The prediction market and RWA become counter-trend tracks in the crypto industry.

Written by: Ashrith Rao

Translated by: Saoirse, Foresight News

The crypto market has just experienced its worst quarter since 2022. Combining the market trends from July to now, let's outline the various difficulties that need to be reversed in the third quarter.

If the market experiences a continuous decline for three consecutive quarters, it cannot simply be defined as an adjustment.

The overall market capitalization of cryptocurrencies has shrunk by 304.8 billion dollars, a decline of 12.6%, dropping to 2.1 trillion dollars. Compared to the historical peak of 4.27 trillion dollars set in October 2025, the current market value has plummeted by over 52%, reaching the lowest point since September 2024.

The average daily trading volume in the market is 93.1 billion dollars, a year-on-year decline of 20.9%. Data from leading regulated exchanges indicates: perpetual contract trading volume has decreased by 10%, scaling to 12.7 trillion dollars; spot trading volume has dropped by 27.9%, at only 1.95 trillion dollars.

Stablecoins, which had been the most stable growth segment of the industry since 2023, have now seen their first contraction in over three years, with a market value drop of 1.6%, down to 30.51 billion dollars.

All core indicators point to the same conclusion: funds are exiting the crypto market, rather than being reallocated within the industry.

Compared to the overall loss scale, the structural shocks suffered within the market deserve more attention.

At the end of June, Bitcoin prices fell to around 58,500 dollars, setting a low since 2024, with a quarterly decline of 14.2%. Ethereum's situation was even more severe, crashing 25.4% in the quarter, with prices dipping to around 1,625 dollars.

Many experts have formed a unified view: In the second quarter, Bitcoin and the U.S. stock market weakened in sync, which was not merely a passive following of the stock market but rather even substituted for risk stocks; during the recovery phase of the S&P 500 index, Bitcoin and related risk assets continued to underperform the market.

The prevalent logic of correlated trading from 2024 to 2025 has collapsed. At that time, Bitcoin was regarded as a risk-sensitive asset, with its price highly synchronized with the Nasdaq index.

The current situation is drastically different: impacted by continuous redemptions of the spot ETF, tightening policies from the Federal Reserve, and massive sell-offs of Bitcoin by corporate treasury institutions like Strategy, the entire crypto industry has begun a proactive deleveraging process. The previous strategy of hoarding Bitcoin by Strategy was originally an important force supporting the market's expectations of rising in 2024.

ETF Fund Flows Completely Reverse

The U.S. Bitcoin spot ETF attracted 2.02 billion dollars in funding in April, but subsequently faced large-scale redemptions in the following months, ultimately recording a net outflow of approximately 4.67 billion dollars in the second quarter.

In June, the scale of fund outflows approached 4.5 billion dollars, marking the worst monthly performance ever for this category.

This is certainly not a minor signal to be ignored. The subscription and redemption of ETFs directly correspond to the real buying and selling activities in the market, rather than being solely influenced by market sentiment; continuous fund redemptions indicate that Bitcoin spot continues to flow to exchanges for sale.

The market is undergoing an important adjustment of pessimistic expectations: Citigroup, which was once one of Wall Street's most optimistic institutions regarding crypto assets in 2025, announced on July 1 that it would lower Bitcoin's 12-month target price from 112,000 dollars to 82,000 dollars.

However, some early signals indicate that the current cycle of fund outflow may be nearing its end.

Data from Santiment shows that since May 6, the cumulative outflow of funds from ETFs has exceeded 8.5 billion dollars. Historical patterns indicate that such a scale of capital withdrawal often corresponds to a low-level selling phase, rather than the beginning of a new round of substantial decline.

Glassnode data shows: despite institutional funds continuing to leave, long-term Bitcoin holders resumed hoarding at the beginning of July.

When the market approaches the cyclical bottom, the discrepancies in operations between retail and institutional investors often become more apparent than in the midst of a plunge.

In early July, ETF funds briefly reversed, recording a net inflow of 46.6 million dollars, bringing a stage-positive signal. Subsequently, driven by BlackRock's IBIT fund, it attracted 510 million dollars in funds within three days. However, this rebound was difficult to sustain, and funds turned to outflows again, with a net outflow of about 85 million dollars on July 8.

In the first three weeks of July, Bitcoin prices remained volatile in the range of 56,000 to 64,000 dollars, repeatedly testing the resistance level of 63,700 to 64,000 dollars but falling back each time.

Now, the entire market's focus is concentrated on the Federal Reserve, and market concerns have become highly singular. The June Federal Open Market Committee (FOMC) meeting maintained the interest rate in the range of 3.5% to 3.75%, which was also the first meeting chaired by Kevin Warsh since taking office.

The benchmark interest rate will remain unchanged from December 2025. Nevertheless, multiple Federal Reserve officials have signaled the possibility of interest rate hikes within the year, but Warsh himself did not give a clear policy forecast. This statement is far more hawkish than the market anticipated and explains why non-yielding assets like Bitcoin find it difficult to maintain upward trends.

Currently, almost all trading departments view the July 28-29 FOMC meeting as the most important event of the third quarter. There are two scenario extrapolations: If the Federal Reserve sends a dovish signal, Bitcoin is expected to stabilize in the range of 68,000 to 84,000 dollars, with a basis for ETF fund inflows; if the policy stance is hawkish, then 50,000 to 56,000 dollars will become Bitcoin's new oscillation center.

Moreover, the Bitcoin reserves held by corporations constitute a unique tail risk in this cycle.

The asset sell-off in June was initially billed 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 are affected by balance sheet pressures and follow suit to sell Bitcoin, the entire industry may lose institutional funding support.

Regulatory Progress: Areas of Stagnation and Progress

From 2025 to early 2026, the entire industry is vigorously promoting the CLARITY Act legislation. This bill aims to delineate regulatory boundaries: the U.S. Commodity Futures Trading Commission (CFTC) will oversee digital asset commodities, while the U.S. Securities and Exchange Commission (SEC) will regulate digital asset securities.

The House of Representatives passed the bill as early as July 2025 with 294 votes in favor and 134 against; in May 2026, the bill was approved by the Senate Banking Committee with a vote of 15:9. However, after that, the legislative process has stalled.

The bill originally set July 4 as the informal review deadline, and when it failed to advance as scheduled, market expectations deteriorated sharply: in February, the market estimated the probability of the bill being enacted in 2026 at about 82%; by mid-July, the probability fell to the range of 40% to 45%. The Senate was supposed to discuss the bill on June 1 but ultimately did not proceed as scheduled.

There are still several unresolved disputes: President Trump's cryptocurrency holdings and information disclosure obligations, the bill's clause 604 concerning protections for developers, and rules related to stablecoin yields.

To reach the threshold of 60 votes needed to end prolonged debate in the Senate, seven Democratic senators' support is required, yet currently, only two members of the Democratic group have publicly stated their support for the bill.

Analysts from Stifel and Beacon Policy Advisors warn: If there is still no progress in July, the substantive advancement of the bill may be delayed until 2027. By then, the Senate will be on recess, and the U.S. midterm elections will be gradually approaching.

The current ambiguity of regulatory rules is continuously affecting the price trends of crypto assets.

When investors allocate funds, they increasingly value the risks brought about by the long-term lack of clarity in regulatory jurisdiction, which has raised the risk premiums of all crypto products, making it impossible for even the most conservatively designed projects to escape.

This uncertainty continues to influence core processes such as token issuance, asset custody, and exchange registration.

As a result, industry funds are no longer widely dispersed this quarter; capital is concentrated on a few companies that can consistently generate profits.

Few Highlights, but Substantial Growth

The vast majority of market segments have fallen into contraction, with only two sectors expanding against the trend, reflecting a shift in actual market demand.

The prediction market has seen an explosion, with nominal trading volume up 48.7% year-on-year, reaching 113.8 billion dollars. June became a watershed for the industry, with monthly transaction volume approaching 50 billion to 53 billion dollars, setting a new monthly record.

Kalshi holds a 58.9% market share; over the past year, about 80% to 87% of Kalshi's trading volume has come from sports derivative contracts.

The sector's growth rate is rapid, with clearly defined target customers, but it is highly constrained by legal regulations.

The CFTC released a new draft rule on June 10, starting a 45-day public consultation. The regulatory thinking is to preserve the normal operation of most sports betting markets while prohibiting derivative contracts related to player injuries, referee decisions, and some real-time events in the venues.

Meanwhile, multiple state governments are embroiled in complex legal disputes with prediction markets, with Arizona having formally filed a lawsuit. Judicial discrepancies may eventually be referred to the Supreme Court for resolution.

Leveraging a mature institutional collaboration ecosystem, the sector continues to expand: Polymarket has partnered with Dow Jones, and Kalshi has teamed up with Nasdaq. However, related lawsuits at the state level are still ongoing, and a complete legal framework has yet to be established.

Tokenized collectibles performed impressively in the second quarter, with trading volumes soaring approximately 143% quarter-on-quarter, totaling 1.4 billion dollars. Among them, Collector Crypt exhibited remarkable growth, with a 317% increase in trading volume in June, totaling 406 million dollars, which is over 12 times the trading volume of OpenSea NFTs during the same period.

Even in a downward cycle, the tokenization of real-world assets (RWA) continues to develop steadily, with 177 issuing entities having tokenized assets totaling approximately 28.1 billion dollars on-chain.

This sector's growth impetus comes from the fundamentals of yield-generating real collateral assets, independent of the risk cycles in the crypto market. This development characteristic is very similar to the institutional ecosystem construction trend in prediction markets.

Core Factors Determining the Direction of the Third Quarter

Although Warsh is reluctant to provide policy guidance and the dot plot signals a tightening bias, the market still regards the July 28-29 FOMC decision as the most important event of this quarter.

It is currently uncertain whether the Senate can review the CLARITY Act before the recess in August. Bill supporters expect a revised version to be introduced around July 20. The real obstacles are quite prominent: the bill still requires seven Democratic votes to pass smoothly. Wall Street consensus has shifted, with the prospect for enactment changing from "high likelihood" to "anyone's guess."

Overall, the market does not currently possess a foundation for extreme decline.

Although the market's profit-making effect has significantly weakened, with major mainstream blockchain transaction fees averaging a 44.6% decline in June, Bitcoin's price continues to hover close to the 200-week moving average, and the long-term support structure has not been damaged.

The market's trading logic has changed: participants no longer purely rely on various narrative speculations; trading decisions now more revolve around price trends, policy choices, and interest rate expectations, making a widespread bullish rally driven by optimistic sentiment very difficult to emerge.