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At the beginning of 2025, Donald Trump’s return to power led to a sharp revision of the government’s crypto policy and explosive market movements.
The Trump administration declared a pro-crypto stance, from establishing a strategic Bitcoin reserve to softening the Securities and Exchange Commission (SEC) positions.
However, instead of a prolonged rally, the Web 3.0 industry faced volatility and liquidity outflows.
Why did the market drop despite expectations of support
The key question is why the crypto market declined when many believed that a pro-Republican administration would drive growth instead.
The effect of unmet expectations
According to experts, the market had already priced in the ‘best-case scenario.’
When the anticipated multi-billion-dollar government Bitcoin purchases turned out to be mere verbal commitments with no actual buying, traders rushed to take profits.
Essentially, the classic rule of ‘buy the rumor, sell the news’ played out.
However, the government fund did not start purchasing BTC, removing a strong hypothetical growth driver and instead triggering a sell-off.
Institutional investors used the rally to exit
Large funds began selling BTC and ETH futures as early as February 2025, locking in profits from December 2024’s peaks. By March, this trend had intensified.
The futures curve flipped into backwardation (futures prices falling below spot prices) – a typical signal of declining capital inflows.
The broader macroeconomic landscape triggered the market decline
Simultaneously, Trump launched a trade confrontation, announcing 25% tariffs on Mexican imports and 50% on Canadian imports starting in March.
This sparked economic concerns – treasury yields dropped, and the S&P 500 index retreated to post-election lows.
Cryptocurrencies – as risk assets – also came under pressure, further intensified by news of a Bybit hack.
Analysts note that macroeconomic factors were the primary driver of March’s price decline, overshadowing any positive sentiment from Trump’s actions.
As a result, while the new president’s policies were officially more crypto-friendly, they did not immediately bring a liquidity influx.
Instead, speculative excitement gave way to a correction phase.
Which Web 3.0 projects were affected
A hit to funds and liquidity
The first weeks of March saw significant capital outflows from the crypto market, impacting funds, exchange-traded products and decentralized finance (DeFi).
In the last week of February, investors withdrew a record $2.6 billion from US spot Bitcoin exchange-traded funds (ETFs) – the largest weekly outflow since their inception.
This capital flight caused the total cryptocurrency market capitalization to shrink from approximately $3.7 trillion in December to $3.1 trillion by the end of February.
The DeFi sector took a blow
TVL (total value locked) in DeFi protocols declined by roughly $45 billion over the winter.
The growth accumulated after Trump’s election – with TVL reaching $138 billion by December – completely evaporated.
By March 10, TVL had fallen to $92.6 billion, returning to early November levels.
Crypto hedge funds and arbitrage traders suffered losses
Crypto hedge funds and arbitrage traders faced heavy losses as market structure changes disrupted their strategies.
First, the popular ‘cash-and-carry’ arbitrage between futures and spot markets disappeared.
Previously, funds profited from a positive basis by going long on spot BTC – including through ETFs – while shorting futures, earning returns higher than Treasury yields.
However, as the market fell, futures prices dropped below spot prices, collapsing the basis and rendering this arbitrage unprofitable.
Funds specializing in altcoins were also hit hard.
In early March, an anomaly occurred – Bitcoin initially declined more than most altcoins, causing BTC dominance in total market capitalization to drop by five percentage points within a week.
This temporary capital rotation into altcoins – as investors sought higher returns in less liquid assets before a major summit – could have severely impacted funds with poorly calibrated risk models.
However, after the summit, altcoins crashed at an even faster rate, pushing BTC’s dominance back to approximately 61%.
Investment outflows and capital flow shifts
By March, it became clear – crypto ecosystem capital flows had reversed.
Institutional investors and funds were pulling out, falling prices triggered margin liquidations and arbitrage unwinding and retail investors were scared off by high volatility.
All of this reduced available funding for Web 3.0 startups. Venture capital investments, already declining in 2024, fell even further in early 2025.
Additionally, regulatory uncertainty remains high. While the SEC has eased its crackdown, no concrete new rules have been enacted yet.
A stablecoin regulation bill is expected in August, raising concerns about potential strict oversight for DeFi and stablecoin-related projects.
This creates a stressful environment for Web 3.0 businesses, requiring founders to take proactive steps to safeguard their projects.
What should Web 3.0 founders do right now
Given the current landscape, founders should plan for two phases – stabilization and growth.
In the stabilization phase, the key priorities are preserving resources, maintaining the team, refining the product and satisfying existing users.
Founders must avoid unnecessary risk. Now is not the time for speculative bets or reckless treasury management.
Instead, focus on achievable short-term goals – delivering promised features, fixing issues and improving UX.
This will help maintain and grow an active user base, attracting investors when they return.
During the growth phase, as the market rebounds, scaling ahead of competitors will be crucial. This means having a well-prepared strategy for acquiring users and capital.
For example, if you’re running a DeFi protocol, plan a liquidity mining program or partnerships with wallets to capture market share when fresh liquidity arrives.
If you’re an infrastructure project, collaborate with corporations that may begin integrating blockchain in 2025 as regulations become clearer.
Web 3.0 startups should start thinking like Web 2.0 businesses with a clear business model, strong value proposition and path to profitability.
The projects that will thrive are those with real revenue, engaged users and fundamental utility.
Founders should honestly evaluate their projects – if the product doesn’t solve a real problem or lacks product-market fit, it may be time to pivot or merge with other teams before it’s too late.
Conversely, if there’s a solid core, doubling down on execution will position the project as a leader when the next cycle begins.
Conclusion
The current crypto market correction – driven by both Trump’s policies and external factors – differs from past downturns due to the heightened role of institutional players and new structural dynamics such as ETFs and arbitrage.
Bitcoin now reacts not just to retail demand but also to moves by major funds and governments, introducing new forms of volatility.
However, fundamentally, the Web 3.0 industry is gaining something invaluable – political support at the highest level of the US government – even if driven by questionable motives.
This lays the groundwork for long-term growth.
Challenging months lie ahead, but the projects that navigate the storm will be at the forefront of the next bull run.
Yaroslav Kalynychenko is the head of marketing at Generis Web3 Agency and an expert in promoting crypto, fintech and innovative digital solutions.
