Financial markets in 2025: When you see the first cockroach, it means there are many more hiding.

2025 has revealed the true chaos of the global financial markets, from the cryptocurrency bubble to the 367% surge in home loan stocks. Everything indicates that when investors see the first warning sign (the first cockroach), they should be cautious of many hidden risks lurking in the dark. Bloomberg has compiled 11 key moments that defined this year’s betting landscape, shedding light on hard lessons for those trying to understand the digital asset markets.

Temptation: Digital Assets and ‘Political Expectations’

For crypto enthusiasts, “buying everything connected to Trump” seems like an extremely attractive gamble. From campaign promises to the inauguration, White House officials have poured significant funds into digital assets, appointed industry allies, and even family members have taken sides.

His meme coins launched just hours before the swearing-in ceremony. The First Lady launched her own token, and World Liberty Financial (a family-related company) added assets to give retail investors access. However, following price surges, there were equally rapid declines. As of December 23, Trump’s meme coin dropped over 80% from its early-year high. Melania’s token fell nearly 99%, and American Bitcoin (a crypto mining company) shares plunged 80% from September’s peak.

Politics fuels the scene, but the laws of speculation still apply. No matter how high “supporters” are in power, these assets cannot escape the eternal cycle: price rises → capital inflows → liquidity dries up → prices crash.

Hidden Risks: AI Gambling in ‘Madness’

On November 3, Scion Asset Management disclosed holdings of put options on Nvidia and Palantir Technologies to hedge risks. This disclosure drew particular attention because it was Michael Burry—the fund manager famous for predicting the 2008 mortgage crisis.

The options’ strike prices were shockingly below market: Nvidia at 47% lower, Palantir at 76% lower. This revelation was like a spark igniting long-standing fears. The market realized that “overvalued AI giants and their massive costs” pose a threat.

Following the announcement, Nvidia’s stock plummeted sharply. Although the market recovered, the clues left by Burry cast doubt on the “market dominated by a few AI stocks, massive passive inflows, and low volatility.” Whether this proves to be “foresight” or “hasty,” it confirms that: when confidence wavers, even the strongest market stories can turn quickly.

Old Meets New: Defense Stocks and Geopolitical Shifts

Geopolitical shifts have propelled “European defense stocks” from “high-risk assets” to highly sought-after stocks in fund managers’ portfolios.

Trump’s plan to cut military spending for Ukraine spurred increased military expenditure across Europe. German Rheinmetall AG’s stock rose about 150% since the start of the year, while Italy’s Leonardo SpA gained over 90%.

Many fund managers who previously avoided defense due to ESG principles (Environmental, Social, Governance) have now changed their stance. “When the paradigm shifts, we must protect our values,” said the CIO of Sycomore Asset Management. As of December 23, Bloomberg’s European defense stock index increased over 70% since the beginning of the year.

Value Trading: Gold and “Currency Devaluation”

Massive debt burdens in major economies and a lack of political will to fix them pushed some investors toward “anti-devaluation assets” like gold and digital currencies.

In October, this reached a peak as concerns about US fiscal outlook and “longest government shutdown” drove investors into safe-haven assets beyond the dollar. Gold and Bitcoin hit record highs simultaneously, marking the first time both assets, often seen as “rivals,” reached new peaks.

However, these assets are not immune to market distortions. Later, digital assets broadly declined. Bitcoin fell rapidly, the US dollar stabilized, and US Treasury bonds, instead of collapsing, performed the best since 2020. This reminds us that worries about “fiscal deterioration” can coincide with “demand for safe assets,” especially during economic slowdown.

South Korean Stock Market: “Leading the World” in Recovery

Thanks to President Lee Jae-myung’s “market-stimulating” policies, South Korea’s Kospi index rose over 70% this year, heading toward the “5,000-point target” proposed by the president, and ranked as the top among major global markets.

However, one notable “missing” element is South Korean retail investors. Even Lee Jae-myung’s reform plans couldn’t convince them that “the stock market is worth holding long-term.” Domestic investors turned into “net sellers,” pouring $33 billion into US stocks and shifting toward higher-risk assets like cryptocurrencies. The side effect was a downward pressure on the Korean won.

Bitcoin Speculation: Chanos vs. Saylor

Every story has two sides. The speculative battle between Jim Chanos (short seller) and Michael Saylor (Bitcoin accumulator via MicroStrategy) is not just about two individuals with unique backgrounds but has evolved into a “referendum” on “capitalism in the digital currency era.”

Earlier in the year, as Bitcoin’s price soared, MicroStrategy’s stock soared too. Chanos saw an opportunity: the stock was trading at too high a valuation relative to the Bitcoin holdings. He decided to “short MicroStrategy and buy Bitcoin for the long term,” publicly debating this through media.

Over time, market factors changed. MicroStrategy’s premium over Bitcoin decreased as the company’s digital asset management grew rapidly, and crypto token prices declined from their highs. Chanos’s bet started paying off. From his public short sale announcement to his statement on November 7 that he would “sell everything,” MicroStrategy’s stock fell 42%.

Old Bets Return: Japan and Warning Signs

For decades, the “shorting of Japanese government bonds” has repeatedly undermined investor confidence. The logic seemed simple: Japan has enormous public debt, so interest rates must rise.

However, Japan’s ultra-loose monetary policy kept borrowing costs low for years. Short sellers paid dearly until 2025, when the situation finally reversed.

Japanese government bond yields surged across the board, turning the $7.4 trillion bond market into a “short seller’s paradise.” The 10-year yield broke above 2%, the highest in decades. The 30-year bond yield increased over 1 percentage point, setting a new record as of December 23. The Japanese government bond yield index fell over 6% this year, making it the worst-performing major bond market globally.

Lending Wars: When Creditors Enter “Internal Warfare”

The most lucrative lending returns in 2025 did not come from “betting on corporate recovery” but from “fighting other investors.” This strategy is called “creditholder confrontation.”

Institutions like Pimco and King Street Capital Management devised precise “games” involving Envision Healthcare, a healthcare company under KKR, which urgently needed financing. Their clever move was to support proposals for “original creditors to release collateral assets” (Amsurg—an outpatient surgery business) to secure new debt.

Selling Amsurg to Ascension Health generated huge returns for these institutions—estimated around 90%. This demonstrates the profit potential of “internal credit battles.”

Fannie Mae and Freddie Mac: “Drenched Twins” from Heavy Rain

Since the financial crisis, the giant mortgage lenders have been under US government control. The question of “when and how they will exit” has become a speculative market topic.

Trump’s re-election changed the landscape. Markets expected that “the new government would let these two companies grow uncontrollably.” Fannie Mae and Freddie Mac stocks were surrounded by “meme stock frenzy.”

From the start of the year to September’s peak, their stock prices surged 367% (up 388% intraday). They became among the most remarkable growth stocks of the year. In August, news that the government was considering an IPO sparked excitement, with market estimates exceeding $500 billion valuation.

Turkish Carry Trade: Collapse in Minutes

After a stellar 2024, Turkey’s carry trade (borrowing at low cost to buy high-yield assets) became an “accepted choice” for emerging market investors. Turkish bonds yielded over 40%, and the central bank pledged to maintain exchange rate levels.

However, on March 19, Turkish police raided the home of an opposition mayor and detained him. This sparked large protests and a massive sell-off of the lira. The central bank couldn’t stop the plunge. By market close, about $10 billion had flowed out of Turkish lira-denominated assets. As of December 23, the lira depreciated 17% against the dollar this year.

This event signals that high interest rates may offer good returns but cannot fully hedge against sudden political volatility.

First Cockroach Sighted: Lending Markets and Warning Signs

The lending market in 2025 did not experience a “single major collapse” but multiple “small crises.” Companies once considered “ordinary borrowers” faced financial troubles one after another.

Saks Global restructured $2.2 billion in bonds after paying interest just once. Restructured bonds traded below 60% of face value. New Fortress Energy’s convertible bonds lost 50% of their value within a year. The bankruptcies of Tricolor and First Brands wiped out billions of dollars of debt in weeks.

Investors face painful questions: why did they invest so heavily in these companies when there’s little evidence they can repay their debts?

JPMorgan Chase was once misled by a “cockroach” in loans, and CEO Jamie Dimon warned the market with a metaphor: “When you see one cockroach, there are likely many hiding in the dark.” This “cockroach risk” could become a major issue in the 2026 credit markets.

Conclusion: Lessons from 2025

2025 has taught us key lessons: when markets are full of “high confidence,” “leverage,” and “irrational asset choices,” the first cockroach you see indicates many more lurking. The ability of investors to detect these “warning signs” early will be the difference between profit and massive loss.