What CIOs Need to Know About the 2025 Crypto Collapse

Crypto collapse causes

The 2025 crypto crash stems from multiple converging factors that led to an overall decline in value.

The most obvious reason for the value drop is the decline in price for many cryptocurrencies including, but not limited, to Bitcoin. There are several factors at play in the price decline.

Fundamental weaknesses

There are fundamental weaknesses that made crypto vulnerable, according to Matt Green, associate professor at Johns Hopkins University.

"I think crypto became very frothy after the 2024 election when it seemed like regulatory headwinds would be eased," Green said.

Regulations in the U.S. have eased somewhat since the election. The U.S. enacted the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) that brought a new regulatory framework for the use of stablecoins in the U.S. However, the problem for crypto isn't regulatory, it's that the technology needs real-world use cases, Green said.

"Since those [use cases] haven't been found yet, that makes it very vulnerable to short term crashes like the one happening now," he said. "With that said, I've watched this happen half a dozen times and so I just don't worry about it too much."

Macroeconomic concerns

Many broad macroeconomic concerns have also impacted crypto. Stubbornly static interest rates that haven't fallen at expected rates is one concern.

There are also concerns with the Trump Administration's ongoing tariffs will affect the overall economy. Also inflation uncertainty affects market sectors and could divert capital from speculative assets.

Leverage unwinding amplified losses

Technical failures in volatile markets create cascading effects, according to David Brill, managing director at FTI Consulting.

 "In the past, during highly volatile markets, performance issues with price oracles have led to cascades of forced selling and rapid unwinding of leveraged derivative positions," Brill said.

Why CIOs should care

While many consider crypto currencies to be a financial instrument, the 2025 crash has the potential to impact IT organizations in ways that go beyond treasury holdings or speculative investments. Enterprise blockchain initiatives, vendor relationships and technology dependencies all face new scrutiny as token values decline.

Thus means that there are several reasons why CIOs should care about the crypto decline.

• Business models tied to token economics become fragile. The collapse is an obvious concern if a business initiative is tightly tethered to the price of a cryptocurrency, according to Green. A business's long-term goals should not rely on the value of speculative assets.
• Digital-asset exposure affects balance sheets. Companies holding crypto in treasury or partnering with crypto firms face unrealized losses or mark-to-market volatility. Volatile markets cause portfolios to be temporarily mispriced due to pricing errors, according to Brill.
• Vendor and partner risk increases. Service providers in fintech, payments or blockchain may face financial stress, workforce cuts or reduced product support. Organizations  should conduct third-party risk assessments of blockchain vendors and obtain proof of reserves or insurance, Brill said.
• Not all blockchain initiatives are at risk. CIOs shouldn’t be the ones deciding on an organization’s digital asset strategy, said Martha Bennett, VP and principal analyst at Forrester. However, they need to be at the table in order to ensure that organizations make the appropriate technology choices, but digital asset strategies must come from the business.

Key strategic questions for CIOs

In light of the downturn, technology leaders need to ask some strategic questions about their organization's blockchain and digital asset posture. Key questions fall into a series of areas including:

What are the technical dependencies? Identifying critical infrastructure is essential, Brill said.

"CIOs should ask what technology dependencies the company has concerning custodians, oracles, nodes, stablecoin issuers and layer-2 protocols," Brill said. "It's good practice to check with custodians, node operators and other blockchain vendors to determine whether and how they are affected by such events."

What is the state of operational preparedness? Scenario planning is vital and CIOs should ask if the IT team has tested the organization's private key and incident response in scenarios that involve bridge exploits or exchange insolvencies, Brill said.

"Can the CIO and team migrate each production or pilot project to a permissioned or hybrid environment within 30 to 60 days if public chains become too volatile or costly?" he said.

What are the business case assumptions? CIOs should determine if existing blockchain strategies still hold under new market assumptions or were they dependent on continued asset appreciation, Bennett said.  

The most serious and advanced initiatives around using blockchain for capital markets infrastructure or asset tokenization aren't tied with what's happening with cryptocurrencies, he said.

How was due diligence done on technology choices? It's critical to review architecture and governance decisions and CIOs should consider remedial due diligence, Bennett said.

 "If there's any doubt that appropriate due diligence took place at the time a particular public blockchain was chosen, now's the time to do the remedial work," she said. "Review the technology architecture, the governance and the token economics."

What to monitor going forward

CIOs should expect market volatility with any type of speculative asset. It's critical to track these indicators to anticipate further instability or identify stabilization. For example, CIOs should not view crypto in isolation and track market correlation, not just crypto prices, Green said.

"Many people view crypto as a countercyclical asset that can be used to ward off volatility in the regular stock market," he said. "But in practice it just seems to mirror regular stocks, just with added volatility. So if the markets or the economy aren't looking so hot, crypto seems like a risky bet."

It's important to watch for operational stress signals, Brill said, including these identifies a series of specific indicators:

• Stablecoin movements. Net outflows of stablecoins from crypto exchanges can  indicate institutions derisking.
• System failures. A spike in crypto-related exploits, exchange outages or pauses and bridge exploits can indicate heightened operational risks.
• Leverage indicators. Increased daily liquidation volumes may indicate systemic leverage risk.
• Regulatory actions. CIOs should watch for regulatory actions taken against infrastructure providers, stablecoin issuers or blockchain protocols that the organization interacts with.

Practical actions for CIOs

Technology leaders should move beyond assessment to concrete action and take the following steps:

• Build governance infrastructure. Organizations should build formal governance and compliance programs, according to Steve McNew, senior managing director at FTI Consulting. CIO's should work closely with counsel and digital assets experts to establish a framework.
• Test incident response capabilities. Brill recommends operational drills for private key management and incident response playbooks, particularly for scenarios involving bridge exploits or exchange insolvencies. Organizations should validate their ability to respond before a crises hits.
• Secure vendor commitments. IT leaders get concrete assurances from vendors, Brill said. They should conduct third-party risk assessments of blockchain vendors and get proof of reserves or insurance if there are concerns about the viability of vendors.
• Review existing blockchain choices. Remedial due diligence is important if there's any doubt that appropriate due diligence took place at the time a particular public blockchain was chosen, Bennett said. CIOs should review the technology architecture, the governance and the token economics.

Sean Michael Kerner is an IT consultant, technology enthusiast and tinkerer. He has pulled Token Ring, configured NetWare and been known to compile his own Linux kernel. He consults with industry and media organizations on technology issues.