Source: Galaxy; Compiled by Deng Tong, Golden Finance
Preface
In 2024, there was a significant transformation in Bitcoin and digital assets. In 2024, new products, record capital inflows, major policy shifts, increasing mainstream adoption, and Bitcoin's status as an institutional asset were solidified.
This year saw two significant developments: the launch of a spot-based Bitcoin ETP in the U.S. and Donald Trump's election to a second non-consecutive presidential term. Between these events, the market has been in a volatile, indecisive sideways consolidation for 237 days. While these events serve as catalysts and background for the market in 2024, the breadth and narrative of the market will expand in 2025. On that note, here are some predictions from Galaxy Research for 2025.
Bitcoin
Bitcoin is expected to break $150,000 in the first half of the year and test or reach a peak of $185,000 in Q4 of 2025. A combination of adoption by institutions, corporations, and nations will drive Bitcoin to new heights in 2025. Since its inception, Bitcoin has appreciated at a faster rate than all other asset classes, particularly the S&P 500 index and gold, and this trend is expected to continue into 2025. Bitcoin will also reach 20% of gold's market cap.
By 2025, the total assets under management of U.S. spot Bitcoin ETPs will exceed $250 billion. In 2024, Bitcoin ETPs attracted over $36 billion in net inflows, making it the largest issuance of ETPs in history. 13F filings show that many of the world's major hedge funds have purchased Bitcoin exchange-traded products, including Millennium, Tudor, and D.E. Shaw, while the Wisconsin Investment Board (SWIB) has also bought Bitcoin exchange-traded products. Just one year later, the assets of Bitcoin exchange-traded products (ETFs) are only 19% less than the assets of all physical gold exchange-traded products in the U.S. ($24 billion).
By 2025, Bitcoin will once again become one of the best-performing assets globally on a risk-adjusted basis. The aforementioned AUM comparison is due to record inflows and increasing Bitcoin prices in 2024. In fact, Bitcoin is the third-best performing asset on a risk-adjusted basis. Notably, the best Sharpe ratio belongs to MicroStrategy, a company that calls itself a 'Bitcoin financial company.'
At least one top wealth management platform will announce a recommended Bitcoin allocation of 2% or higher. For various reasons, including maturity, internal education, and compliance requirements, no large wealth management or asset management company has formally added Bitcoin allocation recommendations to its investment advisory model portfolios. This situation is expected to change in 2025, further increasing the flow of dollars and the scale of asset management.
Five companies in the Nasdaq 100 index and five nations will announce that they have added Bitcoin to their balance sheets or sovereign wealth funds. Whether for strategic reasons, portfolio diversification, or trade settlement, Bitcoin will begin to find a place on the balance sheets of major enterprises and sovereign allocators. Competition among nation-states, particularly among non-aligned countries with large sovereign wealth funds and even those hostile to the U.S., will drive the adoption of strategies to mine or otherwise acquire Bitcoin.
Bitcoin developers will reach consensus on the next protocol upgrade by 2025. Since 2020, Bitcoin core developers have been debating which operations can safely enhance transaction programmability. As of December 2024, the two most supported pending operations for transaction programmability include OP_CTV (BIP 119) and OP_CAT (BIP 347). Achieving consensus on soft forks has been a time-consuming and rare feat since Bitcoin's inception, and the next soft fork upgrade will include OP_CTV, OP_CSFS, and/or OP_CAT - Gabe Parker.
Of the top 20 publicly traded Bitcoin miners by market capitalization, more than half will announce a transformation into super-scale enterprises, artificial intelligence, or high-performance computing companies or will establish partnerships with them. The growing demand for AI computing will lead Bitcoin miners to increasingly retrofit, build HPC infrastructure, or co-locate HPC infrastructure with Bitcoin mining facilities. This will limit year-over-year growth in hash rate, which is expected to reach 1.1 zettahash by the end of 2025.
Bitcoin DeFi (the total amount of BTC considered locked in DeFi smart contracts and deposited in staking protocols) is expected to nearly double by 2025. As of December 2024, over $11 billion worth of wrapped BTC is locked in DeFi smart contracts. Notably, more than 70% of the locked BTC is used as collateral for lending protocols. Approximately $4.2 billion in additional deposits are through Bitcoin's largest staking protocol, Babylon. The Bitcoin DeFi market is currently valued at $15.4 billion and is expected to expand significantly across multiple areas by 2025, including existing DeFi protocols on Ethereum L1/L2, new DeFi protocols on Bitcoin L2, and staking layers like Babylon. The potential doubling of the current market size could be driven by several key growth factors: a 150% year-over-year increase in cbBTC supply, a 30% increase in WBTC supply, Babylon’s TVL reaching $8 billion, and new Bitcoin L2 achieving $4 billion in DeFi TVL.
Ethereum
By 2025, Ethereum's trading price will exceed $5,500. The easing of regulatory resistance to DeFi and staking will drive Ethereum to set new all-time highs in 2025. New partnerships between DeFi and TradFi, potentially within a new regulatory sandbox environment, will ultimately allow traditional capital markets to seriously try public blockchains, with Ethereum and its ecosystem seeing the largest share of use. Enterprises will increasingly attempt their own Layer 2 networks, primarily based on Ethereum technology. Some games leveraging public blockchains will find product-market fit, and NFT trading volume will rebound significantly.
Ethereum's staking rate will exceed 50%. The Trump administration may provide clearer regulatory guidance for the crypto industry. Demand for staking will continue to rise next year, potentially exceeding half of Ethereum's circulating supply by the end of 2025, prompting Ethereum developers to seriously consider changes to the network’s monetary policy. More importantly, the increase in staking will drive greater demand and value through Ethereum staking pools like Lido and Coinbase, as well as through re-staking protocols like EigenLayer and Symbiotic.
The ETH/BTC ratio is one of the most closely watched currency pairs in all cryptocurrencies. Since Ethereum's 'Merge' upgrade in September 2022, which transitioned to proof-of-stake, the ETH/BTC ratio has been on a dangerous downward trend. However, the anticipated regulatory shift will help rekindle investor interest in Ethereum and its application layer, particularly DeFi, reigniting interest in the world's second-largest value blockchain network.
By 2025, L2 as a whole will generate more economic activity than Alt L1. The percentage of L2 fees relative to Alt L1 fees (currently in the mid-single digits) will exceed 25% of the total Alt L1 fees by the end of the year. L2 will approach its expansion limits earlier this year, leading to frequent spikes in transaction fees, which will necessitate changes to gas limits and blob market parameters. However, other technical solutions (e.g., Reth client or altVMs like Arbitrum Stylus) will provide higher efficiency for aggregation to keep transaction costs at usable levels.
Decentralized Finance (DeFi)
DeFi will enter a 'dividend era' as on-chain applications distribute at least $1 billion to users and token holders through treasury funds and revenue sharing. As DeFi regulation becomes clearer, the value sharing of on-chain applications will expand. Applications like Ethena and Aave have initiated discussions or passed proposals to implement fee switches, which are infrastructures for allocating value to users. Other protocols that previously rejected such mechanisms, including Uniswap and Lido, may reconsider their positions due to regulatory clarity and competitive dynamics. The combination of a favorable regulatory environment and increased on-chain activity suggests that protocols may conduct buybacks and direct revenue sharing at a faster rate than previously observed.
On-chain governance will revive, and applications will experiment with future governance models. The total number of active voters will increase by at least 20%. On-chain governance has historically faced two issues: 1) lack of participation, and 2) lack of voting diversity, with most proposals passing by overwhelming margins. However, the easing of regulatory tensions has been a limiting factor for on-chain voting, and Polymarket's recent success suggests that both of these issues will improve in 2025. By 2025, applications will begin to shift from traditional governance models to future governance models, improving voting diversity, and favorable regulatory winds will facilitate governance participation.
Banks and Stablecoins
The Office of the Comptroller of the Currency (OCC) will create a pathway for banks to custody digital assets, guiding the world's four major custodian banks to provide digital asset services: New York Bank, State Street Bank, JPMorgan, and Citibank.
TradFi partners will support the launch of at least 10 stablecoins. Between 2021 and 2024, stablecoins experienced rapid growth, with the number of projects now reaching 202, including several closely related to traditional finance (TradFi). In addition to the number of stablecoins launched, their trading volume has also surpassed that of major payment networks like ACH (approximately 1%) and Visa (approximately 7%). In 2024, stablecoins will increasingly integrate into the global financial system. For instance, FV Bank, licensed in the U.S., now supports direct stablecoin deposits, while Japan's three major banks are collaborating with SWIFT through Project Pax for faster and more cost-effective cross-border fund flows. Payment platforms are also building stablecoin infrastructure. For example, PayPal has launched its own stablecoin PYUSD on the Solana blockchain, while Stripe has acquired Bridge to natively support stablecoins. Additionally, asset management firms like VanEck and BlackRock are collaborating with stablecoin projects to establish footholds in this space. Looking ahead, as regulation becomes clearer, TradFi participants are expected to integrate stablecoins into their operations to stay ahead of trends, while first movers will prepare to gain advantages by building infrastructure for future business development.
By 2025, the total supply of stablecoins will double, exceeding $400 billion. Stablecoins are increasingly finding product-market fit for payments, remittances, and settlements. Increasingly clear regulation for existing stablecoin issuers and traditional banks, trust companies, and deposit institutions will lead to explosive growth in stablecoin supply in 2025.
Tether's long-term market dominance will fall below 50%, challenged by alternatives such as Blackrock's BUIDL, Ethena's USDe, and even Coinbase/Circle's USDC Rewards. As Tether internalizes the income from its USDT reserves to fund portfolio investments, the marketing expenses for stablecoin issuers/protocols aimed at passing income on to users will lead existing users to transition from Tether to new user reward solutions. USDC rewards for users' Coinbase exchange and wallet balances will become a powerful hook that drives development across the entire DeFi space, and financial technology companies may integrate this for new business models. In response, Tether will begin to pass on income from collateral holdings to USDT holders and may even offer new competitive yield products such as delta-neutral stablecoins.
Investment and Policy
Total investments in cryptocurrency venture capital will exceed $150 billion, an increase of over 50% year-over-year. Given declining interest rates and improved regulatory clarity for cryptocurrencies, the surge in venture capital activity will be driven by an increased interest from allocators in risk activities. Cryptocurrency venture capital financing has historically lagged behind broader cryptocurrency market trends, and there will be some degree of 'catch-up' in the next four quarters.
Stablecoin legislation will be passed in both houses of Congress and signed by President Trump in 2025, but market structure legislation will not. Legislation formalizing and establishing a registration and oversight system for U.S. stablecoin issuers will pass with bipartisan support and be signed into law by the end of the year, along with anticipated easing of restrictions on banks, trusts, and deposit institutions, leading to a significant increase in stablecoin adoption rates. Market structure – which establishes registration, disclosure, and oversight requirements for token issuers and exchanges, or adjusts existing rules of the SEC and CFTC to include them – is more complex and will not be completed, passed, and signed into law in 2025.
The U.S. government will not purchase Bitcoin in 2025 but will utilize its existing Bitcoin holdings to create a stockpile, and some actions will be taken within departments and agencies to review the expanded Bitcoin reserve policy.
The U.S. Securities and Exchange Commission will launch an investigation into the first so-called 'special purpose brokerage firm' Prometheum. A previously unknown brokerage firm has suddenly emerged, aligning perfectly with the SEC's overall viewpoint. Chairman Gensler's views on the securities status of digital assets drew attention in 2023, particularly when this little-known company obtained the first new category brokerage license. According to FINRA records, the CEO faced condemnation from Republican members of the House Financial Services Committee during congressional hearings. Republicans are calling for the Justice Department and the SEC to investigate Prometheum's 'ties to China,' while others point to violations in its fundraising and reporting. Whether or not Prometheum is investigated, the special purpose brokerage license is likely to be abolished in 2025.
Dogecoin is expected to eventually reach $1, with the market cap of the world's largest and oldest meme coin reaching $100 billion. However, the market cap of Dogecoin will be overshadowed by the efficiency department of the government, which will determine and successfully implement cuts exceeding Dogecoin's 2025 peak market cap.
