Grayscale Q3 Research Report: $3.5 Trillion Market Cap New High, Bitcoin Makes Way for "Altcoin Season"

Original Author: Grayscale

Original Compilation: Shenchao TechFlow

• In the third quarter of 2025, all six sectors of the crypto market showed positive price returns, but the changes in fundamentals varied. The Crypto Sectors framework is a proprietary framework developed in collaboration with index provider FTSE/Russell to organize the digital asset market and measure returns.
• Bitcoin underperformed compared to other crypto market sectors, and its return pattern can be seen as a "altcoin season," albeit different from previous "altcoin seasons."
• Based on volatility-adjusted price returns, the top 20 tokens in the third quarter highlighted the importance of stablecoin legislation and adoption, the rise in centralized exchange trading volume, and the trend of Digital Asset Treasuries (DATs).

Each type of crypto asset is related to blockchain technology and shares a fundamental market structure, but the similarities end there. The categories of crypto assets encompass a wide range of software technologies applied in areas such as consumer finance, artificial intelligence (AI), media, and entertainment. To organize the data, Grayscale Research uses a proprietary classification and index series developed in collaboration with FTSE/Russell, namely the "Crypto Sectors". The "Crypto Sectors" framework covers six distinct sub-markets (Chart 1). They collectively include 261 tokens with a total market capitalization of $3.5 trillion. [1]

Chart 1: The Crypto Sectors framework helps organize the digital asset market

Measuring Blockchain Fundamentals

Although blockchains are not enterprises, their economic activity and financial health can be measured in similar ways. Three key metrics of on-chain activity are users, transaction volume, and transaction fees. Because blockchains are anonymous, analysts often use "active addresses" (blockchain addresses that have transacted at least once) as an imperfect proxy for the number of users.

In the third quarter, the fundamental indicators of blockchain health showed mixed results (Chart 2). On the negative side, the number of users, transaction volume, and fees in the currency and smart contract platform crypto sectors all declined quarter-over-quarter. Overall, since the first quarter of 2025, speculative activity related to Memecoins has decreased, leading to a drop in transaction volume and activity.

Encouragingly, application fees based on blockchain grew by 28% quarter-over-quarter. This growth was primarily driven by fee revenue from a few leading applications: (i) Jupiter, a decentralized exchange based on Solana; (ii) Aave, a leading lending protocol in the cryptocurrency space; and (iii) Hyperliquid, a leading perpetual futures exchange. Annualized, application layer fee revenue has now exceeded $10 billion. The blockchain serves as both a network for digital transactions and a platform for applications. Therefore, higher application fees can be seen as a sign of increasing adoption of blockchain technology applications.

Chart 2: In Q3 2025, the fundamental performance of various cryptocurrency sectors varied

Tracking Price Performance

In the second quarter of 2025, all six crypto sectors had positive returns (Chart 3). Bitcoin's performance lagged behind other sub-markets, and this return pattern can be viewed as an "altcoin season" for cryptocurrencies—though different from other periods when Bitcoin's dominance declined. [2] Driven by rising trading volume in centralized exchanges (CEX), the financial crypto sector led the way, while the smart contract platform crypto sector may benefit from stablecoin legislation and adoption (smart contract platforms are networks where users make peer-to-peer payments using stablecoins). While all crypto sectors achieved positive returns, the AI crypto sector underperformed compared to other sub-markets, reflecting a period of poor returns for AI stocks. The currency crypto sector also performed poorly, reflecting the relatively modest rise in Bitcoin prices.

Chart 3: Bitcoin underperformed compared to other cryptocurrency markets

The diversity of crypto asset categories means frequent changes in dominant themes and market leadership. Chart 3 shows the top 20 index-eligible tokens based on volatility-adjusted price returns in Q3 2025. [3] This list includes several large-cap tokens with market capitalizations exceeding $10 billion, including ETH, BNB, SOL, LINK, and AVAX, as well as some tokens with market capitalizations below $500 million. The financial crypto sector (seven assets) and the smart contract platform crypto sector (five assets) accounted for the highest proportions in the top 20 list this quarter.

Chart 4: Based on risk-adjusted returns, the best-performing assets in the cryptocurrency sector

We believe there are three major themes that have recently driven market performance:

(1) Digital Asset Treasuries (DAT): Last quarter, the number of DATs surged: publicly traded companies holding cryptocurrencies on their balance sheets as investment tools for equity investors. Several of the top 20 tokens may benefit from the creation of new DATs, including ETH, SOL, BNB, ENA, and CRO.

(2) Adoption of Stablecoins: Another significant theme from the last quarter was the legislation and adoption of stablecoins. On July 18, President Trump signed the GENIUS Act, which provides a comprehensive regulatory framework for stablecoins in the U.S. (refer to our report “The Future of Stablecoins and Payments”). Following the passage of this act, the adoption of stablecoins accelerated, with circulating supply growing by 16% to over $290 billion (Chart 4). [4] The primary beneficiaries are smart contract platforms that custody stablecoins, including ETH, TRX, and AVAX—among which AVAX saw a significant increase in stablecoin trading volume. The stablecoin issuer Ethena (ENA) also achieved strong price returns, despite its USDe stablecoin not meeting the requirements of the GENIUS Act (USDe is widely used in decentralized finance, and Ethena has launched a new stablecoin that complies with the GENIUS Act). [5]

Chart 5: This quarter, the supply of stablecoins increased, with Ethereum leading the way

(3) Rising Exchange Trading Volume: Exchanges are another major theme, with centralized exchange trading volume reaching a new high in August since January (Chart 5). [6] The increase in trading volume seems to have benefited several assets associated with centralized exchanges, including BNB, CRO, OKB, and KCS, all of which ranked in the top 20 (in some cases, these assets are also linked to smart contract platforms). [7]

At the same time, decentralized perpetual contracts continue to maintain strong momentum (for background information, see “DEX Appeal: The Rise of Decentralized Exchanges”). The leading perpetual futures exchange Hyperliquid has seen rapid growth, ranking among the top three in fee revenue this quarter. [8] The smaller competitor DRIFT has entered the top 20 of the cryptocurrency industry after a significant increase in trading volume. [9] Another decentralized perpetual contract protocol, ASTER, launched in mid-September and grew from a market cap of $145 million to $3.4 billion in just one week. [10]

Chart 6: CEX perpetual contract trading volume reached an annual high in August

In the fourth quarter, returns in the cryptocurrency sector may be driven by a variety of different themes. First, following bipartisan support for related legislation in the House in July, the relevant committee in the U.S. Senate has begun drafting cryptocurrency market structure legislation. This represents comprehensive financial services legislation targeting the cryptocurrency industry and could serve as a catalyst for its deep integration with the traditional financial services industry. Second, the U.S. Securities and Exchange Commission (SEC) has approved generic listing standards for commodity-based exchange-traded products (ETPs). [11] This could lead to an increase in the number of crypto assets available to U.S. investors through ETP structures.

Finally, the macro environment may continue to evolve. Last week, the Federal Reserve approved a 25 basis point rate cut and hinted at the possibility of two more cuts later this year. All else being equal, crypto assets are expected to benefit from the Fed's rate cuts (as lower rates reduce the opportunity cost of holding non-interest-bearing currency and can support investors' risk appetite). Meanwhile, a weak U.S. labor market, rising stock market valuations, and geopolitical uncertainty may all be viewed as sources of downside risk in the fourth quarter.

Index Implications:

• FTSE/Grayscale Crypto Sectors Total Market Index: This index measures the price return performance of digital assets listed on major global exchanges, providing a reference for overall trends in the crypto market.
• FTSE Grayscale Smart Contract Platforms CryptoSector Index: This index aims to assess the performance of crypto assets that support the development and deployment of smart contracts, which serve as the foundational platforms for self-executing contracts.
• FTSE Grayscale Utilities and Services CryptoSector Index: This index focuses on measuring the performance of crypto assets designed to provide practical applications and enterprise-level functionalities.
• FTSE Grayscale Consumer and Culture CryptoSector Index: This index evaluates the performance of crypto assets that support consumer-centric activities, which involve various goods and services.
• FTSE Grayscale Currencies CryptoSector Index: This index measures the performance of crypto assets that have one of the following three core functions: store of value, medium of exchange, and unit of account.
• FTSE Grayscale Financials CryptoSector Index: This index specifically assesses the performance of crypto assets aimed at providing financial transactions and services.

[1] Source: Artemis, Grayscale Investments. Data as of September 23, 2025.

[2] Altcoins are crypto assets with a market capitalization lower than Bitcoin.

[3] To be included in the cryptocurrency sector, tokens must be listed on a minimum number of qualified exchanges and meet minimum market capitalization and liquidity thresholds.

[4] DeFiLlama, data as of September 22, 2025.

[5]Grayscale Investments

[6]The Block, data as of September 22, 2025.

[7] Certain exchange tokens also benefited from special factors. For example, OKX announced a token buyback and burn plan, with $26 billion worth of tokens being burned. Source: The Block.

[8] Artemis, data as of September 22, 2025.

[9]The Defiant

[10] CoinMarketCap, data as of September 23, 2025. ASTER launched too late to be included in the cryptocurrency industry index.

[11] Source: U.S. Securities and Exchange Commission.