Why Did Market Sentiment Completely Collapse in 2025? Decoding Messari's Ten-Thousand-Word Annual Report

2025-12-23 02:00

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If cryptocurrency is ultimately a form of “money,” then who is worthy of being treated as money?

Original Title: "Why Did Market Sentiment Completely Collapse in 2025? | Interpreting the Messari Ten-Thousand-Word Annual Report (Part One)"

Original Source: Merkle3s Capital

This article is based on Messari's annual report released in December 2025 The Crypto Theses 2026. The report is over ten thousand words long, with an official estimated reading time of 401 minutes. The information in this article is for reference only, does not constitute any investment advice or invitation, we do not take responsibility for the accuracy of the content, nor do we bear any consequences arising from it.

Introduction | This Is the Worst Year for Sentiment, But Not the Most Fragile Year for the System

If we only look at sentiment indicators, the crypto market in 2025 could almost be sentenced to "death penalty".

In November 2025, the Crypto Fear & Greed Index dropped to 10, entering the "extreme fear" zone.

In history, there have been few moments when sentiment has dropped to this level:

- March 2020, liquidity stampede triggered by the global pandemic

- May 2021, cascading liquidations due to leverage

- May-June 2022, systemic collapse of Luna and 3AC

- 2018-2019, industry-level bear market

These periods all have one thing in common: the industry itself is failing, and the future is highly uncertain.

But 2025 does not fit this description. There was no top exchange misappropriating user funds, no Ponzi projects with multi-billion dollar market caps dominating the narrative, the total market cap did not fall below the previous cycle high, stablecoin volumes instead hit a historical high, and the regulatory and institutionalization processes continued to advance.

On a "factual level," this was not a year in which the industry was collapsing. However, on a "perception level," it may have been the most painful year for many practitioners, investors, and longstanding users.

Why Did Sentiment Collapse?

Messari started its report with a highly impactful comparison:

If you were allocating crypto assets in a Wall Street office, 2025 might have been the best year since you entered this industry. But if you were staying up late watching charts on Telegram or Discord, searching for Alpha, this was probably the year you most missed the "old days."

Same market, two almost completely opposite experiences. This is not just a random emotional swing, nor a simple bull-to-bear transition, but a deeper structural misalignment: the market is changing participants, yet most people are still using old identities to engage with the new system.

This Is Not a Market Recap

This article is not intended to discuss short-term price trends or attempt to answer "will it go up next."

It is more like a structural explanation:

· Why, as institutions, funds, and infrastructure continue to strengthen,

· has market sentiment slid to historic lows?

· Why do many feel they've "picked the wrong track," yet the system itself has not failed?

In this hundred-thousand-word report, Messari chooses to start from an extremely basic question: If crypto assets ultimately are a form of "money," then who truly deserves to be treated as money?

Understanding this is key to understanding the full-scale meltdown of market sentiment in 2025.

Chapter One | Why Is Sentiment Abnormally Low?

Looking only at the outcome, the sentiment collapse in 2025 is nearly "incomprehensible."

In a scenario where there was no exchange platform rug pull, no systemic credit collapse, and no core narrative bankruptcy, the market provided feedback close to historic lows in sentiment.

Messari's assessment is very straightforward: this is an extreme case of "decoupling of emotion from reality."

1. Sentiment Indicators Have Entered "Historic Anomaly Territory"

The Crypto Fear & Greed Index dropping to 10 is not a normal pullback signal.

Over the past decade, this value has only appeared in very few moments, and each time it did, it was accompanied by a real and profound industry-level crisis:

· Financial System Breakdown

· Credit Chain Collapse

· Market Doubt About the "Existence of the Future"

However, none of these issues arose in 2025.

There was no core infrastructure failure, no mainstream assets liquidated to zero, and no systemic event significant enough to shake the industry's legitimacy. From a statistical standpoint, this sentiment reading does not match any known historical template.

2. The Market Did Not Fail; It Was the "Individual Experience" That Failed

The collapse of sentiment did not come from the market itself but from the subjective experiences of participants. Messari repeatedly emphasized in the report a fact that had been overlooked: 2025 was a year in which institutional experiences far surpassed retail experiences.

For institutions, this was an extremely clear and even comfortable environment:

· ETFs provided a low-friction, low-risk allocation channel

· Digital Asset Treasuries (DAT) became stable, predictable long-term buyers

· Regulatory frameworks started to clarify, and compliance boundaries gradually became visible

But for a large number of participants under old structures, this year was unusually harsh:

· Alpha significantly decreased

· Narrative rotation failed

· Most assets long-term underperformed BTC

· The relationship between "effort" and "result" was completely broken

The market did not reject people; it just changed its reward mechanism.

3. "Not Making Money" Was Misinterpreted as "Industry Decline"

The true trigger of sentiment was not the price drop but a cognitive gap. In multiple past cycles, the implicit assumption in crypto was: as long as you were diligent enough, early enough, and aggressive enough, you could achieve outsized returns.

However, in 2025, this assumption was systematically shattered for the first time.

· Most assets no longer received a premium for their "storytelling"

· L1 ecosystem growth no longer automatically translated into token returns

· High volatility no longer meant high returns

As a result, many participants began to fall into a misconception: if I didn't make money, then the entire industry must be in trouble. Yet, Messari's conclusion was precisely the opposite: the industry is becoming more like a mature financial system rather than a machine that continues to generate speculative returns.

4. The Essence of Emotional Breakdown is Identity Misalignment

Considering all phenomena, the implicit answer given by Messari is only one: The emotional breakdown in 2025 is fundamentally an identity misalignment.

· The market is tilting towards "asset allocators," "long-term holders," and "institutional participants"

· However, a large number of participants still exist in the identity of "short-term Alpha seekers"

When the incentive logic of the system changes, and participation does not adjust synchronously, emotions will inevitably collapse first. This is not a matter of individual capability but the friction cost of role transition in the era.

Summary | Emotions Do Not Tell You the Truth

The market sentiment in 2025 truly reflects the participants' pain but does not accurately reflect the state of the system.

· Emotional breakdown ≠ Industry failure

· Intensified pain ≠ Value disappearance

It simply indicates one thing: the old way of participation is rapidly becoming obsolete. Understanding this point is a prerequisite for entering the next chapter.

Chapter 2 | The True Root of Emotional Breakdown: The Monetary System is Failing

If we only stay at the market structure level, the explanation of the emotional breakdown in 2025 is still incomplete. The real problem is not:

· Alpha diminishing

· BTC being too strong

· Institutions coming in

These are all superficial phenomena. A deeper judgment given by Messari in the report is: The collapse of market sentiment fundamentally stems from a long-overlooked fact—the monetary system we are in is continually pressuring savers.

A Must-Be-Confronted Chart: Global Government Debt Out of Control

This chart is not a decorative macro background but the logical starting point of the entire Cryptomoney argument.

Over the past 50 years, the government debt-to-GDP ratio of major global economies has shown a highly consistent and almost irreversible upward trend:

· US: 120.8%

· Japan: 236.7%

· France: 113.1%

· UK: 101.3%

· China: 88.3%

· India: 81.3%

· Germany: 63.9%

This is not the result of governance failure in any one country, but a common outcome spanning institutions, political structures, and stages of development. Whether in democratic countries, authoritarian states, advanced economies, or emerging markets, government debt has outpaced economic growth in the long run.

What this chart truly illustrates is not "high debt," but "savings being systematically sacrificed"

When government debt grows faster than economic output over the long term, the system can only maintain stability through three means:

1. Inflation

2. Long-term low real interest rates

3. Financial repression (capital controls, withdrawal restrictions, regulatory intervention)

Regardless of which path is taken, the ultimate cost will be borne by the same group of people: savers. Messari used a highly restrained but weighty phrase in the report: When debt grows faster than economic output, the costs fall most heavily on savers. In other words, when debt outpaces growth, savers are destined to be the sacrificed party.

Why will sentiment collapse in 2025?

Because in 2025, an increasing number of participants will clearly realize this for the first time.

Prior to this:

· "Inflation is just temporary"

· "Cash is always safe"

· "In the long run, fiat is stable"

And reality is continuously refuting these assumptions.

When people realize:

· Hard work ≠ Wealth preservation

· Saving behavior itself is continually eroding

· Asset allocation difficulty has significantly increased

The collapse of sentiment is not from Crypto, but from a shaken confidence in the entire financial system. Crypto is just the first place where this impact is perceived.

The significance of Cryptomoney is not in "higher returns"

This is also a point that Messari emphasizes repeatedly but is easily misinterpreted. Cryptomoney does not exist to promise higher returns.

Its core value lies in:

· Predictable rules

· Monetary policy not subject to arbitrary changes by a single entity

· Assets that can be self-custodied

· Value that can be transferred across borders without permission

In other words, it doesn't provide a "get-rich-quick scheme," but rather: a reempowerment of individual currency choice in a high-debt, low-certainty world.

Emotional Collapse is Actually a Form of "Awakening"

When you juxtapose this debt chart with the market sentiment of 2025, you'll arrive at a counterintuitive conclusion: Extreme emotional pessimism doesn't signify industry failure but instead signals an increasing realization that the issues in the old system are indeed real.

Crypto's issue has never been "uselessness." The real issue is: It no longer creates effortless outsized returns for everyone.

Summary | From Emotion, to Structure, to the Currency Itself

This chapter tackles a fundamental question: Why, in the absence of a systemic collapse, did market sentiment plummet to historic lows? The answer isn't in the candlestick charts but in the currency's structure.

· Emotional collapse is a symptom

· Paradigm rupture is a process

· Monetary system imbalance is the root cause

And this is precisely why Messari chose to start this entire report from "money" rather than from "applications."

Chapter Three | Why Only BTC Is Regarded as "Real Money"

If you've read this far, you might easily raise a question: If the issue lies within the monetary system, why is BTC the answer and not something else?

Messari's judgment in the report is exceptionally clear: BTC is no longer on the same competitive plane as other crypto assets.

1. Money is Not a Technical Issue, but a Consensus Issue

This is the first key to understanding BTC. Messari repeatedly emphasizes in the original text a fact that engineers easily overlook: Money is a social consensus, not a technical optimization problem. In other words:

· Money isn't about being the "fastest"

· Not about being the "cheapest"

· Nor is it about being the "most feature-rich"

It's about being perceived as a long-term, stable store of value. From this perspective, Bitcoin's triumph is not mysterious.

2. Three Years of Data, and the Answer is Already Clear

From December 1, 2022, to November 30, 2025:

· BTC has appreciated by 429%

· Market cap has grown from $318 billion to $1.81 trillion

· Entered the top ten global asset ranking

More importantly, the relative performance: BTC.D has grown from 36.6% to 57.3%. In a period that theoretically should have seen an altcoin frenzy, funds have continued to flow back to BTC. This is not a fluke of a market cycle; this is a market reclassifying assets.

3. ETFs and Corporate Treasury Strategies are Essentially Formalizing Consensus

Messari's assessment of ETFs is very restrained, yet the conclusion is profound. A Bitcoin ETF is not merely about "new buying pressure"; what it truly changes is: who is buying + why they are buying + how long they can hold

· An ETF transforms BTC into a compliant asset

· A Corporate Treasury Strategy makes BTC a part of a company's balance sheet

· National reserves elevate BTC to a "strategic asset" level

When BTC is held by these actors, it is no longer seen as: a high volatility asset that can be dumped at any time, but rather as: a currency asset that must be held long term and cannot be easily mismanaged. Once money is treated this way, it's hard to revert.

4. Why the More "Boring" BTC Gets, the More It Resembles Money

This might be the most counterintuitive point of 2025:

· BTC has no use case

· No narrative shift

· No ecosystem story

· There is not even any "new thing"

But precisely because of this, it meets all the characteristics of "money":

· Does not rely on future promises

· Does not need a growth narrative

· Does not require ongoing team delivery

It just needs to not be wrong.

And in a high-debt, low-certainty world, "not being wrong" itself is a scarce asset.

5. BTC's Strength is Not a Market Failure

Many people's pain comes from a misconception: "BTC's strength means the market is not right." Messari's assessment is quite the opposite: BTC's strength is the market becoming more rational.

When the system begins to reward:

· Stability

· Predictability

· Long-term credibility

Then all strategies relying on "high volatility equals high returns" will increasingly appear painful. This is not an issue with BTC; it is an issue with the method of participation.

Summary | BTC Didn't Win, It Was Chosen

BTC did not "beat" other assets. It was simply repeatedly validated by the market in an era where the monetary system was continuously failing as:

· The least explanatory asset

· The least reliant on trust asset

· The asset least in need of future commitments

This is not the result of a single market cycle but a confirmation of a role.

Chapter 4 | When the Market Only Needs One Kind of "Money," the L1 Story Begins to Malfunction

After confirming that BTC has been chosen by the market as the "main Cryptomoney," one question cannot be avoided: if money already has an answer, what is left for Layer 1? Messari did not directly provide a conclusion, but after reading through this section, a trend is very clear: L1 valuation is being forced to transition from "future narratives" back to "real-world constraints."

1. A Harsh but True Fact: 81% of Market Value is in the "Money" Narrative

By the end of 2025, the entire crypto market cap is about $3.26T:

· BTC: $1.80T

· Other L1: ~$0.83T

· Other Assets: <$0.63T

Overall, approximately 81% of the cryptocurrency asset market cap is considered "money" or "potential money" by the market in terms of pricing. What does this mean? It means that the valuation of L1 is no longer based on the pricing logic of being an "application platform" but rather on the pricing logic of "whether it qualifies as money."

2. The Issue Is: Most L1s Are Not Worthy

The data provided by Messari is very straightforward and quite stark.

After excluding outliers like TRON and Hyperliquid with unusually high revenue:

· The overall revenue of L1s is continuously declining

· But the valuation multiple is continuously increasing

The adjusted P/S ratios are as follows:

· 2021: 40x

· 2022: 212x

· 2023: 137x

· 2024: 205x

· 2025: 536x

Meanwhile, the total L1 revenue during the same period is:

· 2021: $12.3B

· 2022: $4.9B

· 2023: $2.7B

· 2024: $3.6B

· 2025 (annualized): $1.7B

This is a discrepancy that cannot be reasonably explained by "future growth."

3. L1s Are Not "Undervalued" but "Reclassified"

Many people's anguish stems from a misunderstanding: "Has the market mistakenly underestimated L1s?" Messari's assessment is quite the opposite: the market has not underestimated L1s but has reduced their 'monetary imagination space.'

If an asset:

· Cannot function as a stable store of value

· Cannot be held long term

· And cannot provide a predictable cash flow

Then it ultimately only has one way to be priced: as a high-beta risk asset.

4. The Example of Solana Actually Says It All

SOL is one of the few L1s that outperformed BTC in 2025. However, Messari pointed out a highly impactful fact:

· SOL's ecosystem data grew 20–30 times

· Price only outperformed BTC by 87%

In other words: in order to achieve "significant alpha" against BTC, an L1 needs a order-of-magnitude ecosystem explosion. This is not due to "not trying hard enough," but because the reward function has been rewritten.