Looking back at 2025, it was yet another year where "high-conviction bets" emerged one after another—only to be swiftly overturned moments later. From the bond trading desks in Tokyo and credit approval committees in New York to the foreign exchange positions in Istanbul, the markets delivered both windfalls and "lashings." Gold repeatedly shattered historical records; traditionally stodgy mortgage giants gyrated like meme stocks; and a textbook arbitrage trade blew up in an instant. Investors placed heavy bets on rapidly shifting politics, bloated balance sheets, and fragile narratives, fueling exaggerated stock index rallies, crowded yield trades, and crypto strategies built on leverage, hope, and little else. Donald Trump's return to the White House first plunged global financial markets underwater before yanking them back to the surface in a flash; European defense stocks were ignited, and speculators grew bolder with each successive frenzy. While some positions made fortunes, others were wiped out when momentum reversed, funding dried up, or leverage cut the wrong way. As the year draws to a close, we review the most eye-catching bets of 2025—the winners, the losers, and the positions that defined the era. They have left many investors, as they position for 2026, nervously eyeing familiar fault lines: shaky corporations, valuations stretched to the limit, and trend-following trades that "work until they suddenly don't."
Cryptocurrency: The Trump Trade This was seen as the most exciting momentum play in the crypto space: buy anything associated with the Trump brand. During his campaign and after taking office, Trump fully embraced digital assets—pushing for comprehensive reforms and installing industry allies in key positions. His family also joined the fray, championing coins and crypto companies that traders viewed as "political rocket fuel." A Trump family brand matrix quickly took shape. Hours before the inauguration, Trump launched a meme coin and promoted it on social media; First Lady Melania Trump soon followed by issuing her own token. Later in the year, the Trump-affiliated World Liberty Financial made its WLFI token available for trading and opened its doors to retail investors. This was followed by a series of "Trump-adjacent" deals: Eric Trump co-founded the publicly listed mining company American Bitcoin, which went public via a merger in September. Each debut sparked a buying surge, but all proved fleeting. As of December 23, the Trump meme coin was on life support, down over 80% from its January peak; data from CoinGecko showed Melania's token had plummeted nearly 99%. American Bitcoin had also fallen about 80% from its September peak. Politics gave them a push, but the iron law of speculation dragged them back to earth. Even with friends in the White House, these trades could not escape the core dynamics of the crypto world: price pumps, leverage floods in, and liquidity evaporates. The bellwether Bitcoin, having fallen from its October highs, is almost certain to finish the year in the red on its current trajectory. For Trump-linked assets, politics provided momentum, but not protection.
AI Trade: The Next Big Short? This trade appeared in a routine filing, but it was anything but ordinary. On November 3, Scion Asset Management disclosed that it held protective put options on NVIDIA (NVDA.US) and Palantir Technologies (PLTR.US)—two core AI stocks that had driven market gains over the past three years. Scion is not a whale-sized hedge fund, but its manager is highly prominent: Michael Burry, the "doomsday prophet" famed for predicting the 2008 financial crisis, as depicted in the book and film *The Big Short*. The strike prices were staggering: the NVIDIA puts were 47% below its recent closing price, while the Palantir puts were 76% lower. The mystery remains: due to limited disclosure requirements, it's unknown if these put contracts (which give investors the right to sell a stock at a set price before a certain date) were just one part of a more complex trade; furthermore, the filing only provides a snapshot from September 30, and Burry may have reduced or closed the positions since. However, doubts about the lofty valuations of AI leaders and their massive spending plans had been piling up like dry tinder, waiting for a spark—Burry's disclosure provided the match. Following the news, NVIDIA, the world's most valuable company, stumbled, and Palantir also fell, though both later recouped some losses; the Nasdaq index also dipped. It's impossible to calculate precisely how much Burry made. His only clue was a post on platform X: he claimed to have bought Palantir puts for $1.84, and in less than three weeks, those contracts had surged 101%. This 13F filing crystallized underlying skepticism into a visible form: in a market dominated by a handful of AI-related stocks, massive passive inflows, and subdued volatility, doubt had been lurking. Whether this trade ultimately proves prescient or premature, it demonstrates that even the strongest market narrative can reverse in an instant once faith cracks.
European Defense Stocks: New World Order A sudden shift in geopolitics sent a sector once considered "toxic" by fund managers soaring: European defense. Trump's intention to withdraw from funding Ukrainian armaments prompted European governments to open the spending taps, sending regional defense stocks rocketing—by December 23, Germany's Rheinmetall had gained about 150% for the year, while Italy's Leonardo surged over 90% over the same period. Asset management firms that had once shunned the sector as too controversial now changed their tune, some even rewriting fund mandates directly. "We removed defense from our ESG funds years ago, until the beginning of this year," said Pierre-Alexis Dumont, CIO of Sycomore Asset Management. "The paradigm has changed; when the paradigm changes, you have both a responsibility and values to defend. So we focused on defensive weapons." Stocks were snatched up, from goggle manufacturers to chemical companies and even a printing firm. The Bloomberg European Defense Stocks basket rose over 70% for the year. The fervor spilled into credit markets—companies even loosely related to defense attracted a crowd of potential lenders. Banks even issued "European defense bonds," modeled on green bonds, but with proceeds ring-fenced for borrowers like weapons manufacturers. This marked a repricing of defense from a reputational burden to a public good, and a reminder that when geopolitics shifts, capital moves faster than ideology.
Devaluation Trade: Fact or Fiction? Heavy debt burdens in major nations like the US, France, and Japan, coupled with a lack of political courage to address them, prompted some investors in 2025 to champion gold and crypto assets while cooling on US Treasuries and the dollar. This pessimistic narrative was dubbed the "devaluation trade," named after the ancient practice of rulers like Nero debasing their currency's value. The narrative peaked in October when US fiscal worries collided with the longest government shutdown in history. Investors sought safe havens outside the dollar; that month, both gold and bitcoin hit records—a rare feat for assets often seen as rivals. On a narrative level, devaluation offered a neat explanation for messy macro; on a trading level, it was far more complex. Bitcoin subsequently retreated with the broader crypto market, the dollar stabilized, and US Treasuries, far from collapsing, were on track for their best annual performance since 2020—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 action told another story: from copper and aluminum to silver, price moves were driven at least as much by Trump's tariffs and macro forces as by pure devaluation fears, blurring the lines between inflation hedging and traditional supply shocks. Gold, however, continued its advance, setting new records. In this corner, the devaluation trade persisted—less a wholesale rejection of fiat currency than a precise bet on interest rates, policy, and protectionism.
K-Pop Steps Aside: K-Stocks Take the Stage Move over, K-dramas. For plot twists and excitement, the South Korean stock market was the main event in 2025. Boosted by President Lee Jae-myung's "capital market revitalization" policies, the benchmark index skyrocketed over 70% year-to-date by December 22, racing towards his campaign slogan of "Kospi 5000" and easily leading major global indices. It is extremely rare for a political leader to publicly use an index level as a campaign promise, and initially, "Kospi 5000" drew little attention. Now, a growing number of Wall Street giants, including JPMorgan Chase and Citigroup, believe the target could be reached in 2026—partly thanks to the global AI boom, making Korean stocks a preferred proxy for Asian AI trades. Amid the euphoria of the Kospi's global leadership, there was one conspicuous absence: the local retail "ants." Although Lee often mentions that he "was once a retail investor himself," his reform agenda has yet to convince domestic investors that the market is a "long-term hold." While foreign capital flooded in, retail investors were net sellers, pouring a record $33 billion into US stocks and chasing high-risk bets overseas, from cryptocurrencies to leveraged ETFs. A side effect was currency pressure. Capital outflows weakened the won, serving as a reminder that even when the stock market produces blockbuster returns, domestic skepticism persists.
Bitcoin Duel: Chanos vs. Saylor Every story has two sides. The arbitrage bet by short-seller Jim Chanos against "Bitcoin hodler" Michael Saylor's Strategy Inc. (MSTR.US) was as much about two prominent personalities as it was a rapid-fire referendum on "crypto capitalism." Early in 2025, Bitcoin soared, and Strategy's stock surged even more dramatically. Chanos saw an opportunity: Strategy's meteoric rise had stretched the premium of its stock price over its Bitcoin holdings to an unsustainable level, in the legendary short-seller's view. So, in May, he announced his move: short Strategy, long Bitcoin. A public spat ensued. In June, Saylor said Chanos "simply doesn't understand our business model"; Chanos retorted on platform X, calling Saylor's explanation "complete financial nonsense." Strategy's stock hit another record in July, up 57% for the year; but as "digital asset treasury companies" proliferated and token prices retreated from highs, Strategy and its imitators began to falter, and the premium contracted. Chanos's bet started paying off. From Chanos's public short announcement to November 7, when he announced closing the position, Strategy's stock fell 42%. Beyond profit and loss, it once again demonstrated the crypto industry's cyclical boom-bust pattern: balance sheets inflated by confidence, which is sustained by price increases and financial engineering; once belief wavers, the premium becomes not a selling point, but a vulnerability.
Japanese Bonds: From "Widowmaker" to "Money Machine" If there is one bet that has repeatedly burned macro investors over the past few decades, it is the notorious "widowmaker"—shorting Japanese Government Bonds (JGBs). The logic seemed simple: Japan's massive public debt meant interest rates would eventually have to rise to attract buyers; investors borrowed bonds to sell, waiting for prices to fall. For years, however, central bank easing policies kept borrowing costs at rock bottom, squeezing short-sellers eager to profit. Now, the script has flipped. In 2025, the "widowmaker" transformed into a "money machine": benchmark JGB yields surged across the board, turning the $7.4 trillion Japanese bond market into a paradise for shorts. Triggers ranged from interest rate hikes to Prime Minister Sanae Takaichi unveiling the largest fiscal stimulus package since the pandemic. The 10-year JGB yield broke through 2%, a multi-decade high; the 30-year yield rose over one percentage point, setting a new historical record. As of December 23, the Bloomberg Japan Treasury Total Return Index was down over 6% for the year, making it the worst-performing major bond market globally. Fund managers from Schroders to Jupiter Asset Management and RBC BlueBay all discussed some form of JGB selling during the year. Investors and strategists bet the move isn't over: benchmark rates are still rising, the Bank of Japan continues to taper bond purchases, and Japan still "leads" the developed world in government debt-to-GDP ratio by a wide margin, suggesting bearish sentiment towards JGBs may persist.
Credit Fragmentation: Turning on Fellow Lenders The juiciest credit returns of 2025 didn't come from corporate turnarounds, but from "creditor infighting." Pacific Investment Management Co. (PIMCO), King Street Capital, and Partners Group executed a sophisticated pincer movement against KKR-backed Envision Healthcare. The hospital staffing company hit trouble post-pandemic and desperately needed fresh funding. But the new debt required assets already pledged to existing debt to be re-pledged as collateral. While most creditors banded together in opposition, PIMCO, King Street, and Partners Group broke ranks, voting to approve the deal, which released equity in the ambulatory surgery asset Amsurg—previously locked out for existing creditors—and re-pledged it to the new debt. The three funds thus received Amsurg-backed debt, later converted to equity; this year, Amsurg was sold to Ascension Health for $4 billion. By one estimate, the returns for peers who refused to play along were around 90%, proving that winning the civil war pays. The conclusion: in today's credit market, characterized by loose documentation and fragmented creditors, cooperation is optional; being right isn't enough—the biggest risk is being outflanked.
Fannie Mae (FNMA.US) & Freddie Mac (FMCC.US): Revenge of the "Toxic Twins" Since being taken over by the government during the financial crisis, the question of when and how mortgage giants Fannie Mae and Freddie Mac would be released has remained a mystery. Devotees like hedge fund titan Bill Ackman hoarded shares, hoping to cash in during privatization, but the stocks languished for years due to the prolonged status quo. Trump's re-election ignited a meme-stock-like frenzy, with markets betting the new administration would set them free. The excitement escalated in 2025: by their September peak, the stocks had soared 367% for the year, with an intra-year peak of 388%, firmly placing them among the year's big winners. Emotions peaked in August with news that the government was considering an IPO, potentially valuing the entities at over $500 billion, with a 5%-15% stake sale raising around $30 billion. The shares subsequently wavered on doubts about "if and when" the IPO would happen, but bulls remained convinced. In November, Ackman publicly submitted a proposal to the White House: relist on the NYSE, write down Treasury preferred shares, and exercise the government's nearly 80% common stock warrant. Even Michael Burry joined the fray, announcing a long position in early December and musing in a 6,000-word post that the "toxic twins" might be a thing of the past.
Turkish Carry Trade The Turkish carry trade, a star performer in 2024, became the consensus favorite in 2025. With local bond yields exceeding 40% and the central bank maintaining a stable, dollar-pegged exchange rate, traders borrowed cheap foreign currency to buy high-yielding lira assets, flooding in. Heavyweights like Deutsche Bank, Millennium Partners, and Gramercy entered with billions of dollars. On March 19, some were even physically in Istanbul—only for the trade to be blown to smithereens in minutes. That morning, Turkish police raided and detained the popular opposition mayor of Istanbul, sparking protests and a lira sell-off that the central bank was powerless to stop. Kit Juckes, global head of FX strategy at Société Générale in Paris, said at the time, "People were completely caught off guard, and they won't be coming back in the short term." That day, an estimated net $10 billion flowed out of lira assets, and the market never truly recovered. By December 23, the lira had depreciated about 17% against the dollar for the year, ranking among the world's worst performers. No interest rate, no matter how high, could provide a shield against a sudden political punch.
Debt Market: Cockroach Alert The credit market in 2025 unnerved investors not with one spectacular crash, but with a series of small blow-ups that revealed embarrassing underlying weaknesses. Companies once seen as "everyday borrowers" stumbled one after another, leaving lenders licking painful wounds. Saxx Global restructured $2.2 billion in bonds after paying just one coupon, with the new debt itself trading below 60 cents; New Fortress Energy saw its recently swapped bonds lose more than half their value within a year; Tricolor followed First Brands into bankruptcy, wiping out billions in debt holdings within weeks. Some cases involved sophisticated scams, others simply involved rosy forecasts that never materialized. Each time, investors were left to explain: what justified placing heavy bets on companies showing almost no evidence of being able to repay? Years of low default rates and easy money had softened standards, from lender protections to basic underwriting. Lenders to First Brands and Tricolor allegedly failed to detect that the borrowers were repeatedly pledging the same pool of assets, with collateral for different loans blended into a messy stew. Among those lenders was JPMorgan Chase. In October, CEO Jamie Dimon vividly sounded the alarm for the market: "When you see one cockroach, you usually have a lot more behind it."—A theme that looks set to continue into 2026.
