Original Author: Ashrith Rao
Original Compilation: Saoirse, Foresight News
The cryptocurrency market has just experienced its worst-performing quarter since 2022. Combining the market trends from July to the present, we will analyze the various challenges that need to be reversed in the third quarter.
If the market continues to decline for three consecutive quarters, this can no longer be simply defined as an adjustment.
The total market capitalization of cryptocurrencies has shrunk by $304.8 billion, a drop of 12.6%, falling to $2.1 trillion. Compared to the historical peak of $4.27 trillion set in October 2025, the current market value has plummeted by over 52%, reaching its lowest point since September 2024.
The average daily trading volume was $93.1 billion, down 20.9% year-on-year. Data from leading compliant exchanges shows: perpetual contract trading volume fell by 10% to $12.7 trillion; spot trading volume declined by 27.9% to only $1.95 trillion.
Stablecoins, once the most stable growth sector in the industry since 2023, have seen their first contraction in scale in over three years, with market capitalization falling by 1.6% to $305.1 billion.
All core indicators point to the same conclusion: capital is leaving the crypto market, rather than being reallocated within the industry.
Compared to the scale of total losses, the structural shocks suffered within the market are more worthy of attention.
At the end of June, Bitcoin's price fell to around $58,500, hitting its low for 2024, with a quarterly decline of 14.2%. Ethereum's performance was even more severe, with a quarterly plunge of 25.4%, and its price briefly touched around $1,625.
Many experts share a unified view: in the second quarter, Bitcoin and U.S. stocks weakened simultaneously. This was not passive following of the stock market; in terms of trend, it even replaced risk-on stocks. During the rebound phase of the S&P 500 index, Bitcoin and related risk assets continued to underperform.
The correlation trading logic prevalent from 2024 to 2025 has disintegrated. At that time, Bitcoin was viewed as a risk-on asset, with its price highly synchronized with the Nasdaq index.
The current situation is completely different: affected by continuous redemptions from spot ETFs, the Federal Reserve's policy tightening, and large-scale Bitcoin sales by corporate treasury firm Strategy, the entire crypto industry has initiated an active deleveraging process. Strategy's previous sustained Bitcoin accumulation strategy was originally a key force supporting the market's upward expectations in 2024.
ETF Fund Flows Completely Reversed
U.S. Bitcoin spot ETFs attracted $2.02 billion in inflows in April but faced large-scale redemptions in the following months, ultimately recording net outflows of approximately $4.67 billion in the second quarter.
The scale of fund outflows in June was close to $4.5 billion, marking the worst monthly performance in the history of this category.
This is by no means a minor signal that can be ignored. ETF subscriptions and redemptions directly correspond to actual market buying and selling behavior, not just market sentiment; continuous fund redemptions mean Bitcoin spot is consistently flowing to exchanges for sale.
The market underwent a significant adjustment in pessimistic expectations: Citigroup, once one of Wall Street's most bullish institutions on crypto assets in 2025, announced on July 1st a reduction of its 12-month Bitcoin target price from $112,000 to $82,000.
However, some early signals suggest that this round of capital outflow cycle may be nearing its end.
Data from Santiment shows that since May 6th, the cumulative outflow from ETFs has exceeded $8.5 billion. Historical patterns indicate that outflows of this scale often correspond to a low-price selling phase, rather than the beginning of a new sharp decline.
Data from Glassnode shows: despite the continuous withdrawal of institutional funds, Bitcoin long-term holders resumed accumulation at the beginning of July.
When the market approaches a cycle bottom, the divergence in operations between retail and institutional investors tends to be more pronounced than in the midst of a sharp decline.
ETF funds briefly reversed at the beginning of July, recording a net inflow of $46.6 million, marking a positive signal for the phase. Subsequently, led by BlackRock's IBIT fund, $510 million flowed in over three days. However, this wave of recovery was difficult to sustain, and funds turned to outflows again, with a net outflow of approximately $85 million on July 8th alone.
In the first three weeks of July, Bitcoin's price oscillated within the $56,000–$64,000 range, repeatedly testing the resistance level around $63,700–$64,000, but each time faced selling pressure and retreated.
Now the entire market's focus is entirely on the Federal Reserve, with market attention being highly singular. The June Federal Open Market Committee (FOMC) meeting kept interest rates in the 3.5%–3.75% range, which was also the first interest rate meeting chaired by Kevin Warsh after he assumed the position.
The benchmark rate has remained unchanged since December 2025. Despite this, several Fed officials have signaled the possibility of rate hikes within the year, and Warsh himself did not give a clear policy forecast. This statement was far more hawkish than the market had anticipated and explains why non-yielding assets like Bitcoin struggled to sustain an upward trend.
Currently, almost all trading desks view the July 28–29 FOMC meeting as the most important event of the third quarter. Two scenarios are projected: If the Fed signals a dovish stance, Bitcoin is expected to stabilize in the $68,000–$84,000 range, creating a foundation for ETF fund inflows; If the policy stance is hawkish, then $50,000–$56,000 will become Bitcoin's new oscillation center.
In addition, corporate Bitcoin reserves constitute a tail risk unique to this cycle.
This asset sell-off in June was initially publicized as a proprietary operation aimed at obtaining dividends.
Over the past two years, the crypto industry has accumulated stable institutional funding support. However, if other corporate treasury entities, under balance sheet pressure, follow suit and sell Bitcoin, the entire industry may lose its institutional funding support.
Regulatory Progress: Areas of Stagnation and Advancement
From 2025 to early 2026, the entire industry vigorously promoted the legislation of the "CLARITY Act." The bill aims to delineate regulatory boundaries: the U.S. Commodity Futures Trading Commission (CFTC) would regulate digital asset commodities, and the U.S. Securities and Exchange Commission (SEC) would regulate digital asset securities.
The House of Representatives passed the bill as early as July 2025 with a vote of 294 in favor and 134 against; in May 2026, the bill passed the Senate Banking Committee with a vote of 15:9. However, after that, the legislative process stalled.
The bill originally set July 4th as an unofficial review deadline. After failing to progress as scheduled, market expectations deteriorated sharply: in February, the market estimated the probability of the bill passing within 2026 was about 82%; by mid-July, the probability had fallen back to the 40%–45% range. The Senate originally scheduled to discuss the bill on June 1st, but it did not proceed as planned.
There are still several unresolved points of contention: President Trump's crypto asset holdings and disclosure obligations, the bill's Section 604 protection clauses for developers, and rules related to stablecoin yields.
To reach the 60-vote threshold in the Senate to end a filibuster, support from 7 more Democratic senators is still needed, and currently only two Democratic senators have publicly expressed support for the bill.
Analysts from Stifel and Beacon Policy Advisors warn: if there is still no progress in July, the substantial advancement of the bill may be delayed until 2027. By then, the Senate will be in recess, and U.S. midterm elections will be approaching.
The current ambiguity of regulatory rules is continuously affecting crypto asset price trends.
When allocating funds, investors increasingly value the risk posed by the long-term lack of clarity in regulatory jurisdiction. This has raised the risk premium for all crypto products, and even the most conservatively structured projects cannot escape.
This uncertainty continues to affect core aspects such as token issuance, asset custody, and exchange registration.
As a result, industry capital in this quarter is no longer widely dispersed but concentrated in a few enterprises that can generate stable profits.
Few Bright Spots, but with Substantial Growth
While the vast majority of market sectors are contracting, only two sectors are expanding against the trend, a phenomenon reflecting a real shift in market demand.
Prediction markets have exploded, with nominal trading volume increasing by 48.7% year-on-year, reaching $113.8 billion. June became an industry watershed, with monthly trading volume approaching $50–53 billion, setting a new monthly record.
Kalshi holds 58.9% of the market share; over the past year, about 80%–87% of Kalshi's trading volume has come from sports derivative contracts.
The sector is growing rapidly with a clear target customer base but is highly constrained by legal policies.
The U.S. Commodity Futures Trading Commission issued a new rule proposal on June 10th, initiating a 45-day public comment period. The regulatory approach is to allow the normal operation of the vast majority of sports trading markets while prohibiting derivative contracts related to player injuries, referee calls, and some real-time on-field events.
Meanwhile, multiple state governments are entangled in complex legal disputes with prediction markets, with Arizona having formally filed a lawsuit. Judicial divergences may ultimately be submitted to the Supreme Court for a ruling.
Relying on mature institutional partnership ecosystems, the sector continues to expand: Polymarket partnered with Dow Jones, and Kalshi teamed up with Nasdaq. However, related lawsuits continue at the state level, and a complete legal framework has not yet been established.
Tokenized collectibles performed strongly in the second quarter, with trading volume increasing by approximately 143% quarter-on-quarter, reaching a total of $1.4 billion. Among them, Collector Crypt's growth was particularly astonishing, with June trading volume surging by 317% to $406 million, which is more than 12 times the trading volume of OpenSea NFTs during the same period.
Even in a downward cycle, real-world asset (RWA) tokenization continues to develop steadily, with the total on-chain value of tokenized assets issued by 177 issuers reaching approximately $28.1 billion.
The growth momentum in this sector stems from the fundamentals of yield-generating physical collateral assets, which are independent of the crypto market's risk cycle fluctuations. This development characteristic is similar to the institutional ecosystem construction trend seen in prediction markets.
Core Elements Determining the Direction of Q3
Although Warsh is reluctant to give policy guidance and the dot plot signals a tightening bias, the market still considers the July 28–29 FOMC decision the most important event of this quarter.
It is currently uncertain whether the Senate can consider the "CLARITY Act" before its August recess. Bill supporters expect a revised version to be introduced around July 20th. The practical obstacles are prominent: the bill still lacks 7 Democratic votes to pass smoothly. Wall Street consensus has shifted, with the prospect of passage changing from "relatively likely" to "too close to call."
Based on various indicators, the market temporarily lacks the foundation for an extreme sharp decline.
Although the market's money-making effect has significantly weakened, with average on-chain transaction fees for major mainstream sectors falling by 44.6% in June, Bitcoin's price remains close to its 200-week moving average, indicating that the long-term support structure has not been breached.
Market trading logic has changed: participants no longer rely solely on various narrative hypes; trading decisions are now more centered on price action, policy choices, and interest rate expectations. A comprehensive bullish market driven solely by optimistic sentiment is unlikely to emerge.
