power, and currently holds reserves exceeding 12,000 BTC as of December 2.

Sleeping giants

The United States, China, and the United Kingdom hold some of the largest Bitcoin reserves globally. However, as far as we know, all of these holdings were seized from criminals rather than proactively purchased. In the U.S. alone, the top three Bitcoin seizures account for the vast majority of their total holdings. Unlike in El Salvador, Bitcoin holdings in the U.S., China, and the United Kingdom have been retained by governments but have not been explicitly used as reserve assets for value storage or economic stability.

However, there are recent signs that this stance may be beginning to shift. The concept of Bitcoin as a reserve asset gained traction in 2024 among U.S. political figures such as Donald Trump, Robert F. Kennedy Jr., and Senator Cynthia Lummis, notably at the Nashville Bitcoin Conference.

Support for a Bitcoin strategic reserve

At the conference, U.S. Senator Cynthia Lummis outlined plans to establish a “Bitcoin strategic reserve,” which would include a network of secure storage vaults, a purchasing program, and measures to transparently manage federal Bitcoin holdings.

Lummis’ Bitcoin strategic reserve bill outlines acquiring 1 million BTC, equivalent to roughly 5% of the total supply, to hold for 20 years. She is also pushing for the U.S. Treasury to convert part of its 8,000 tonnes of gold holdings into Bitcoin to establish the BTC strategic reserve.

During the same conference, Robert F. Kennedy Jr. voiced his ambition to “sign an executive order on day one” directing federal agencies to transfer approximately 200,000 Bitcoin seized by the U.S. government to the Treasury as strategic assets. He also proposed that the Treasury purchase 550 Bitcoin daily until reaching a reserve of at least 4 million. Though he initially made these statements while running for president, he later joined Trump’s campaign and was recently appointed as Health Secretary in the Trump administration.

Finally, Trump expressed his vision of American leadership in the Bitcoin arena, declaring (and yes, this is verbatim):

“If crypto is going to define the future, I want it mined, minted, and made in the USA. It’s not going to be made anywhere else. And if Bitcoin is going to the moon, as we say, I want America to lead the way—and that’s what’s going to happen.”

Image: Donald Trump speaks at the 2024 Bitcoin Conference in Nashville, July 27, 2024.

The sentiments expressed at the Nashville conference raise a crucial question: will the U.S. follow through on its promise to purchase Bitcoin as a reserve asset in 2025?

Should they proceed, this move could meaningfully boost Bitcoin’s price and may prompt other countries to consider it as a reserve asset. As Fidelity noted in January 2022:

“There is a very high-stakes game theory at play here, whereby if Bitcoin adoption increases, the countries that secure some Bitcoin today will be better off competitively than their peers. Therefore, even if other countries do not believe in the investment thesis or adoption of Bitcoin, they will be forced to acquire some as a form of insurance.”

The counterargument to consider is that adopting Bitcoin as a reserve asset could be a double-edged sword. Governments risk undermining the authority they wield through their fiat currencies, which are tools for managing economies and exerting influence. Therefore, many governments may be more cautious and less eager to rush into a high-stakes game, particularly given the opposition to Bitcoin among many economists and policymakers.

A new regulatory chapter?

Discussions of nation-state adoption and Trump's election is widely seen as a positive factor for Bitcoin-friendly regulation. Upon taking office on January 20, 2025, Trump will have the opportunity to reshape the leadership of the Securities and Exchange Commission (SEC).

During his campaign, Trump publicly declared his intention to remove the SEC Chair, Gary Gensler. Gensler subsequently resigned on November 21. Trump has since picked Paul Atkins as his nominee to head the agency, who is seen as a cryptocurrency advocate. A new SEC Chair could bring significant changes, potentially introducing clearer regulations for digital assets under U.S. securities law.

Moreover, as of December 2, the House of Representatives now includes 278 pro-crypto members compared to 122 who oppose crypto, providing Trump with increased leverage to influence crypto regulation in his preferred direction. For some, regulatory clarity has been a blocker to investment in Bitcoin, and this could mark a turning point. Looking globally, the UK is also expected to introduce a comprehensive crypto regulatory framework in early 2025, further contributing to the evolving regulatory landscape.

Corporate and institutional demand

Even if nation-state adoption stalls, the growing interest from corporations and institutions could continue to support a bullish outlook for Bitcoin in 2025. Broadly speaking, corporate demand primarily refers to large publicly listed companies acquiring Bitcoin to hold as a strategic asset on their balance sheets. Institutional demand, on the other hand, refers to investment activity by entities such as hedge funds, asset managers, and pension funds, which are typically acquiring Bitcoin on behalf of their clients.

Together, corporations and institutions represent a massive source of demand that could significantly impact Bitcoin's price trajectory in 2025. Their adoption of Bitcoin has far outpaced that of nation-states in recent years. As of December 2, public corporations currently hold around 508,024 BTC (~2.42% of the total supply), with the top holders being MicroStrategy, Marathon Digital, Riot Platforms, Tesla, and Coinbase.

Meanwhile, spot Bitcoin ETFs, which have been around for less than a year, already hold 1,246,585 BTC, representing 5.94% of the total supply. Leading the way are BlackRock (IBIT), Grayscale (GBTC), Fidelity (FBTC), ARK (ARKB), and Bitwise (BITB). In comparison, nation-states collectively hold just 524,246 BTC (2.50% of the total supply), and as mentioned previously, there is little actual demand from them at present.

The Saylor effect

Within the corporate and institutional landscape, MicroStrategy (MSTR:US) will be a key player to monitor in 2025. MicroStrategy, led by Michael Saylor, who is regarded as one of the world's biggest Bitcoin bulls, has shifted its focus from software development to acquiring Bitcoin as a corporate strategy. The company is heavily invested in Bitcoin, currently holding 386,700 BTC.

MicroStrategy's playbook in simple terms: it raises funds by issuing stock and debt instruments at low interest rates and then uses that capital to buy more Bitcoin. In October 2024, MicroStrategy has also recently announced plans to invest an additional $42 billion in Bitcoin over the next three years.

Chart: MicroStrategy's Bitcoin purchases over time. https://saylortracker.com/

MSTR’s large-scale purchasing could significantly impact Bitcoin’s price in the years ahead, particularly as supply becomes increasingly constrained. A key indicator to watch is illiquid supply, which refers to the percentage of Bitcoin held in wallets with little history of selling, often by long-term holders. This has recently reached a staggering record high of 74%. For context, out of Bitcoin’s circulating supply of 19.75 million, illiquid entities now hold 14.61 million BTC, according to ETC Group and Glassnode. This dynamic is not only relevant to Saylor but it is also relevant to the broader factors discussed in this outlook.

The accountants have arrived

Starting in 2025, a new FASB rule will require US companies to report cryptocurrency holdings at fair value each quarter. According to Deloitte, "The new guidance requires entities to subsequently measure certain crypto assets at fair value, with changes in fair value recorded in net income in each reporting period."

Previously, companies typically classified Bitcoin holdings as intangible assets subject to impairment testing. This meant Bitcoin held by a company could be written down if its price fell but could not be marked up until it was sold, even if the price recovered in the meantime.

For companies like MicroStrategy the new rule might offer a clearer way to report their cryptocurrency holdings. While the technical details and adoption will vary by company, the update could enhance transparency and influence how businesses approach Bitcoin and other cryptocurrencies.

Who’s next?

Beyond MicroStrategy, all eyes will be on major market cap players like NVIDIA, Apple, Microsoft, Alphabet, Amazon, and Meta to see if they embrace Bitcoin in 2025. While many companies are exploring Bitcoin, it’s important to recognise the expanding interest from a wider range of institutions, including asset managers, family offices, and pension funds.

In May 2024, the State of Wisconsin Investment Board became one of the first U.S. public pension funds to allocate to a spot Bitcoin ETF. By November 2024, a UK pension fund followed suit, making history by allocating 3% of its total assets to Bitcoin. Institutional and high-net-worth buying could prove pivotal in shaping Bitcoin’s trajectory in 2025.

A new Bitcoin cycle?

The cyclical pattern of Bitcoin's peaks and troughs, roughly aligning with four-year intervals, is a widely observed and intriguing characteristic of Bitcoin. Identifying the exact cause of this pattern is complex, as it arises from a confluence of factors. Among these, notable cycles stand out: the Bitcoin halving cycle, the U.S. election cycle, and the liquidity cycle (though liquidity tends to span 4-5 years). During prior Bitcoin cycles, these factors have often shown a correlation with Bitcoin's price.

Global Macro Investor, Bitcoins correlation with global money supply.

Chart: Bitcoins correlation with global money supply. Global Macro Investor.

The potential for increased nation-state adoption, coupled with growing institutional and corporate demand, could significantly overshadow the traditional factors that have historically played dominant roles in Bitcoin’s cyclical patterns. To illustrate this, let’s zoom in on the halving. The Bitcoin halving is a pre-programmed event in Bitcoin’s code that ensures the issuance of new Bitcoin is cut in half every 210,000 blocks (approximately every four years). The latest halving reduced daily Bitcoin issuance through mining to roughly 450 BTC.

Now, contrast this with a recent corporate purchase: in November 2024, MicroStrategy acquired 51,780 BTC worth $4.6 billion, a single purchase that is equivalent to absorbing 115 days of new supply assuming constant prices. To put this into even sharper perspective, MicroStrategy’s single November purchase represents less than 1/20 of the Bitcoin acquired so far by the US Bitcoin spot ETFs. In any case, in 2024, the supply reduction driven by corporations, institutions, and nation-states has significantly surpassed the built-in supply reduction induced by the halving. Looking ahead to 2025, this pattern is expected to continue, with external accumulations playing a dominant role in shaping Bitcoin's supply landscape.

The growing interest from nation-states and institutions in Bitcoin could have a significant impact on its traditional four-year market cycles. These new sources of demand raise the possibility of what is referred to as the 'supercycle', a speculative idea suggesting that Bitcoin’s price could experience sustained and unprecedented growth, driven by unprecedented factors, deviating from the structure of the typical four-year cycle tied to halving events. While the impact of these new entrants remains uncertain, their role in shaping the Bitcoin cycle carries some logic. In particular, demand from these sectors might help reduce downside volatility and establish a higher post-peak price floor compared to previous cycles. This outcome would depend on nation-states or corporations adopting long-term holding strategies, as indicated by Senator Cynthia Lummis' proposal for a U.S. strategic Bitcoin reserve.

Previous Bitcoin cycles were largely driven by individual retail investors. However, in this cycle, retail investors are set to take more of a backseat role as larger players move into the spotlight. The large-scale purchases by corporations and institutions likely decrease the market impact of retail investors. Yet individuals, while they may see a relative diminishment on the demand side, should not be overlooked on the supply side. This is because, according to analysis from sources like River Financial, individuals still hold the majority of Bitcoin. As prices reach certain levels, even some of the strongest hands may choose to offload a portion of their holdings to cash in for lifestyle upgrades. On the other hand, the more individuals “HODL,” the greater the supply crunch will become.

Warning lights

The above analysis paints an optimistic picture for 2025; however, in the realm of Bitcoin, such optimism can often be deceptive. With some risks in the U.S. seemingly subdued following the outcome of the 2024 presidential election, what other risks might 2025 hold?

The greatest risk facing Bitcoin as we approach 2025 and beyond may be the threat of a major global recession or financial crisis, potentially sparked by instability within the global financial system. The recent unwinding of the yen carry trade caused Bitcoin's value to drop by approximately 20%, underscoring its sensitivity to liquidity contractions and price volatility. While this yen event was short-lived, a prolonged financial crisis similar to the Global Financial Crisis could drive a more severe and extended downturn for Bitcoin. With widespread job losses, both retail and institutional demand could evaporate. On the other hand, Bitcoin has a history of thriving in crises, especially during currency debasement, as witnessed in 2020, indicating that a global recession might reinforce its appeal.

The wider cryptocurrency space, including exchanges, has shown vulnerability to fraud and security failures in recent years. A lingering risk remains for the year ahead: could the collapse of a key player destabilise the market once again? Coinbase’s (COIN:US) role as a custodian for numerous institutions, including major ETF issuers like BlackRock and companies like MicroStrategy and Tesla, has recently come under scrutiny, presenting an evolving concentration risk worth considering.

A recent analysis by The Defiant revealed that Coinbase custodies a substantial 11% of the total Bitcoin supply, roughly 2.275 million BTC. This could leave Coinbase vulnerable to potential nation-state pressure in future, similar to the US enforcement action under Executive Order 6102, which seized private gold in the 1930s. The centralisation of Bitcoin and crypto assets within a single entity is also concerning given the risks of hacking or technical failure. While the risks are very low, the potential fallout could have disastrous implications for Bitcoin.

Finally, the elephant in the room for next year is MicroStrategy. Its novel investment strategy and Michael Saylor's unwavering commitment to Bitcoin could pose significant risks if the price of Bitcoin plummets or the company’s approach falters. While BitMEX has indicated that forced liquidation is “highly unlikely” as of October 2024, they caution that “anything is possible.” Given the substantial amount of Bitcoin MicroStrategy holds, any issues could trigger a cascading effect across the broader ecosystem. Although the company managed to weather the last bear market, its rapid and dramatic accumulation of Bitcoin in recent times raises questions about its resilience in the face of future challenges. For better or worse, scrutiny and media attention on MicroStrategy and Saylor are likely to intensify as the current cycle unfolds.

Image: MicroStrategy CEO Michael Saylor speaks at the Bitcoin 2021 Convention in Miami, Florida.

Conclusion

The outlook for Bitcoin in 2025 suggests an action-packed year, with opportunities, challenges, and volatility ahead. As this article is published in early December, developments later in the month could still shape the 2025 outlook. Investors should stay updated on evolving factors, including policy changes and major market movements, to navigate the year effectively.

At its core, Bitcoin remains a constant, but it’s the world around it that will continue to evolve. As the Bitcoin community often says, "You can't change Bitcoin; Bitcoin changes you." Will 2025 see more individuals, companies, and even governments changed by Bitcoin?

Setting aside debates about its purpose or future, Bitcoin’s very existence challenges us to reconsider the economic, political, and social frameworks that we’ve long taken for granted. In a world where so much seems to be breaking down, perhaps a new constant is exactly what we need.