Crypto Market Pulls Back 10.52% in Q1 2025, Bitcoin and Ethereum Lead Losses
2min read The first quarter of 2025 witnessed a significant market pullback, marked by a divergence between price and sentiment, and a shift towards fundamental technology. According to the Q1 2025 Report, the market experienced a broad pullback due to underperformance of major cryptocurrencies, declining retail activity, macroeconomic uncertainty, and regulatory doubts. These factors led to thinning liquidity and decreasing investor interest.
Bitcoin (BTC) ended the first quarter with a 10.52% drop, breaking a streak of increases in the first quarters of 2023 and 2024. While January started strong with a 9.29% increase, February and March saw pullbacks, failing to recover momentum. This pullback signals growing caution in the market, driven by macro uncertainty, ETF saturation, and declining retail activity.
Ethereum (ETH) fell 43.85% in Q1, marking its largest quarterly loss since 2018. This underperformance relative to BTC echoes the sharp drop in the Altcoin Season Index, indicating a rotation of market capitalization into BTC for relative safety. Notably, 55 of the top 100 cryptocurrencies by market capitalization recorded declines year-to-date, with some losing more than 25% of their value. Meme coins, in particular, constituted nine of the top 20 biggest losers.
The report highlights a shift in the crypto market from "hype to fundamentals" in Q1. There was a move from meme coins and AI back to Layer 1s and DeFi. BNB Chain, Solana, and DeFi saw particular interest in late March, suggesting that after periods of excitement, investors return to proven ecosystems for sustainable opportunities. The BNB Chain Ecosystem saw a surge in retail interest, followed by various DeFi, infrastructure, and meme assets.
Despite the shift towards fundamentals, the total value locked (TVL) in DeFi dropped in Q1, from $118 billion in January to $92.9 billion by the end of March, falling to November 2024 levels. This suggests decreased faith in on-chain financial applications. Meanwhile, the stablecoin sector saw a strong quarter, with its market capitalization increasing by 8.6% in 2025 so far, standing at $209.9 billion at the time of the report.
The report also noted a divergence between price and market sentiment. While Bitcoin stood above $78,000–$80,000, sentiment was disproportionately negative, likely weighed down by high volatility, thinning liquidity, and fading altcoin interest. Even by late March, as Bitcoin price and volume showed some resilience, sentiment was resisting recovery. The market failed to break into Neutral or Greed zones at any point during Q1, despite ETF inflows and high BTC dominance, suggesting that traders lacked confidence and likely expected a reversal or correction.
Sentiment is rising around modular chains, layer 1s, and community-led projects. There is a slight uptick from the Altcoin Season Index March low, suggesting a potential capital rotation. However, for an altcoin season to really start, there needs to be a stabilization in BTC price, as well as a macro or regulatory catalyst, such as Ethereum spot ETF approval or L2 scaling successes. Unless macro or regulatory catalysts reverse this psychological drag, capital rotation into risk assets like altcoins may remain limited heading into Q2.
Historically, BTC typically sees moderate April returns, with weaker May and June. Still, a Q2 breakout is possible if macro conditions improve, such as interest rate cuts or stablecoin demand. Following its Q1 capitulation, ETH may be setting up for a relief rally, with its underperformance potentially attracting rotational inflows. However, technicals and sentiment are weak, so an upside will need BTC stability as a base.
