Source: Galaxy; compiled by Deng Tong, Jinse Finance
Preface
In 2024, there will be a significant transformation in Bitcoin and digital assets. In 2024, new products, record inflows, major policy shifts, increasing popularity, and Bitcoin's status as an institutional asset will be solidified.
This year has seen two major developments: the launch of a spot Bitcoin ETP in the U.S. and Donald Trump's election for 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 are both catalysts and background for the 2024 market, the breadth and narrative of the market will expand in 2025. To get to the point, here are some predictions from Galaxy Research for 2025.
Bitcoin
Bitcoin will break $150,000 in the first half of the year and test or reach a peak of $185,000 in the fourth quarter of 2025. The adoption by institutions, corporations, and nations combined will drive Bitcoin to new heights in 2025. Bitcoin has appreciated faster than all other asset classes since its inception, particularly against the S&P 500 index and gold, and this trend will continue in 2025. Bitcoin will also reach 20% of gold's market capitalization.
By 2025, the total assets of U.S. spot Bitcoin ETPs will exceed $250 billion. In 2024, Bitcoin ETPs will attract over $36 billion in net inflows, making them the largest issuance 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 acquired Bitcoin exchange-traded products. Just one year later, the asset size of Bitcoin exchange-traded products (ETFs) is only 19% away from the asset size of all U.S. physical gold exchange-traded products ($24 billion).
By 2025, Bitcoin will once again be one of the best-performing assets globally on a risk-adjusted basis. The aforementioned AUM comparison is due to record inflows and rising 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 self-identifies as a 'Bitcoin financial company.'
At least one top wealth management platform will announce a recommendation for a Bitcoin allocation of 2% or higher. For various reasons, including maturation, internal education, compliance requirements, etc., no large wealth management or asset management firm has formally added Bitcoin allocation recommendations to its investment advisory model portfolios. This situation will 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, portfolio diversification, or trade settlement reasons, Bitcoin will begin to find a place on the balance sheets of major corporations and sovereign allocators. Competition between nation-states, particularly among non-aligned countries and those with large sovereign wealth funds, as well as even adversarial nations 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 in 2025. Since 2020, Bitcoin core developers have debated which operations can safely enhance transaction programmability. As of December 2024, the two most supported pending operations for 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 including OP_CTV, OP_CSFS, and/or OP_CAT in the next soft fork upgrade is anticipated - Gabe Parker.
Among the top 20 publicly traded Bitcoin miners by market capitalization, more than half will announce a transformation into hyperscale enterprises, artificial intelligence, or high-performance computing companies, or 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 sites. This will limit year-over-year growth in hash rate, which will reach 1.1 zetahash by the end of 2025.
Bitcoin DeFi (considered to be the total BTC locked in DeFi smart contracts and deposited in staking protocols) will nearly double by 2025. As of December 2024, over $11 billion worth of wrapped BTC is locked in DeFi smart contracts. Notably, over 70% of 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 current Bitcoin DeFi market is valued at $15.4 billion and is expected to expand significantly across various areas by 2025, including existing DeFi protocols on Ethereum L1/L2, new DeFi protocols on Bitcoin L2, and staking layers like Babylon. The current market size could double due to 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 new all-time highs in 2025. New partnerships between DeFi and TradFi, perhaps in a new regulatory sandbox environment, will ultimately allow traditional capital markets to seriously explore public blockchains, with Ethereum and its ecosystem seeing the largest share of usage. Corporations will increasingly experiment with their own second-layer networks, primarily based on Ethereum technology. Some games utilizing public blockchains will find product-market fit, and NFT trading volume will rebound significantly.
The Ethereum staking rate will exceed 50%. The Trump administration may provide clearer regulation and guidance for the crypto industry. Demand for staking will continue to rise next year, possibly exceeding half of Ethereum's circulating supply by the end of 2025, prompting Ethereum developers to consider changes to the network's monetary policy more seriously. More importantly, the increase in staking will drive greater demand and value flowing through Ethereum staking pools like Lido and Coinbase, as well as re-staking protocols like EigenLayer and Symbiotic.
The ETH/BTC ratio is one of the most closely watched currency pairs among all cryptocurrencies, and since Ethereum's 'Merge' upgrade to proof-of-stake in September 2022, the ETH/BTC ratio has been on a dangerous downward trend. However, anticipated regulatory shifts will help rekindle investor interest in Ethereum and its application layer, particularly in DeFi, for 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 single digits) will exceed 25% of the total fees of Alt L1 by the end of the year. L2 will approach scalability limits early in the year, leading to frequent spikes in transaction fees, necessitating changes to gas limits and blob market parameters. However, other technical solutions (e.g., Reth clients or altVMs, like Arbitrum Stylus) will provide greater efficiency for aggregation to keep transaction costs at usable levels.
Decentralized Finance (DeFi)
DeFi will enter a 'dividend era' as on-chain applications will 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 already initiated discussions or passed proposals to implement their fee switches, which are the infrastructure for distributing value to users. Other protocols, including Uniswap and Lido, which previously rejected such mechanisms, may reconsider their positions due to regulatory clarity and competitive dynamics. The combination of a relaxed regulatory environment and increased on-chain activity indicates that protocols may engage in buybacks and direct revenue sharing at a higher 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 overwhelmingly. However, the easing of regulatory tensions has been a limiting factor for on-chain voting, and the recent success of Polymarket indicates that both issues will improve in 2025. By 2025, applications will begin to shift from traditional governance models to future governance models, improving voting diversity, with regulatory tailwinds promoting governance participation.
Banks and stablecoins
The Office of the Comptroller of the Currency (OCC) will create a pathway for national banks to custody digital assets, guiding the world's four largest custodians—Bank of New York, State Street, JPMorgan Chase, and Citibank—to offer digital asset services.
TradFi partners will support the launch of at least 10 stablecoins. From 2021 to 2024, stablecoins have experienced rapid growth, with the total number of projects reaching 202, including several closely related to traditional finance (TradFi). In addition to the number of stablecoins launched, their trading volume growth has also outpaced major payment networks like ACH (around 1%) and Visa (around 7%). By 2024, stablecoins will increasingly integrate into the global financial system. For example, 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, cost-effective cross-border funds movement. Payment platforms are also building stablecoin infrastructure. For instance, PayPal has launched its stablecoin PYUSD on the Solana blockchain, while Stripe has acquired Bridge to natively support stablecoins. Additionally, asset management companies like VanEck and BlackRock are collaborating with stablecoin projects to establish a foothold in the space. Looking ahead, as regulations become clearer, TradFi participants are expected to integrate stablecoins into their operations to stay ahead of trends, while early adopters are preparing to gain an advantage 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. Growing clarity in regulation for existing stablecoin issuers as well as traditional banks, trust companies, and deposit institutions will lead to explosive growth in stablecoin supply by 2025.
Tether's long-term market dominance will drop below 50%, challenged by yield alternatives such as Blackrock's BUIDL, Ethena's USDe, and even Coinbase/Circle's USDC Rewards. As Tether internalizes the income from USDT reserves to fund portfolio investments, marketing spending by stablecoin issuers/protocols to pass on income will lead existing users to shift from Tether to new users, focusing on their yield solutions. The USDC rewards tied to user balances on Coinbase will become a powerful incentive, driving growth across the entire DeFi space and potentially being integrated by fintech companies for new business models. In response, Tether will start passing on the income from collateral holdings to USDT holders and may even offer new competitive yield products such as delta-neutral stablecoins.
Investment and Policy
Total investment in cryptocurrency venture capital will exceed $150 billion, with a year-over-year growth of over 50%. Due to declining interest rates and increased regulatory transparency in cryptocurrency, the surge in venture capital activity will be driven by allocators' increased interest in risk activities. Cryptocurrency venture capital financing has historically lagged behind broader cryptocurrency market trends, and there will be some degree of 'catch-up' over the next four quarters.
Stablecoin legislation will pass both chambers of Congress and be signed into law by President Trump in 2025, but market structure legislation will not. Legislation formalizing a registration and oversight regime for U.S. stablecoin issuers will pass with bipartisan support and be signed into law before the end of the year, coupled with expected easing of restrictions on banks, trusts, and deposit institutions, leading to significant growth in stablecoin adoption. Market structure—establishing registration, disclosure, and oversight requirements for token issuers and exchanges, or adjusting existing SEC and CFTC rules to include them—will be more complex and is unlikely to be completed, passed, and signed into law by 2025.
The U.S. government will not purchase Bitcoin in 2025, but will use its existing Bitcoin holdings to create inventory, and some actions will be taken internally within departments and agencies to review the expanded Bitcoin reserve policy.
The U.S. Securities and Exchange Commission will investigate the first so-called 'special purpose broker-dealer' Prometheum. A previously unknown broker-dealer suddenly appears, coincidentally aligning with the SEC's overall viewpoint. Chairman Gensler's views on the securities status of digital assets attracted attention in 2023, particularly when this unknown company obtained the first new category broker-dealer license. According to FINRA records, the CEO was chastised in Congress by Republican members of the House Financial Services Committee. Republicans are calling for the Department of Justice and the SEC to investigate Prometheum's 'relationship with China,' while others point to violations in its fundraising and reporting. Regardless of whether Prometheum is investigated, the special-purpose broker-dealer license is likely to be abolished in 2025.
Dogecoin will eventually reach $1, and the world's largest and oldest meme coin will have a market capitalization of $100 billion. However, Dogecoin's market capitalization will be overshadowed by the efficiency department of the government, which will determine and successfully implement cuts exceeding Dogecoin's high market capitalization in 2025.
