2025, How will TradFi hunt bubbles? From Trump-themed coins to AI stocks

The global markets of 2025 swing violently between extreme narratives and cold liquidation, offering investors a profound lesson in risk management. The cryptocurrency market witnessed a complete bubble cycle where “Trump concept” assets soared from widespread enthusiasm to a price collapse of over 80%, exposing the fragility of relying solely on political narratives. Meanwhile, traditional financial markets (TradFi) staged several classic duels: “Big Short” Michael Burry targeted AI giants, Jim Chanos hunted Bitcoin-listed companies, demonstrating that macro trading based on in-depth research remains effective. From soaring European defense stocks to the collapsing Turkish arbitrage trades, capital rapidly rotates driven by politics, liquidity, and human greed, ultimately revealing an eternal truth across crypto and TradFi: when the tide recedes, only solid fundamentals and prudent risk management can survive.

Crypto Narrative Bubble: When Political Star Power Meets Market Reality

In early 2025, a crypto asset frenzy driven by political narratives swept the market. A series of tokens linked to U.S. President Donald Trump, from commemorative coins launched by Trump himself to WLFI tokens from his affiliated company World Liberty Financial, were seen by the market as scarce assets with “policy premiums,” attracting massive inflows at listing. The trading logic was simple and direct: a president publicly supporting cryptocurrencies, whose related assets should enjoy ongoing traffic and attention dividends, creating a strong positive feedback loop during bullish market sentiment.

However, this frenzy faded as quickly as it arose. By December 23, the prices of related tokens had generally fallen over 80% from their peaks, with some dropping as much as 99%. This brutally validated a core rule of crypto markets: price surges driven by external narratives (even top-tier political ones) without intrinsic value or practical use cases are essentially liquidity illusions. When market sentiment shifts and incremental capital dries up, valuations based on social hype can collapse instantly. This process also clearly demonstrates the difference in valuation logic between crypto markets and mature TradFi markets: the former remains heavily influenced by emotion and narratives in the short term, while asset pricing in the latter is more closely tied to cash flows, balance sheets, and macroeconomic indicators.

The burst of this bubble was a heavy blow to investors attempting to source alpha from political risk. It shows that in crypto, policy friendliness can reduce systemic risk but cannot serve as a “talisman” against volatility for individual assets. For TradFi institutions increasingly focused on crypto, this case further emphasizes the importance of fundamental analysis and rigorous due diligence, prompting them to shift focus from short-term concept hype to the long-term application potential of blockchain technology and the financial health of projects.

TradFi’s Calm Hunt: Classic Strategies in a Noisy Era

Contrasting sharply with the noise of crypto markets, several landmark trades in TradFi in 2025 showcased old-school wisdom based on rigorous analysis and contrarian courage. Most notable was “Big Short” Michael Burry’s precise skepticism of AI giants. Through his Scion Asset Management, Burry bought large put options on Nvidia and Palantir, with strike prices far below the market prices at the time. This move was like a stress test on the entire market’s AI hype. Although the position size may not have been huge, its symbolic significance was profound, igniting widespread doubts about the astronomical valuations and massive capital expenditures of AI stocks.

Another more targeted duel unfolded between two iconic figures: short-selling master Jim Chanos and Bitcoin evangelist Michael Saylor. Chanos argued that Saylor’s publicly listed company Strategy (formerly MicroStrategy) was unjustifiably overvalued relative to its Bitcoin holdings. He built a classic arbitrage position—short Strategy stock while going long Bitcoin spot. This debate transcended simple long/short and became a philosophical discussion on new-era corporate valuation models. Ultimately, as the crypto market cooled, Strategy’s stock premium shrank significantly as Chanos predicted, and his strategy yielded notable gains. This victory was not only a win of financial arithmetic over narrative premiums but also revealed a deep truth: when the belief that “this time is different” reaches extremes, mean reversion is often the most powerful force.

These successful TradFi trades collectively highlight the precious value of independent research and contrarian thinking amid information overload and narrative chaos. They prove that even when facing seemingly unstoppable forces like AI and crypto, traditional financial analysis frameworks, cautious valuation assessments, and vigilance against herd frenzy remain effective tools for generating excess returns. For crypto-native investors, this offers an important lesson: while participating in innovation waves, one should not abandon time-tested risk pricing principles that have endured cycles.

Global Capital Migration: The Power of Geopolitics, Policy, and Liquidity

In 2025, global capital experienced several rounds of clear and substantial rotation driven by macro shifts, demonstrating TradFi’s keen sense of major trends and strong execution. In Europe, reassessment of geopolitical risks dramatically changed the fate of the defense sector. The Trump administration’s possible reduction of support for Ukraine prompted European countries to launch the largest military buildup since the Cold War, with stocks like Rheinmetall soaring about 150% year-to-date. More revealing was that many funds previously excluded from defense stocks due to ESG principles revised their rules to include them again. This marked a profound paradigm shift: in the face of urgent national security needs, capital’s ethical considerations quickly gave way to pragmatic pursuit of profits, reflecting the pragmatic, profit-driven nature of TradFi capital.

In East Asia, South Korea’s stock market, encouraged by the government’s clear target of “KOSPI 5000 points,” became one of the best-performing major markets globally, with gains exceeding 70% for the year. However, this “state-led” bull market was met with skepticism from domestic retail investors, who continued net selling and redirected funds abroad. This internal-external capital gap reveals the complexity of building market confidence: policies can ignite rallies, but sustained confidence requires tangible reforms and real earnings growth. Meanwhile, in Japan, the decades-long “widow trade”—shorting Japanese government bonds—finally saw a historic reversal. Under the dual pressure of fiscal expansion and monetary policy shifts, Japanese bond yields soared to multi-year highs, yielding substantial profits for short sellers. This again confirms a key rule in TradFi markets: there are no eternal trends; any macro “truth” viewed as permanent will ultimately face sharp mean reversion when conditions change.

These cross-regional and cross-asset capital flows vividly depict the main macro theme of 2025: capital is tightening in response to a world of high debt, fragmentation, and rising policy uncertainty. From safe havens (gold, defense) to policy-driven opportunities (South Korea stocks), and long-term distortions (Japanese bonds), the adjustments of large institutional investors provide a crucial map for understanding the major asset allocation directions in the coming years.

Key Trading Events and Data Highlights of 2025

• Crypto Political Bubble: Trump-related tokens generally fell over 80% from highs, with some approaching zero, illustrating the extreme volatility of narrative-driven assets.
• Classic TradFi Comeback: Burry’s AI stock short positions saw over 100% short-term gains via Palantir puts; Chanos profited from shorting Strategy, which declined 42% during his holding period.
• Geopolitical Trades Rise: European defense stocks index rose over 70% annually; Rheinmetall’s stock surged about 150%, reflecting re-pricing of geopolitical risks.
• Policy Market Model: South Korea’s composite index rose over 70% year-to-date under government support, but domestic retail net sales reached $33 billion, revealing a divergence between domestic and foreign capital.
• Macro Turning Point Trades: Japan’s “widow trade” succeeded, with major bond indices down over 6% year-to-date, yielding handsome returns for shorts.
• “Bloom” and “Long Rainbow”: Fannie Mae and Freddie Mac stocks soared up to 367% on privatization expectations; Turkey arbitrage trades collapsed instantly due to political events, with the lira depreciating about 17% annually.

Broken Consensus and Lessons for the Future

The markets of 2025 not only created winners and losers but also shattered several important market consensus that had formed over the past few years, offering valuable lessons for all participants. First, the rise and divergence of “devaluation trades” exposed ongoing contradictions in market understanding of inflation and monetary credibility. Gold and Bitcoin both hit new highs in October amid concerns over U.S. fiscal sustainability, but afterward Bitcoin sharply retreated while gold remained resilient. This reveals their fundamental differences: Bitcoin’s monetary narrative still needs to dance with global risk appetite, and its status as “digital gold” has yet to be firmly established within TradFi’s safe-haven framework; gold, on the other hand, benefits from complex support rooted in central bank balance sheets, physical demand, and a millennia-old history, demonstrating greater resilience.

Second, frequent “cockroach” events in traditional credit markets—seemingly isolated but exposing common vulnerabilities—along with crypto market crashes triggered by leverage chain liquidations, are fundamentally the same: both are total reckonings of credit risks and mispricing accumulated in environments of long-term liquidity abundance. JPMorgan CEO Jamie Dimon’s warning applies to all markets: if you find a cockroach in the kitchen, there’s likely a whole nest. Whether it’s the relaxed lending covenants in TradFi or excessive leverage in crypto, these are risks bred in low-interest-rate environments, which will face ruthless testing when monetary conditions normalize.

Looking ahead, the most valuable legacy of the turbulence in 2025 may be a sense of humility. It reminds us that whether in the crypto world’s dazzling new narratives or in the seemingly unshakable macro trends of TradFi, all are subject to the cycle’s laws. For the crypto industry to truly win long-term capital and respect from TradFi, it must go beyond hype, building a value foundation based on real application, revenue generation, and governance robustness that can withstand traditional financial analysis. For traditional investors, it requires a more open mindset to understand the new paradigms brought by technological change, while maintaining the valuation discipline and risk management principles that have survived countless booms and busts. In this new era of ongoing narrative and law collision, balancing curiosity about new things with respect for ancient wisdom will be the most vital survival skill.