Source: Galaxy; Compiled by Deng Tong, Golden Finance
Preface
In 2024, Bitcoin and digital assets underwent a significant transformation. In 2024, new products, record fund inflows, major policy shifts, increasing popularity, and Bitcoin's status as an institutional asset were solidified.
This year has seen two major developments: the launch of a spot Bitcoin ETP in the U.S. and Donald Trump's election to a second non-consecutive presidential term. Between these events, the market remained in a volatile, indecisive sideways consolidation for 237 days. While these events serve as both catalysts and context for the 2024 market, the breadth and narrative of the market in 2025 will expand. To cut to the chase, here are some of Galaxy Research's predictions for 2025.
Bitcoin
Bitcoin will break through $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 push Bitcoin to new heights in 2025. Since its inception, Bitcoin has appreciated faster than all other asset classes, particularly the S&P 500 and gold, and this trend will continue into 2025. Bitcoin will also reach 20% of gold's market capitalization.
By 2025, the total assets of the U.S. spot Bitcoin ETP will exceed $250 billion. In 2024, Bitcoin ETPs attracted over $36 billion in net inflows, making it the largest ETP issuance in history. 13F filings show that many major hedge funds worldwide purchased Bitcoin exchange-traded products, including Millennium, Tudor, and D.E. Shaw, while the Wisconsin Investment Board (SWIB) also bought Bitcoin exchange-traded products. Just a year later, the asset size of Bitcoin exchange-traded products (ETFs) is only 19% (approximately $24 billion) away from the asset size of all physical gold exchange-traded products in the U.S.
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-breaking fund 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 describes itself as a 'Bitcoin financial company.'
At least one top wealth management platform will announce a recommendation for a 2% or higher Bitcoin allocation. For various reasons, including maturity, internal education, compliance requirements, etc., no large wealth management or asset management firm has officially added Bitcoin allocation recommendations to investment advisory model portfolios. This situation will change in 2025, further increasing dollar flow and asset management scale.
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 among nation-states, particularly among non-aligned countries, those with large sovereign wealth funds, and even countries hostile to the U.S., will drive the adoption of strategies to mine or otherwise acquire Bitcoin.
Bitcoin developers will reach a 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 programmability are OP_CTV (BIP 119) and OP_CAT (BIP 347). Reaching consensus on soft forks 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, more than half will announce a transformation into mega-scale 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 colocate 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 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 will be 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, approximately $4.2 billion in additional deposits exist. The current Bitcoin DeFi market is valued at $15.4 billion and is expected to expand significantly across various domains by 2025, including existing DeFi protocols on Ethereum L1/L2, new DeFi protocols on Bitcoin L2, and staking layers like Babylon. The 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 $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, perhaps occurring in a new regulatory sandbox environment, will ultimately allow traditional capital markets to seriously experiment with public blockchains, with Ethereum and its ecosystem gaining the largest share of usage. Enterprises will increasingly attempt their own Layer 2 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, 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 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. Since Ethereum's 'merge' upgrade to proof of stake in September 2022, the ETH/BTC ratio has been in a precarious downtrend. However, the anticipated regulatory shift will help Ethereum and its application layer, particularly DeFi, reignite investors' 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 to Alt L1 fees (currently in the mid-single digits) will exceed 25% of Alt L1's total fees by the end of the year. L2 will approach expansion limits early this year, leading to frequent spikes in transaction fees, necessitating changes to gas limits and blob market parameters. However, other technological solutions (such as the Reth client or altVM, like Arbitrum Stylus) will provide greater efficiency for aggregators 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 regulations become clearer, the value sharing of on-chain applications will expand. Applications like Ethena and Aave have 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. The combination of a relaxed 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, with applications attempting future governance models. The total number of active voters will increase by at least 20%. On-chain governance has traditionally faced two issues: 1) lack of participation, 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 recent successes from Polymarket suggest both will improve in 2025. By 2025, applications will begin to shift from traditional governance models to future governance models, improving voting diversity, and regulatory tailwinds will promote governance participation.
Banks and stablecoins
The Office of the Comptroller of the Currency (OCC) will create a pathway for banks worldwide to custody digital assets, guiding the four largest global custodians to provide digital asset services: New York Bank, State Street Bank, 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). Besides the number of stablecoins launched, their trading volume has also surpassed major payment networks like ACH (approximately 1%) and Visa (approximately 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 largest banks are collaborating with SWIFT through Project Pax for faster, more cost-effective cross-border fund flows. Payment platforms are also building stablecoin infrastructure. For instance, PayPal launched its own stablecoin PYUSD on the Solana blockchain, while Stripe acquired Bridge to natively support stablecoins. Additionally, asset management companies like VanEck and BlackRock are partnering with stablecoin projects to establish a foothold in this field. Looking ahead, as regulations become clearer, TradFi participants are expected to integrate stablecoins into their operations to stay ahead of trends, while pioneers are preparing to gain an edge 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 regulatory oversight of 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 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 revenue from USDT reserves to fund portfolio investments, marketing expenditures by stablecoin issuers/protocols to pass on income will shift existing users from Tether to new users, directing them toward their yield solutions. USDC rewards for users' Coinbase exchange and wallet balances will become a strong hook, driving the growth of the entire DeFi space and potentially being integrated by fintech companies for new business models. In response, Tether will begin 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, marking a year-on-year increase of over 50%. Given declining interest rates and increased regulatory transparency for cryptocurrencies, 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 will see a degree of 'catch-up' in the next four quarters.
Stablecoin legislation will pass both houses of Congress and be signed by President Trump in 2025, but market structure legislation will not. Legislation formalizing the registration and oversight of 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—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 in 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 investigate the first so-called 'special purpose broker-dealer' Prometheum. A previously unknown brokerage firm has suddenly emerged, conveniently aligning with the SEC's overall perspective. Chairman Gensler's views on the securities status of digital assets raised eyebrows in 2023, especially as this obscure company obtained the first new category broker-dealer 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 'connections to China,' while others point out violations in its fundraising and reporting. Regardless of whether Prometheum is investigated, the special purpose broker-dealer license is likely to be revoked in 2025.
Dogecoin will ultimately reach $1, with the world's largest and oldest meme coin market capitalization reaching $100 billion. However, Dogecoin's market capitalization will be overshadowed by the government efficiency department, which will determine and successfully implement cuts that exceed Dogecoin's high-water mark market capitalization in 2025.
