Author: Grayscale Research; Translation: Jinse Finance xiaozou
Driven by macro demand and regulatory tailwinds, Bitcoin reached a historical high in May 2025.
Investor demand for Bitcoin is partly driven by US macroeconomic imbalances, including ongoing fiscal deficits. While deficits are not a new phenomenon, the comprehensive tax and spending bill currently progressing in Congress is likely to keep the US on an unsustainable fiscal path.
US fiscal risks seem to be generating Bitcoin demand, as evidenced by the rise of "Bitcoin treasury" companies (listed companies holding Bitcoin on their balance sheets). The valuation premium these companies receive indicates broad interest from traditional stock market investors in crypto asset allocation. However, we believe crypto treasury strategies beyond Bitcoin have limitations, as investors will ultimately be able to access more allocation channels through spot crypto exchange traded products (ETPs).
This month also saw breakthroughs in stablecoin and market structure legislation; decentralized exchange Hyperliquid performed impressively; and blockchain-based identity verification project Worldcoin made the cover of Time magazine.
As the US and China reached a temporary truce in tariff conflicts, the stock market rebounded in May. However, this rise occurred after three consecutive months of decline, with the S&P 500 still about 4% below its peak. Compared to the relatively healthy stock market, the bond market (especially high-quality segments) showed negative returns, seemingly due to high government deficits and corresponding long-term government bond issuance. According to the market-cap-weighted FTSE Grayscale Crypto Sector Index, Bitcoin and the entire crypto asset class have risk-adjusted returns comparable to global stocks (Figure 1). Bitcoin rose 11% this month, reaching a historical high of $112,000; ETH, the native token of the Ethereum blockchain, rose 44%, partially recovering its previous underperformance relative to Bitcoin.
Figure 1: Risk-adjusted crypto market performance on par with stocks
The Big Beautiful Bill
Bitcoin demand tends to rise when investors doubt the credibility of fiat currency systems. In May, this concern was again in focus. On May 22, the US House of Representatives passed the comprehensive tax and spending bill now formally named OBBBA (One Big Beautiful Bill Act). Budget experts estimate that if implemented according to current provisions, the bill will increase the federal deficit by approximately $3 trillion over the next 10 years; if certain expiring provisions are extended, the deficit could reach $5 trillion. If the bill takes effect, its revenue and expenditure composition will put the US national debt on an unsustainable path (Figure 2). Partly due to the US fiscal policy direction, Moody's downgraded the US sovereign credit rating from AAA to AA on May 16. While the US government will not default in the short term, an unsustainable debt path increases long-term risks of macroeconomic mismanagement, thereby enhancing investor interest in non-sovereign value storage methods like gold and Bitcoin.
Figure 2: OBBBA makes US fiscal path unsustainable
Surge in Crypto Treasury Companies
Spot ETPs in the US can be considered the most important new demand source for Bitcoin since its launch. In May, these products continued to maintain high net inflows, totaling $5.2 billion. In the coming months, Bitcoin purchases by "Bitcoin treasury" companies (listed companies buying Bitcoin for their balance sheets) may equal or even exceed spot Bitcoin ETP purchases. Bitcoin investment pioneer Strategy (formerly MicroStrategy) added approximately 27,000 bitcoins (about $2.8 billion) in May. Strategy's market value far exceeds the value of Bitcoin on its balance sheet, indicating excess market demand for Bitcoin exposure through equity instruments (Figure 3).
Figure 3: Strategy market value shows premium relative to Bitcoin holdings
As the stock market pays a premium for Bitcoin in this structure, more companies are adopting this strategy, with some extending it to digital assets beyond Bitcoin. For example, a consortium comprising Tether, Bitfinex, and SoftBank created Twenty One Capital, which will initially hold 42,000 bitcoins (about $4.4 billion), primarily funded by Tether. Similarly, Bitcoin Magazine CEO David Bailey transformed the existing listed company KindlyMD into a Bitcoin treasury company called Nakamoto Holdings. The company plans to issue about $700 million in stocks and convertible bonds in the US market to purchase Bitcoin, with plans to replicate this strategy in other global markets. Lastly, Trump Media & Technology Group, the holding company of Trump's social app Truth Social, announced raising $2.5 billion to allocate Bitcoin to its balance sheet.
Beyond Bitcoin, SharpLink Gaming announced its transformation into an Ethereum treasury company with support from crypto investors like ConsenSys (Figure 4). Other entrepreneurs further expanded this model, creating crypto treasury companies for Solana (Upexi), XRP (VivoPower), and even a Trump-themed meme coin (Freight Technologies). The proliferation of crypto treasury companies demonstrates investors' strong interest in crypto asset exposure through stock exchanges. However, the popularity of spot crypto ETPs may ultimately limit demand for crypto treasury companies, as ETPs can more efficiently track underlying token prices.
Figure 4: Surge in Crypto Treasury Companies
Digital Asset Legislation
In terms of legislation, the White House and Congress continue to advance US digital asset regulatory legislation. On May 5, the House Financial Services and Agriculture Committees jointly released a draft of the Digital Asset Market Structure Act—a comprehensive financial services legislation comparable to the Dodd-Frank Act or Sarbanes-Oxley Act in regulatory scope. The House plans to hold a hearing on an updated draft on June 4. Additionally, the GENIUS Act (Guiding and Establishing National Innovation for Stablecoin Act) passed the Senate cloture vote with bipartisan support on May 19 and is about to enter the amendment process. Although both legislations are still far from formal implementation, the current progress and bipartisan support attitude signal a positive outlook for eventual passage.
Since the US election in November last year, the prospect of a clarified regulatory framework seems to have catalyzed institutional investor increases in the industry. This trend continued in May, manifesting in several major transactions and/or policy adjustments. Most notably, Coinbase acquired the crypto options professional platform Deribit for $2.9 billion, setting a record for the largest industry acquisition. Coinbase was also added to the S&P 500 this month, currently ranking 187th. Its competitor Kraken (also active in mergers and acquisitions) announced the launch of tokenized stock services in non-US markets, while Robinhood stated it would acquire the Canadian crypto platform WonderFi. Other noteworthy institutional developments include Brown University disclosing Bitcoin ETP positions, New Hampshire passing legislation allowing public funds to invest in crypto assets, and Morgan Stanley planning to introduce crypto trading services in its E-Trade product.
ETH and Token Performance
Ethereum (ETH) significantly outperformed Bitcoin in May, partly due to the statistical timing: since the beginning of 2023, ETH's price trend has been basically synchronized with the "smart contract platform" crypto sector (Figure 5). We expect smart contract platforms to benefit from US regulatory reforms, which will drive broader adoption of stablecoins, tokenized assets, and decentralized finance - applications that rely on smart contract platform infrastructure. Although this is a highly competitive segment in the crypto market, Ethereum has advantages such as large on-chain capital scale, a culture of decentralization, and an emphasis on network security and neutrality. However, ETH token prices need to be supported by growth in activity on the Ethereum mainnet (Layer 1) rather than numerous Layer 2 networks. The Pectra upgrade implemented in May, while bringing beneficial improvements, will not immediately enhance mainnet activity.
Figure 5: Ethereum's performance is basically synchronized with its crypto sector
Despite ETH's strong performance this month, the most outstanding performer among large assets with a market cap over $5 billion is Hyperliquid's HYPE token. Hyperliquid is both a professional perpetual contract decentralized exchange (DEX) and a general smart contract platform. Its Hypercore product currently accounts for over 80% of on-chain perpetual contract trading volume. During May, Hypercore's perpetual contract trading volume exceeded $17 billion, and its daily revenue at the end of the month even surpassed that of Ethereum, TRON, and Solana - the top three smart contract platforms by fee income (Figure 6). Last year, the protocol set a record for the largest airdrop in crypto history, valued at over $8 billion at current prices, prompting the entire industry to rethink token economics and financing models without venture capital support. Hyperliquid has maintained high natural usage and strong liquidity, and will increasingly compete with centralized derivatives exchanges like Binance and Bybit in the future.
Figure 6: Hyperliquid's fee income surpasses top smart contract platforms
AI Crypto Sector Performance
With the rapid development of blockchain AI technology, Grayscale Research recently added an "AI crypto sector", becoming the sixth independent sector in our crypto industry classification framework. Currently, this sector includes 20 tokens with a total market cap of around $20 billion (Figure 7).
Figure 7: Current market cap of AI crypto sector is about $20 billion
A project that has made significant recent progress in this sector is Worldcoin - an identity network founded by Sam Altman aimed at establishing a "proof of humanity" system to address the increasingly serious human/robot identification challenges in the AI era. This month, Worldcoin announced an important milestone: completing a $135 million financing through a16z and Bain Capital Crypto's open market acquisition of WLD tokens. The project has attracted widespread attention through landing on the Time magazine cover story, promoting the iris scanning device "Orb" in the US market, and launching the World App crypto wallet. Other important developments in the blockchain AI field include rising attention to the Bittensor subnet and Tether, a top stablecoin issuer, disclosing plans to launch an AI agent network based on a crypto-native architecture.
In the coming months, the crypto market is likely to continue its current driving logic: Bitcoin's macro demand driven by stagflation risks and tariff uncertainty, continued improvement of regulatory environments in the US and overseas, and technological innovations in areas like blockchain AI. This asset class has performed excellently in the past two years, and the supporting factors of fundamental improvement still exist.
