Grayscale Report: Regulatory Easing, Institutional Accumulation, Ethereum Revives in July

2025-08-05 22:10:22

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In the short term, there may be few legislative catalysts supporting the rise in the valuation of crypto assets, but there remains optimism about the crypto outlook in the coming months.

Original Title: 《July 2025: Ethereum Comes Alive》

Original Source: Grayscale

Original Compilation: Baihua Blockchain

In July 2025, the price of ETH on the Ethereum network surged nearly 50%. Investors are focusing on stablecoins, asset tokenization, and institutional adoption—areas where Ethereum, as the oldest smart contract platform, distinguishes itself from other competitors.

The passage of the GENIUS Act marks a milestone for stablecoins and the entire cryptocurrency asset class. While it may take time for market structure-related legislation to pass in Congress, U.S. regulators can continue to support the development of the digital asset industry through other policy adjustments, such as approving staking features in crypto investment products.

In the short term, cryptocurrency asset valuations may experience consolidation, but we remain very optimistic about the outlook for this asset class in the coming months. Crypto assets provide investors with opportunities to engage with blockchain innovation while potentially offering some immunity to certain risks associated with traditional assets, such as the ongoing weakness of the dollar. Therefore, Bitcoin, ETH, and many other digital assets are expected to continue to attract investor interest.

On July 18, President Trump signed the GENIUS Act, providing a comprehensive regulatory framework for stablecoins in the U.S. This marks the "end of the beginning" for the cryptocurrency asset class: public blockchain technology is moving from the experimental phase to the core of a regulated financial system. The debate over whether blockchain technology can deliver real benefits to mainstream users has concluded, and regulators are now focused on ensuring that the industry grows while incorporating appropriate consumer protection and financial stability mechanisms.

In July, the crypto market rejoiced at the passage of the GENIUS Act, supported by favorable macro market conditions. Stock market indices rose in most parts of the world, and returns in the fixed income market were led by high-risk sectors, such as U.S. high-yield corporate bonds and emerging market bonds (see Chart 1). As market volatility decreased, related investment strategies also performed quite well.

The FTSE / Grayscale Crypto Asset Market Index (an investable digital asset index weighted by market capitalization) rose 15%, while the price of Bitcoin increased by 8%. Ethereum's ETH became the star of the month, soaring 49%, with a cumulative increase of over 150% since the low point in early April.

Chart 1: Ethereum Shines Brightly in a Strong July for Crypto Assets

Don't Call It a "Comeback"

Ethereum is the largest smart contract platform by market capitalization and serves as the infrastructure for blockchain finance. However, until recently, the price performance of ETH lagged behind Bitcoin and even other smart contract platforms like Solana. This led some to question Ethereum's development strategy and its competitive position in the industry (see Chart 2).

Chart 2: Ethereum Outperforms Bitcoin Since May

The renewed enthusiasm for Ethereum and ETH may reflect the market's focus on stablecoins, asset tokenization, and institutional blockchain adoption—areas where Ethereum excels (see Chart 3). For example, including its Layer 2 networks, the Ethereum ecosystem holds over 50% of stablecoin balances and processes about 45% of stablecoin transactions (measured by dollar value).

Ethereum also accounts for about 65% of the locked value in decentralized finance (DeFi) protocols and nearly 80% of tokenized U.S. Treasury products. For many institutions building crypto projects, including Coinbase, Kraken, Robinhood, and Sony, Ethereum has always been the preferred network.

Chart 3: Ethereum is the Leading Blockchain for Stablecoins and Tokenized Assets

The increase in the adoption of stablecoins and tokenized assets will benefit Ethereum and other smart contract platforms. Grayscale Research believes that stablecoins have the potential to disrupt certain areas of the global payments industry through lower costs, faster settlement times, and greater transparency (for more background, see "Stablecoins and the Future of Payments").

There are two types of revenue associated with stablecoins: the net interest margin (NIM) earned by stablecoin issuers (such as Tether and Circle) and the transaction fees earned by the blockchain processing the transactions. Since Ethereum has already established a leading position in the stablecoin space, its ecosystem seems poised to benefit from higher transaction fees as stablecoin adoption grows.

Tokenization (the process of bringing traditional assets onto the blockchain) is similarly promising (for more background, see "Public Blockchains and the Tokenization Revolution"). The current market size for tokenized assets is relatively small (around $12 billion), but the growth potential is enormous. Tokenized U.S. Treasuries are currently the largest category of tokenized assets, with Ethereum as the market leader. In the alternative asset space, Apollo Global recently partnered with Securitize to launch an on-chain credit fund.

Moreover, the tokenized equity market, though small, is growing: Robinhood has launched tokenized shares of private companies like SpaceX and OpenAI, and eToro plans to tokenize stocks on Ethereum. Apollo's products are available on multiple blockchains, while Robinhood and eToro's tokenized equity products are within the Ethereum ecosystem.

ETP Boom and More Trends

Investor interest in Ethereum has led to significant net inflows into spot ETH exchange-traded products (ETPs). In July, net inflows into U.S.-listed spot ETH ETPs reached $5.4 billion, the largest single-month net inflow since these products were launched last year (see Chart 4).

Currently, ETH ETPs hold about $21.5 billion in assets, equivalent to nearly 6 million ETH, accounting for about 5% of the total supply. Based on CFTC trader position report data, we estimate that only $1 billion to $2 billion of the net inflows into ETH ETPs came from hedge funds' "basis trading," with the remainder being long-term capital.

Chart 4: ETH ETP Net Inflows Exceed $5 Billion

Some publicly traded companies have also begun accumulating ETH to gain token usage rights through equity instruments. The two largest "crypto asset management companies" holding ETH are Bitmine Emersion Technologies ($BMNR) and SharpLink Gaming ($SBET). Together, these two companies hold over 1 million ETH, valued at $3.9 billion.

A third publicly traded company, BTCS ($BTCS), announced in late July plans to raise $2 billion through the issuance of common and preferred stock for additional purchases of ETH (BTCS currently holds about 70,000 ETH, valued at approximately $250 million). In addition to the net inflows into ETH ETP products, buying pressure from Ethereum-focused asset management companies may also have contributed to the price increase.

Furthermore, Ethereum's share in the cryptocurrency derivatives market has increased this month, indicating rising speculative interest in the asset. In traditional futures listed on the Chicago Mercantile Exchange (CME), the open interest (OI) for ETH futures has risen to about 40% of that for Bitcoin (BTC) futures (Chart X). In perpetual futures contracts, the open interest for ETH has increased to about 65% of that for Bitcoin (BTC). This month, the trading volume of ETH perpetual futures also surpassed that of Bitcoin perpetual futures.

Chart 5: Increase in ETH Futures Open Interest

Despite the attention on ETH for most of July, Bitcoin investment products have also continued to see stable demand from investors. Net inflows into U.S.-listed spot Bitcoin ETPs reached $6 billion, with an estimated holding of 1.3 million Bitcoins. Several publicly traded companies have also expanded their Bitcoin asset management strategies. Market leader Strategy (formerly MicroStrategy) issued $2.5 billion in new preferred stock to purchase more Bitcoin.

Additionally, Bitcoin early pioneer and Blockstream CEO Adam Back announced the establishment of a new Bitcoin asset management strategy company—Bitcoin Standard Asset Management ($BSTR). The company will use Bitcoin from Back and other early adopters as capital and will raise equity. The trading of BSTR is very similar to a previous SPAC (special purpose acquisition company) transaction organized by Cantor Fitzgerald for Twenty One Capital—another large Bitcoin asset management strategy company supported by Tether and SoftBank.

Crypto Asset Boom

In July, valuations across various sectors of the crypto market increased. From the perspective of the crypto asset sector, the best-performing was the smart contract sector (benefiting from the 49% increase in ETH), while the worst-performing was the artificial intelligence sector, dragged down by the weakness of a few tokens (see Chart 6). During July, the open interest and financing rates (the cost of financing leveraged long positions) for many crypto assets increased, indicating enhanced investor risk appetite and an increase in speculative long positions.

Chart 6: All Crypto Market Sectors Rose in July

After experiencing strong returns, valuations may undergo some degree of correction or consolidation. The passage of the GENIUS Act is a significant positive for the cryptocurrency asset class, driving both absolute and risk-adjusted returns. Congress is also considering legislation on crypto market structure, with the House's CLARITY Act receiving bipartisan support on July 17. However, the Senate is reviewing its own version of market structure legislation, and no significant progress is expected before September. Therefore, in the short term, there may be fewer legislative catalysts supporting the rise in cryptocurrency asset valuations.

Conclusion

Nevertheless, we remain very optimistic about the outlook for crypto assets in the coming months. First, even without legislation, regulatory tailwinds still exist. For example, the White House recently released a detailed report on digital assets, proposing 94 specific recommendations to support the U.S. digital asset industry. Of these, 60 fall under the jurisdiction of regulatory agencies (the remaining 34 require action from Congress or joint action by Congress and regulators). With support from regulatory agencies, crypto investment products (such as staking features or broader spot crypto ETPs) may attract new capital into this asset class.

Second, we expect the macro environment to continue to favor crypto assets. These assets provide investors with opportunities to engage with blockchain innovation while offering some immunity to certain risks associated with traditional assets, such as the ongoing weakness of the dollar. In addition to the crypto-related legislation passed in July, President Trump also signed the One Big Beautiful Bill Act, locking in large federal budget deficits for the next decade.

He also explicitly expressed a desire for the Federal Reserve to lower interest rates, emphasizing that a weaker dollar would benefit U.S. manufacturing and increasing tariffs on various products and trading partners. Large budget deficits and lower real interest rates may continue to depress the value of the dollar, especially with implicit support from the White House. Scarce digital commodities like Bitcoin and ETH may benefit from this and serve as partial hedges in portfolios facing ongoing dollar weakness risks.

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