Source: Galaxy; Compiled by Deng Tong, Golden Finance
Introduction
In 2024, Bitcoin and digital assets underwent a significant transformation. In 2024, new products, record fund inflows, massive policy shifts, increasing popularity, and Bitcoin's solidified status as an institutional asset emerged.
This year has seen 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 2024 market, the breadth and narrative of the market in 2025 will expand. Without further ado, here are some predictions from Galaxy Research for 2025.
Bitcoin
Bitcoin will break above $150,000 in the first half of the year and test or reach a peak of $185,000 in the fourth quarter 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 faster than all other asset classes, particularly the S&P 500 index and gold, a trend that is expected to continue into 2025. Bitcoin will also reach 20% of gold's market capitalization.
By 2025, the total asset size of spot Bitcoin ETPs in the U.S. will exceed $250 billion. In 2024, Bitcoin ETPs absorbed over $36 billion in net inflows, becoming the largest issuance scale 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 purchased Bitcoin exchange-traded products. Just a year later, the asset size of Bitcoin exchange-traded products (ETFs) is only 19% away from the asset size of all physical gold exchange-traded products in the U.S. ($24 billion).
By 2025, Bitcoin will once again be one of the best-performing assets globally on a risk-adjusted basis. The above AUM comparison is due to record fund inflows and Bitcoin's price increase 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 describes itself as a 'Bitcoin finance 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 firm or asset management company has officially added Bitcoin allocation recommendations to investment advisory model portfolios. This situation is expected to change in 2025, further increasing dollar flow and asset management size.
Five companies in the Nasdaq 100 index and five countries 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 corporations and sovereign allocators. The competition between nation-states, particularly among non-aligned nations, 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 in 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 a soft fork has been a time-consuming and rare feat since Bitcoin's inception, including OP_CTV, OP_CSFS, and/or OP_CAT in the next soft fork upgrade - Gabe Parker.
Among the top 20 publicly traded Bitcoin miners by market capitalization, over half will announce a transition to 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 or build HPC infrastructure or collocate HPC infrastructure with Bitcoin mining operations. This will limit the year-on-year growth of hash rates, with hash rates expected to reach 1.1 zetahash by the end of 2025.
Bitcoin DeFi (considered as the total amount of 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 the locked BTC is used as collateral for lending protocols. Through Bitcoin's largest staking protocol, Babylon, there are approximately $4.2 billion in additional deposits. 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 may be driven by several key growth factors: cbBTC supply increasing by 150% year-on-year, WBTC supply growing by 30%, Babylon's TVL reaching $8 billion, and new Bitcoin L2 achieving a DeFi TVL of $4 billion.
Ethereum
By 2025, Ethereum's trading price will exceed $5,500. The easing of regulatory resistance to DeFi and staking will drive Ethereum to reach 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 experiment with public blockchains, with Ethereum and its ecosystem seeing the largest share of usage. Corporations 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 see a significant rebound.
Ethereum's 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, potentially surpassing 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. 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 in all cryptocurrencies. Since Ethereum's 'Merge' upgrade to proof-of-stake in September 2022, the ETH/BTC ratio has been on a dangerous downward trend. However, the anticipated regulatory shift will help Ethereum and its application layer, especially DeFi, rekindle investor 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 year-end. L2 will approach capacity limits early this 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 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 allocate 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. A combination of a lenient regulatory environment and increased on-chain activity indicates 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 challenges: 1) lack of participation, and 2) lack of voting diversity, with most proposals passing by overwhelming margins. However, easing regulatory tensions has always been a limiting factor for on-chain voting, and Polymarket's recent success indicates that both issues will improve by 2025. By 2025, applications will begin to shift from traditional governance models to future governance models, enhancing voting diversity, while regulatory tailwinds will promote 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 four largest custodial banks globally to provide digital asset services: Bank of New York, State Street, JPMorgan Chase, and Citibank.
TradFi partners will support the launch of at least 10 stablecoins. From 2021 to 2024, stablecoins experienced rapid growth, with the number of projects reaching 202, including several closely related to traditional finance (TradFi). In addition to the number of launched stablecoins, their trading volume has also outpaced major payment networks like ACH (approximately 1%) and Visa (approximately 7%). In 2024, stablecoins will increasingly integrate into the global financial system. For example, U.S.-licensed FV Bank now supports direct stablecoin deposits, while the three largest banks in Japan 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 instance, PayPal launched its stablecoin PYUSD on the Solana blockchain, while Stripe acquired Bridge to natively support stablecoins. Furthermore, asset management companies like VanEck and BlackRock are collaborating with stablecoin projects to establish a foothold in the space. Looking ahead, as regulatory clarity increases, TradFi participants are expected to integrate stablecoins into their operations to stay ahead of trends, while early adopters prepare 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. Greater regulatory clarity regarding existing stablecoin issuers and traditional banks, trust companies, and deposit institutions will lead to explosive growth in the supply of stablecoins 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 USDT reserves, providing funding for portfolio investments, marketing expenditures by stablecoin issuers/protocols to pass income will cause existing users to shift from Tether to new users, moving towards their yield solutions. The rewards for users' balances on the Coinbase exchange and wallets in USDC will become a powerful hook, driving growth across the DeFi space and potentially being integrated by fintech companies for new business models. In response, Tether will start to pass 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-on-year increase of over 50%. Given declining interest rates and increased regulatory transparency in cryptocurrency, the surge in venture capital activity will be driven by allocators' growing interest in risk activities. Cryptocurrency venture capital financing has historically lagged behind broader cryptocurrency market trends and will experience a degree of 'catch-up' in the next four quarters.
Stablecoin legislation will pass through both houses of Congress and be signed into law by President Trump in 2025, but market structure legislation will not. Legislation formalizing the registration and oversight regime for U.S. stablecoin issuers will pass with bipartisan support and be signed into law by the end of the year, along with anticipated relaxations of restrictions on banks, trusts, and deposit institutions, leading to a significant increase in stablecoin adoption. Market structure—establishing registration, disclosure, and oversight requirements for token issuers and exchanges, or adjusting existing SEC and CFTC rules to incorporate them—will be more complex and will not be completed, passed, and signed into law by 2025.
The U.S. government will not purchase Bitcoin in 2025 but will create an inventory using the Bitcoin it already holds, 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 broker-dealer' Prometheum. A previously unknown broker-dealer has suddenly emerged, coincidentally aligning with the SEC's overall viewpoint. Chairman Gensler's views on the securities status of digital assets sparked concern in 2023, especially when this obscure company obtained the first new category broker-dealer license. According to FINRA records, the CEO was criticized in Congress by Republican members of the House Financial Services Committee. Republicans have called for the Department of Justice and SEC to investigate Prometheum's 'relationship with China,' while others have pointed out irregularities in its fundraising and reporting. Regardless of whether Prometheum is investigated, the special purpose broker-dealer license is likely to be abolished by 2025.
Dogecoin will ultimately reach $1, and the market capitalization of the world's largest and oldest meme coin will reach $100 billion. However, Dogecoin's market cap will be overshadowed by the efficiency department of the government, which will determine and successfully implement cuts that exceed Dogecoin's 2025 peak market cap.
