From the encryption frenzy to the shorting of U.S. bonds: A look back at the eleven bets that caused the market's "heart to stop" in 2025.

Looking back on 2025, it was a year of endless "highly confident bets" that were quickly overturned. From the bond trading floor in Tokyo, the Credit Approval Committee in New York, to the foreign exchange market in Istanbul, the markets brought both windfalls and "whiplash." Gold set new historical records; traditionally dull mortgage giants twisted wildly like meme stocks; a textbook arbitrage trade exploded in an instant. Investors placed heavy bets on rapidly changing politics, bloated balance sheets, and fragile storylines, driving exaggerated stock index gains, crowded yield trades, and encrypted strategies built on leverage, hope, and little else. Donald Trump's return to the White House first sank global financial markets, then instantly pulled them back to the surface; European defense stocks were ignited, and speculators became bolder in a flurry of excitement. While some positions were filled to the brim, others disappeared when momentum reversed, funding dried up, or leverage turned the wrong way. As the year draws to a close, the following will review the most eye-catching bets of 2025 - the winners, the losers, and the positions that defined this era. Many investors are anxiously wary of the familiar risk cracks as they prepare for 2026: crumbling companies, overstretched valuations, and trends that are "effective until they are not." Crypto: The Trump Effect What was once considered the most exciting momentum gamble in the crypto field: anything related to the Trump brand was bought up. During the election campaign and after taking office, Trump fully embraced digital assetspushing for comprehensive reform and installing industry allies in key positions of power. His family also joined in, cheering and promoting "political rocket fuel" coins and crypto companies for traders. The Trump family's brand matrix quickly took shape. Just hours before the inauguration, Trump launched meme coins and promoted them on social media; First Lady Melania Trump followed suit by issuing her own token. Later in the year, World Liberty Financial, associated with the Trump family, allowed WLFI tokens to trade and opened its doors to retail investors. This was followed by a series of "Trump-adjacent" trades: Eric Trump co-founded the publicly traded mining company American Bitcoin, which went public through a merger in September. Each appearance fueled a wave of price increases, but they all proved to be short-lived. As of December 23, Trump meme coins had plummeted by over 80% from their January high; according to CoinGecko data, Melania tokens saw a nearly 99% drop. American Bitcoin also fell by about 80% from its peak in September. While politics provided momentum for Trump-associated assets, it did not provide protection. Even with friends in the White House, these trades struggled to escape the core tactics of the crypto world: price pumping, leverage frenzy, and dwindling liquidity. After Bitcoin plummeted from its peak in October, it is almost certain to close the year with a bearish trend. Politics may have provided momentum for Trump-related assets, but it did not offer protection. - Olga Kariv AI Trading: The Next Big Short? A seemingly routine development, but far from ordinary. On November 3, Scion Asset Management disclosed that it held protective put options on NVIDIA Corporation (NVDA.US) and Palantir Technologies (PLTR.US) - both the core AI targets that have been driving the market higher over the past three years. Scion is not a whale-sized hedge fund, but its captain is well-known: Michael Burry, the well-known "Doomsday Prophet" who gained fame for successfully predicting the 2008 financial crisis with his book "The Big Short." The strike prices are staggering: the strike price for NVIDIA Corporation puts is 47% lower than its previous closing price, while Palantir's is 76% lower. The mystery remains: due to limited disclosure requirements, it is impossible to know if these put options (which give investors the right to sell stocks at a set price before a certain date) are just part of a more complex trade; and the filing only provides a snapshot from September 30, as Burry may have reduced or closed out positions since then. However, doubts about the high valuations and large spending plans of AI stalwarts have long been piling up, waiting for a spark - and Burry's disclosure has provided just that. Burry bets against NVIDIA Corporation and Palantir The investor who gained fame from "The Big Short" revealed his put options position in the 13F filing. Image 1 As a result, the global market leader, NVIDIA Corporation, and Palantir were not immune to the developments, despite both subsequently recovering some lost ground. Nasdaq also saw a decline as a result. It is difficult to calculate precisely how much Burry made. The only clue he left behind was a post on X platform: he claimed to have bought Palantir put options for $1.84, and within three weeks these contracts saw a 101% increase. This 13F crystallized the doubts that were previously lurking beneath the surface: in a market dominated by a few AI-related stocks, massive inflows of passive money, and low volatility, skepticism has always been present. Whether this trade ultimately proves to be prescient or premature, it illustrates how even the strongest market narratives can instantly reverse when beliefs begin to crack. - Michael P. Regan European Defense Stocks: Shanghai New World Order The sudden change in politics, with Trump planning to pull out of funding for Ukrainian military equipment, prompted various European governments to ramp up military spending, leading to a surge in regional defense stocks. As of December 23, Germany's Rheinmetall saw a rise of around 150% for the year, while Italy's Leonardo surged over 90% during the same period. Portfolio managers who previously avoided the sector due to controversy were now changing their tune, and some were even rewriting fund mandates directly. In 2025, European defense stocks skyrocketed The gains in regional defense stocks have surpassed the early stages of a war outbreak Image 2 "We have excluded defense stocks from ESG funds for many years, until earlier this year," said Pierre-Alexis Dumont, Chief Investment Officer at Sycomore Asset Management. "The paradigm has shifted; when paradigms change, one must take responsibility and defend values. Therefore, we focus on defensive weapons." From goggles manufacturers to chemical companies, even a printing company, stocks were in high demand. The Bloomberg European Defense Stocks Basket rose by over 70% for the year. The excitement spilled over into the credit market - companies tangentially related to defense also attracted a large number of potential lenders. Banks even issued "European Defense Bonds," following the model of green bonds, but the funds raised were specifically earmarked for borrowers like weapons manufacturers. This shift marked a reevaluation of defense, from a reputation burden to a redefined public good, reminding us that when political winds change, capital moves faster than ideology. - Isolde Macdonald Devaluation Trading: Fact or Fiction? With heavy debt burdens in countries like the US, France, Japan, lacking the political courage to address them, some investors in 2025 favored gold and crypto assets while cooling towards US bonds and the dollar. This pessimistic narrative was dubbed "devaluation trading," named after ancient tales of rulers devaluing currency. In October, US fiscal concerns collided with the longest government shutdown in history, pushing the devaluation narrative to a climax. Investors sought safe havens outside the dollar; both gold and Bitcoin set record highs that month - a rare occurrence for assets often seen as competitors. Gold record: Devaluation trading boosts precious metals to all-time highs Image 3 On a narrative level, devaluation provided a simple explanation for the chaotic macro environment; however, on the trading side, things were much more complex. Since then, Bitcoin has fallen along with the overall crypto market, the dollar has found support, and US bonds are on track to produce their best annual performance since 2020 - serving as a reminder that fears of fiscal erosion can coexist with strong demand for safe assets, especially when growth slows and policy rates peak. Elsewhere, the market tells another story: from copper, aluminium, to silver, the volatility in metal prices has also been driven by Trump's tariffs and macroeconomic forces, rather than just devaluation concerns, blurring the line between inflation hedging and traditional supply shocks. Gold continues to capture territories, repeatedly hitting new highs. In this corner, devaluation trading continues - it is more of a precise bet on interest rates, policy, and protectionism rather than a total rejection of fiat currencies. - Richard Henderson K-Pop Surrender: K-Stocks Debut Move over K-dramas. When it comes to reversals and excitement, the top star of 2025 was the South Korean stock market. Propelled by President Lee Jae Myung's "Capital Market Revitalization" policy, the benchmark stock index surged by over 70% as of December 22, aiming directly for the "Kospi 5000" target he had set during his campaign, easily outperforming global major indices. It is extremely rare for a political leader to use the index level as an election slogan, and "Kospi 5000" did not attract much attention initially. Today, more and more Wall Street giants, including JPMorgan and Citi Group, believe the target will be achieved by 2026 - partly due to the global AI boom, making South Korean stocks the preferred target for Asian AI trading. Image 4 Amid the frenzy in the South Korean Composite Stock Price Index (Kospi), there was one noticeable absence: small local retail stores. Despite Lee Jae Myung often mentioning that he used to be a retail investor, his reform agenda has not convinced domestic investors - questioning whether this market is a sustainable investment target in the long run. While foreign capital pours in, retail investors have been net sellers, pouring a record $33 billion into US stocks and chasing high-risk bets from cryptocurrencies to leveraged ETFs overseas. The side effect is currency pressure. Capital outflows have weakened the South Korean Won, reminding us that even as the stock market surges, there remains deep-seated skepticism among some investors. - Yoon Kyung-yong Bitcoin Showdown: Chanos vs. Saylor There are always two sides to every story. Short-seller Jim Chanos bet against Michael Saylor's Strategy Inc. (MSTR.US), which was backed by KKR, not only involving two top personalities but quickly turned into a nationwide vote on "crypto capitalism" trading. Bitcoin soared at the start of 2025, boosting Strategy's stock price even higher. Chanos saw an opportunity: as Strategy continued to rise, its stock price became disproportionately high relative to the Bitcoin it held, which the legendary short-seller deemed unsustainable. So he announced in May that he was shorting Strategy while going long on Bitcoin. The two then publicly engaged in a war of words. In June, Saylor claimed that Chanos "doesn't understand our business model," prompting Chanos to retaliate on X platform, calling the explanation "complete financial gibberish." In July, Strategy's stock price hit a new record, with gains reaching 57% for the year; however, as digital asset national treasuries multiplied and token prices fell from their highs, Strategy and its imitators began to stumble as the premiums shrank. Chanos's bet began to pay off. Netting profit from the margins shrinking, full of risks Image 5 Chanos declared his short position publicly, and by November 7, he announced that he had closed it out. Strategy's stock price had plummeted by 42% from his initial disclosure. Beyond profits and losses, this case once again highlighted the boom-bust cycle in the crypto industry: balance sheets inflated by confidence, which in turn relied on rising prices and financial engineering; once confidence was shaken, the premium was no longer a selling point but a liability. - Monique Mullins Japanese Bonds: From "Widow-Maker" to "Money-Tree" If there was one bet that tormented macro investors over the past few decades, it was the notorious "widow-maker" - shorting Japanese government bonds (JGBs). The logic seemed simple: Japan's public debt is massive, and interest rates will eventually rise to attract buyers; investors sell borrowed bonds, waiting for prices to drop. However, for many years, loose monetary policies have kept borrowing costs at rock bottom, and shorts have been caught in the squeeze. Now, the script has been rewritten. In 2025, the "widow-maker" transformed into a "money tree": benchmark bond yields skyrocketed, making the $7.4 trillion Japanese bond market a paradise for short-sellers. The triggers ranged from rate hikes to Prime Minister Takaichi Setsuna's largest fiscal stimulus since the pandemic, providing ample opportunities. The Japanese 10-year bond yield crossed 2%, reaching multi-decade highs; the 30-year yield jumped over a percentage point, hitting a historic record. As of December 23, the Bloomberg Japan Bond Total Return Index fell by over 6% for the year, making it the worst-performing major bond market in the world. The Japanese bond market was hit hard this year The Bloomberg Japan bond index ranks at the bottom of major global bond indexes Image 6 From Schroders Global to Jupiter Asset Management, and RBC Bluebay, many fund managers have discussed some form of JGB sales this year. Investors and strategists are betting that the market is not finished yet: benchmark rates are still rising, the BOJ is still tapering bond purchases, and Japan remains firmly at the top of the developed world's government debt rankings, indicating that bearish sentiment towards JGBs is unlikely to fade. - Cormac Marlin Credit Fragments: Turning on Fellow Lenders In 2025, the juiciest credit returns did not come from companies turning around their losses but from "creditor bloodbaths." The Pacific Investment Management Company (PIMCO), King Street, and Partners Group teamed up to carry out a precision encirclement targeting Envision Healthcare, supported by KKR. This hospital staffing outsourcing company ran into trouble after the pandemic and urgently needed new capital. However, the new bonds had to pledge assets already mortgaged by the old bonds as additional collateral. While most creditors opposed this move, PIMCO, King Street, and Partners Group counterattacked and voted in favor, unlocking the outpatient surgical asset Amsurg equity that had been locked by the old creditors and then pledged to the new bonds. As a result, the three funds gained Amsurg-backed bonds which were later converted into equities; later in the year, Amsurg was sold to Ascension Health for $40 billion. It has been estimated that creditors who did not agree saw a return rate of approximately 90%, proving that winning an internal battle can lead to profits. The conclusion: in today's credit market, where documents are loose and creditors are fragmented, cooperation is optional; not understanding the other side's direction is the biggest risk, which can lead to being flanked. - Eliza Ronalds-Hannon Fannie Mae (FNMA.US) & Freddie Mac (FMCC.US): Revenge of the "Toxic Twins" Since being taken over by the US government after the financial crisis, the mystery of when and how the mortgage giants Fannie Mae and Freddie Mac would be "released" has always been a puzzle. Hedge fund guru Bill Ackman and others accumulated stocks, hoping to cash in big when the companies were privatized, but the situation prolonged, and they languished off the court for years. Trump's re-election ignited a meme frenzy, with the markets betting that the new administration would let them go. In 2025, excitement hit new heights: rising by 367% to their high points in September, both stocks stood as clear winners of the year. The stocks of Fannie Mae and Freddie Mac soared in hopes of privatization People were increasingly optimistic that the companies would break free from government control Image 7 In August, news pushed emotions to their peak: the government considered an IPO, with estimates of valuation surpassing $500 billion, planning to sell 5%-15% of the shares to raise around $30 billion. Subsequently, the stock prices hesitated due to doubts over "if and when the IPO would happen," but the bulls remained confident in the storyline. In November, Ackman publicly submitted a plan to the White House: relisting on the New York Stock Exchange, writing off the majority of the Treasury's preferred shares, and exercising the government's nearly 80% option on common stock. Even Michael Burry jumped on the bandwagon, announcing a long position in early December, exclaiming in a 6000-word article: "the 'toxic twins' may already be a thing of the past." - Felix Maranz Arbitrage Trade in Turkey The attention-grabbing arbitrage trade in Turkey, which was riding high in 2024, was the darling trade consensus of 2025. With local bond yields exceeding 40%, the central bank maintaining a stable exchange rate pegged to the dollar, traders flocked in. Deutsche Bank Aktiengesellschaft, Millennium Partners, Gramercy, and others entered with billions of dollars, only to see the trade shredded to pieces within minutes on March 19. That morning, Turkish police raided and arrested Istanbul's popular opposition mayor, sparking protests and a major lira sell-off, with the central bank powerless to act. Pascal Jess, global FX strategist at Paris-based Societe Generale at the time, frankly stated: "Everyone was completely caught off guard, and there is no turning back in the short term." That day, an estimated net outflow of around $10 billion in lira assets, and the market never truly recovered. As of December 23, the lira had depreciated by about 17% against the dollar for the year, ranking among the world's worst. High interest rates cannot provide any protection as there is no defense against the sudden political blows. - Karim Karakaia Debt Markets: Cockroach Alarm In 2025, the credit market left investors uneasy, not because of any earth-shattering crashes, but because a series of small holes exposed embarrassing truths. Companies that had been seen as "everyday borrowers" stumbled one after the other, leaving lenders to lick their wounds. Sachs Global only made one interest payment and restructured $22 billion in bonds, which are now trading at below 60 cents on the dollar; New Fortress Energy's recent bond issuance lost over half its market value within a year; Tricolor, following First Brands' bankruptcy filing, saw tens of billions of dollar of bond positions turn to ashes within weeks. Behind some cases were intricate scams, while others were rose-colored predictions that never materialized. Each time, investors had to explain: why would they dare to place heavy bets on companies that showed almost no evidence of repayment? Years of low default rates and easy funding have weakened the standards from lenders' protections to basic underwriting. The lenders to First Brands and Tricolor did not realize that the borrowers were allegedly repeatedly pledging the same assets for different loans, mixing up the collateral for different debts. This group of lenders includes JPMorgan. In October, CEO Jamie Dimon vividly sounded the alarm to the market: "When you see one cockroach, there are probably a lot more in the back." The theme for 2026, it seems, is likely to follow. - Eliza Ronalds-Hannon.