Original Article Title: August 2025: The Road to Regulatory Clarity

Original Source: Grayscale

Original Translation: DeepTech TechFlow

· Regulatory clarity on digital assets in the United States has been brewing for a long time—although the road ahead is still unfolding, policymakers have made meaningful progress this year.

· Market attention to regulatory optimism may have contributed to Ethereum's outstanding performance. Ethereum is a leader in the blockchain financial market, so if regulatory clarity can promote the adoption of stablecoins, tokenized assets, and/or decentralized finance applications, Ethereum may benefit from it.

· Digital Asset Treasuries (DAT)—publicly listed companies holding cryptocurrency on their balance sheets—have surged in recent months, but investor demand may have reached saturation. Valuation premiums of large projects are being compressed.

· The price of Bitcoin once hit a historical high of around $125,000, but closed lower at the end of the month. Although Bitcoin's price performance in August was not as strong as others, pressure surrounding the independence of the Federal Reserve reminded investors why Bitcoin has been highly sought after.

By August 2025, the cryptocurrency's total market capitalization stabilized at around $4 trillion, but there were significant sectoral fluctuations within the market. The cryptocurrency asset class encompasses various software technologies, each with different underlying drivers, so token valuations do not always fluctuate synchronously.

While the price of Bitcoin declined in August, Ethereum, on the other hand, rose by 16%.[1] This second-largest market-cap public chain seems to have benefited from investor attention to regulatory changes, which could support the adoption of stablecoins, tokenized assets, and decentralized finance (DeFi) applications—and Ethereum currently holds a leading position in these areas.

Figure 1 According to the Crypto Sectors framework (a digital asset classification and index product developed in collaboration with FTSE/Russell), there were significant changes in market sectors in August. The Currency, Consumer & Culture, and Artificial Intelligence (AI) encryption sector indices all saw slight declines. The weakness of the AI sector reflects the poor performance of AI-related stocks in the public stock market. Meanwhile, the Finance, Smart Contract Platforms, and Utilities & Services sector indices all rose this month. Despite the month-over-month decline in Bitcoin's price, the price reached a historical high of about $125,000 in mid-August; Ethereum's price also reached a new high of nearly $5,000.[2]

Figure 1: Significant Rotation in the Crypto Sector in August

《GENIUS Act》 and the Future

We believe that Ethereum's recent strong performance is mainly due to fundamental improvements, with the most important being the increased regulatory clarity around digital assets and blockchain technology in the United States. One of the most impactful policy changes this year was the passage of the "GENIUS Act" in July. This legislation provided a comprehensive regulatory framework for stablecoin issuers in the U.S. market (for background, please see "The Future of Stablecoins and Payments"). Ethereum is the leading stablecoin blockchain today (by transaction volume and balance), and after the passage of the "GENIUS Act," Ethereum's price surged nearly 50% in July, [3] continuing to drive its price higher in August.

However, this year's policy changes in the U.S. are not limited to stablecoins but also cover a range of topics from cryptocurrency custody to banking regulatory guidance. Looking ahead, these policy changes may further drive institutional investors into the crypto industry. Based on our observations, the most important policy actions taken by the Trump administration and federal agencies in the digital asset space are summarized in Figure 2. These policy changes, along with potentially more to come, are fueling an institutional investment wave in the crypto industry (for more details, please see "March 2025: Institutional Chain Reaction").

Figure 2: Policy Changes Bringing Greater Regulatory Transparency to the Crypto Industry

In August of this year, Federal Reserve Board Governors Waller and Bowman both attended a blockchain conference at Jackson Hole, Wyoming, a scene that would have been hard to imagine a few years ago. This conference followed the annual Jackson Hole Economic Policy Symposium hosted by the Fed. In their speeches, they emphasized that blockchain should be seen as a financial technology innovation, and regulatory agencies need to find a balance between maintaining financial stability and creating space for new technology development. [4]

Heading into September, the U.S. Senate Banking Committee plans to consider legislation on crypto market structure, which will cover issues related to the crypto market beyond stablecoins. The Senate's efforts build on the bipartisan passage of the "CLARITY Act" in July by the House of Representatives. Senate Banking Committee Chair Scott has expressed his expectation that the market structure legislation will also receive bipartisan support in the Senate. [5] However, there are still significant issues to address. Industry groups are particularly focused on ensuring that the market structure legislation can protect the rights of open-source software developers and non-custodial service providers. This issue may continue to spark debates among lawmakers in the coming months. (It is worth noting that Grayscale Investments was one of the signatories of a recent industry group letter submitted to members of the Senate Banking and Agriculture Committee.)

Tired of DAT Yet?

In August, Bitcoin underperformed while Ethereum shined, a trend that was significantly reflected in the fund flows across multiple exchanges and products.

A notable drama unfolded on Hyperliquid, a decentralized exchange (DEX) offering spot trading and perpetual contracts. Starting on August 20, a Bitcoin "whale" (an investor holding a large amount of BTC) sold around $3.5 billion worth of BTC and immediately bought around $3.4 billion worth of ETH. Although we cannot speculate on the investor's motives, such a large-scale risk transfer occurring on a DEX rather than a centralized exchange (CEX) is an inspiring development. In fact, on the day with the highest trading volume that month, Hyperliquid's spot trading volume briefly surpassed that of Coinbase (see Figure 3).

Figure 3: Hyperliquid Spot Trading Volume Surge

A similar ETH preference was also evident in the net fund flows of exchange-traded products (ETPs) on crypto exchanges that month. The U.S.-listed spot Bitcoin ETP saw $755 million in net outflows in August, marking the first net outflow since March. In contrast, the U.S.-listed spot Ethereum ETP saw net inflows of $3.9 billion in August, a significant increase following the $5.4 billion net inflow in July (see Figure 4). After the sharp increase in net inflows for ETH over the past two months, both BTC and ETH ETPs now hold over 5% of their respective token's circulation.

Figure 4: ETP Net Inflows Shift to ETH

Bitcoin, Ethereum, and many other crypto assets have also received support from Digital Asset Treasuries (DATs). A DAT is a publicly traded company holding crypto assets, providing equity investors with exposure to cryptocurrencies. Strategy (formerly MicroStrategy), the largest Bitcoin-holding DAT, additionally purchased 3,666 BTC (approximately $400 million) in August. Meanwhile, the two largest Ethereum treasuries combined purchased 1.7 million ETH (around $7.2 billion) [7].

Reportedly, at least three new Solana DATs are in the works, including a $1 billion+ project sponsored by a consortium of Pantera Capital and Galaxy Digital, Jump Crypto, and Multicoin Capital [8]. Furthermore, Trump Media & Technology Group announced plans to launch a DAT based on the CRO token, tied to Crypto.com and its Cronos blockchain [9]. Recent other DAT announcements have mainly focused on Ethena's ENA token, Story Protocol's IP token, and Binance Smart Chain's BNB token [10].

While the sponsor continues to offer these investment vehicles, the price performance suggests that investor demand may have reached saturation. Analysts typically monitor its “mNAV,” which is the company's market value-to-cryptocurrency asset value on the balance sheet ratio to gauge supply-demand imbalances. If demand for cryptocurrency assets existing in the form of publicly traded equity instruments is excessive (i.e., insufficient DAT), the mNAV may exceed 1.0; if the supply of cryptocurrency assets existing in the form of publicly traded equity instruments is excessive (i.e., too much DAT), the mNAV may fall below 1.0. Currently, the mNAV of some large projects appears to be approaching 1.0, indicating that the supply-demand of DAT is approaching balance (see Figure 5).

Figure 5: Valuation Premium of DAT Decreasing

Back to Basics: The Case of Bitcoin

Like all asset classes, public discussion about the crypto market often focuses on short-term issues such as regulatory changes, ETF fund flows, and DAT. However, taking a step back to re-examine the core investment thesis of Bitcoin may be more critical. Among the numerous assets in the crypto space, Bitcoin's significance lies in providing a currency asset and peer-to-peer payment system based on clear and transparent rules, independent of any particular individual or institution. Recently, central bank independence has been threatened, once again reminding us why many investors are so interested in these assets.

By way of background, most modern economies operate on a “fiat” currency system. This means that the currency is not backed by anything tangible (i.e., not pegged to any commodity or other currency) and its value relies entirely on trust. Throughout history, governments have often exploited this feature to achieve their short-term goals (such as re-election). This can lead to inflation and diminish trust in the fiat currency system.

Therefore, to make the fiat currency system function effectively, it is necessary to ensure that the government can fulfill its commitments and not abuse this system. The approach taken by the U.S. and most developed market economies is to give the central bank clear objectives (often in the form of an inflation target) and operational independence. Elected officials typically provide some oversight to the central bank to ensure democratic accountability. Besides a brief spike in inflation post-COVID-19 pandemic, since the mid-1990s, this clear objective, operational independence, and democratic accountability system have delivered low and stable inflation in major economies (see Figure 6).

Figure 6: Independent Central Banks Achieve Low and Stable Inflation

In the U.S., this system is currently under pressure, not primarily due to inflation but stemming from deficits and interest payments. The total debt of the U.S. federal government is currently around $30 trillion, equivalent to 100% of GDP, the highest level since World War II, despite being in peacetime and having a low unemployment rate. With the Treasury refinancing debt at around 4% interest, the debt interest payments continue to rise, crowding out resources from other uses (see Figure 7).

Figure 7: Interest Payments Take Up More of the Federal Budget

The July passage of the "One Big Beautiful Bill Act" (OBBBA) locked in a high deficit for the next 10 years. Unless interest rates drop, this will mean higher interest payments, further squeezing other uses of government revenue. As a result, the White House has repeatedly pressured the Federal Reserve to lower interest rates and demanded the resignation of Fed Chair Powell. In August, with the dismissal of Lisa Cook, one of six sitting members of the seven-person Board of Governors, threats to Fed independence escalated further.[11] While this may benefit elected officials in the short term, the erosion of Fed independence will increase the risks of high inflation and currency debasement in the long run.

Bitcoin operates on a currency system based on transparent rules and predictable supply growth. When investors lose confidence in the institutions that back the fiat currency system, they turn to more reliable alternatives.Unless policymakers take steps to strengthen the institutions supporting the fiat currency, allowing investors to trust the commitment to maintaining low and stable inflation in the long run, demand for Bitcoin may continue to grow.

Index Definitions:

· FTSE/Grayscale Crypto Sectors Total Market Index

This index measures the price return performance of digitally native assets listed on major global exchanges, providing a reference for the overall crypto market trend.

· FTSE Grayscale Smart Contract Platforms Crypto Sector Index

This index aims to evaluate the performance of crypto assets supporting smart contract development and deployment, serving as the foundational platform for self-executing contracts.

· FTSE Grayscale Utilities and Services Crypto Sector Index

This index focuses on measuring the performance of cryptocurrency assets designed to provide real-world utility and enterprise-grade functionality.

· FTSE Grayscale Consumer and Culture Crypto Sector Index

This index evaluates the performance of crypto assets that support consumer-centric activities spanning various goods and services sectors.

· FTSE Grayscale Currencies Crypto Sector Index

This index measures the performance of crypto assets with one of three core functionalities: store of value, medium of exchange, and unit of account.

· FTSE Grayscale Financials Crypto Sector Index

This index specifically assesses the performance of crypto assets geared toward providing financial transactions and services.

Source:

[1] Source: Bloomberg. Data as of August 29, 2025. Past performance is not indicative of future results.

[2] Source: Bloomberg. Bitcoin hit an all-time high on August 14; Ethereum hit an all-time high on August 24.

[3] Other organizations have recently announced Layer 1 blockchains for stablecoin use cases, including Circle (Arc), Stripe (Tempo), and Bitfinex (Plasma). Google also started promoting its Layer 1 GCUL in August. While Ethereum currently leads the market, many blockchains will compete for stablecoin transaction volume and associated fees.

[4] Source: Federal Reserve, Federal Reserve.

[5] Source: CoinTelegraph.

[6] Data from: mempool.space, hypurrscan.io, etherscan.io, Grayscale Investments. Prices are in USD, as of August 29, 2025.

[7] Data from: Bitcointreasuries.net, strategicethreserve.xyz, Bloomberg, Grayscale Investments. Data as of August 29, 2025.

[8] Source: Unchained, CoinDesk.

[9] Source: Reuters.

[10] Source: CoinDesk, The Block, DL News.

[11] Source: The New York Times.

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