Encryption Industry Outlook 2025: AI Bubble, Decline of OG Memes, and BTC Domination

In the turbulent encryption market, accurately grasping trends and opportunities is crucial. Members of the core team at Delphi Labs delved into the prospects of the encryption market in 2025 in the latest Hivemind podcast, discussing hot topics such as the evolution of AI narratives, the BTC L2 ecosystem, and the return of infrastructure value.

Market Observation

Recently, the market has been highly volatile, but this has not changed the fundamentals. Bitcoin remains the best-performing asset, while DeFi projects and old Meme coins are still lackluster. There has been no fundamental shift in market interest, and the best performers during the rebound are still those projects that stood out at the bottom.

Macroeconomic factors ( such as CPI data ) and technical adjustments have affected the market. Many token price movements are extreme, leading to corrections and liquidations. Last week's news about the DOJ selling Bitcoin may have been overinterpreted, and it could actually be a bullish factor.

After taking office, Trump may issue a series of executive orders favorable to encryption. Given the relatively low liquidity in the encryption market, his influence could be greater than in traditional financial markets. Trump may view Bitcoin prices as a "stock market indicator" for young people, promoting the development of encryption in line with his interests.

AI Bubble

AI could become the biggest market narrative in 2025. Tech giants are investing heavily in AI infrastructure, and technological advancements in 2025 may be faster than in 2024. AGI( General Artificial Intelligence) is expected to be achieved in 2025, which could trigger one of the largest bubbles in financial history.

Currently, the fundamentals of AI are strong, but humans tend to get overly excited about emerging things. The big AI bubble has not truly arrived yet, but it is almost inevitable. The best way for ordinary investors to participate in the AI narrative may be to bet on encryption AI projects.

The main leaders in the current AI framework field are Virtuals and ai16z, but they do not possess an insurmountable moat. The future market may experience brutal capital rotation, and investors need to adjust their strategies flexibly.

The Decline of OG Memes

AI is essentially a larger Meme than WIF, making it easier to tell stories and generate excitement. By 2025, most of the capital flow in the cryptocurrency market may shift towards AI. AI agents Meme are somewhat superior to traditional Memes, capable of telling bigger stories.

The market has grown tired of traditional Memes, and people are more inclined to invest in projects that have at least some actual value or value pathway. The wave of Meme coins in March may be over, but DOGE may not have reached its peak yet. DOGE serves as a good benchmark for assessing the overall Meme coin market.

Fundamental Return

Projects without a long-term revenue story struggle to sustain themselves. Those that can truly generate revenue, such as some L1/infrastructure projects, are gaining more attention. Currently, Solana accounts for over 50% of revenue in the encryption space, and if it can reach 80% by the end of the year, it's hard to believe it won't surpass ETH.

The market is moving towards some kind of balance, and fundamental coins that can generate actual income will find buyer support at a certain price, while Meme coins or overvalued infrastructure tokens will struggle to find a price bottom. Although the overall prospects for AI may be significant, these surging tokens will eventually see the market return to balance over time.

Next Generation L2 and L3

L2 performed well in 2024, with the total locked amount increasing from 22 billion to 40 billion. It is expected that by 2025, at least one large financial institution will announce the launch of its own L2. Currently, only three L2s have a TPS that exceeds Ethereum, which is incredible. It is expected that when Mega ETH is launched, it may perform well, but its funding is likely to be transferred from existing L2 projects.

Bitcoin's Dominance

From the BTC.D data, Bitcoin's dominance has been steadily rising since 2022. The traditional concept of "altcoin season" may be outdated, replaced by projects with strong fundamentals and clear narratives that will perform significantly.

It is expected that Bitcoin may still outperform Ethereum in 2025, especially if some favorable executive orders are issued. If Bitcoin rises to 125,000-150,000 USD, BTC's dominance may return to 62%-63%, and then begin to decline.

Bitcoin L2 Feasibility

In 2025, Bitcoin L2 may become a dark horse. The adoption rate of existing multi-signature L2s is not high, but we may see some real ZK L2s launched on Bitcoin in 2025. Bitcoin L2 not only provides scaling capabilities but also enables programmability, which could put significant pressure on Ethereum.

Starkware's Starknet could be a dark horse in the Bitcoin L2 space. Once OP_CAT is approved, they can start submitting proofs to Bitcoin. Even if only 2.5% of Bitcoin holders use these services, it equates to a market of $50 billion.

The main source of future Bitcoin demand may come from non-encryption native markets. Currently, there are about 32 billion USD worth of Bitcoin in a state similar to L2, and if a real security solution for Bitcoin can emerge, this number will increase significantly.