Grayscale: The Great Beauty Act and the encryption vault company are driving BTC demand.

Author: Grayscale Research; Translator: Jinse Finance xiaozou

• With the dual drivers of macro demand and regulatory benefits continuing to push the crypto bull market, Bitcoin's price reached a historic high in May 2025.
• Investor demand for Bitcoin partly stems from the macroeconomic imbalances in the United States, including the ongoing fiscal deficit. While the deficit is not a new phenomenon, the comprehensive tax and spending bill being advanced in Congress is likely to keep the U.S. finances on an unsustainable path.
• The fiscal risks in the United States seem to be driving demand for Bitcoin, as evidenced by the rise of "Bitcoin treasury" companies (i.e., publicly traded companies that hold Bitcoin on their balance sheets). The valuation premiums these companies receive indicate that traditional stock market investors have a broad interest in crypto asset allocation. However, we believe that the "crypto treasury" strategy for tokens other than Bitcoin has limitations, as investors will ultimately be able to access more allocation channels through exchange-traded products (ETPs) on spot cryptocurrency exchanges.
• This month also saw the following progress: breakthroughs in stablecoin and market structure legislation; impressive performance of the decentralized exchange Hyperliquid; and the blockchain-based identity verification project Worldcoin featured on the cover of Time magazine.

Equities rebounded in May as the U.S.-China tariff conflict reached a temporary détente. But the rally comes after three consecutive months of declines, with the S&P 500 still about 4% below its peak. Bond markets, particularly high-quality sectors, have seen negative returns compared to relatively healthy equities, which appears to be due to high government deficits and the corresponding issuance of long-term Treasuries. According to the capitalization-weighted FTSE Grayscale Crypto Sector Index, the risk-adjusted return for Bitcoin and the crypto asset class as a whole is comparable to that of global equities (Figure 1). Bitcoin rose 11% for the month to an all-time high of $112,000, while ETH, the native token of the Ethereum blockchain, rose 44%, partially recovering its previous weak performance against Bitcoin.

Figure 1: The performance of the crypto market adjusted for risk is on par with the stock market.

Beautiful Law

When investors have concerns about the credibility of the fiat system, demand for Bitcoin tends to rise. During May, this concern came into focus again. On May 22, the U.S. House of Representatives passed a comprehensive tax and spending bill now officially named OBBBA (One Big Beautiful Bill Act). **Budget experts estimate that the bill would add about $3 trillion to the federal deficit over the next 10 years if implemented under current terms; If some of the expiring terms are extended, the deficit could be as high as $5 trillion. **If the bill goes into force, its balance of payments would put U.S. Treasuries on an unsustainable path (Figure 2). Moody's downgraded the U.S. sovereign credit rating from AAA to AA on May 16 in part as a result of the direction of U.S. fiscal policy. While the U.S. government will not default in the near term, an unsustainable debt path will increase the long-term risk of macroeconomic mismanagement, thereby increasing investor interest in non-sovereign stores of value such as gold and Bitcoin.

Figure 2: OBBBA makes the U.S. fiscal path unsustainable

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Surge of Cryptocurrency Vault Companies

The spot ETPs listed in the United States can be said to be the most significant new source of demand for Bitcoin since its launch. During May, these products consistently maintained high net inflows, totaling $5.2 billion. In the coming months, the Bitcoin purchases by "Bitcoin treasury" companies (i.e., publicly listed companies buying Bitcoin for their balance sheets) may level off or even exceed the purchases of spot Bitcoin ETPs. Corporate Bitcoin investment pioneer Strategy (formerly MicroStrategy) added approximately 27,000 Bitcoins (around $2.8 billion) in May. Strategy's market capitalization far exceeds the value of the Bitcoin on its balance sheet, indicating excessive demand in the market for gaining Bitcoin exposure through equity instruments (Figure 3).

Figure 3: The market value of Strategy has a premium relative to its Bitcoin holdings.

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As the stock market pays a premium for Bitcoin within this structure, more companies are beginning to adopt this strategy, with some enterprises expanding it to other digital assets beyond Bitcoin. For example, a consortium made up of Tether, Bitfinex, and SoftBank created Twenty One Capital, which initially plans to hold 42,000 Bitcoins (approximately $4.4 billion), primarily provided by Tether. Similarly, David Bailey, CEO of Bitcoin Magazine, transformed the existing publicly listed company KindlyMD into the Bitcoin treasury company Nakamoto Holdings. The company plans to issue approximately $700 million in stocks and convertible bonds in the U.S. market to purchase Bitcoin, with plans to replicate this strategy in other countries around the world. Finally, the holding company of Trump's social app Truth Social, Trump Media & Technology Group, announced it would raise $2.5 billion to allocate Bitcoin to its balance sheet.

Apart from Bitcoin, SharpLink Gaming announced that it will transform into an Ethereum bond company with the support of investors in the cryptocurrency field such as Consensys (see Figure 4). Other entrepreneurs have further expanded this model, creating cryptocurrency vault companies targeting Solana (Upexi), XRP (VivoPower), and even Trump-themed meme coins (Freight Technologies). The surge of cryptocurrency vault companies indicates strong investor interest in gaining exposure to cryptocurrency assets listed and traded on exchanges. However, the popularity of spot crypto ETPs may ultimately limit the demand for cryptocurrency vault companies, as ETPs can more efficiently track the prices of underlying tokens.

Figure 4: Surge of Crypto Vault Companies

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Digital Asset Legislation

In terms of legislation, the White House and Congress continue to advance the regulatory legislative work on digital assets in the United States. On May 5, the House Financial Services Committee and the Agriculture Committee jointly released the draft of the "Digital Asset Market Structure Act"—a comprehensive financial services legislation comparable in regulatory scope to the Dodd-Frank Act or the Sarbanes-Oxley Act. The House plans to hold a hearing on the updated draft on June 4. Additionally, the "GENIUS Act" (Guiding and Establishing American Stablecoin Innovation Act) received bipartisan support and was passed by the Senate on May 19, terminating the debate vote and is about to enter the amendment process. Although both pieces of legislation still need to go through several steps before officially taking effect, the existing progress and bipartisan support signal a positive outlook for their eventual passage.

Since the U.S. presidential election last November, the clearer regulatory framework seems to have catalyzed institutional investors to increase their holdings in the industry. This trend continued in May, manifested in several significant transactions and/or policy adjustments. The most notable was Coinbase's acquisition of the cryptocurrency options specialist Deribit for $2.9 billion, setting a record for the largest M&A transaction in the industry's history. Coinbase was also added to the S&P 500 index this month, currently ranking 187th. Its competitor Kraken (also active in M&A) announced that it will launch tokenized stock services in non-U.S. markets, while Robinhood stated it will acquire the Canadian cryptocurrency platform WonderFi. Other notable institutional movements include: Brown University disclosing a position in Bitcoin ETPs, New Hampshire passing legislation to allow public funds to invest in crypto assets, and Morgan Stanley planning to launch crypto trading services in its E-Trade products.

Performance of ETH and Various Tokens

Ethereum (ETH) significantly outperformed Bitcoin in May, but partly due to the statistical timing: since the beginning of 2023, ETH price movements have largely coincided with the crypto sector of the "smart contract platform" (Figure 5). We expect smart contract platforms to benefit from U.S. regulatory reforms, which will drive broader adoption of stablecoins, tokenized assets, and decentralized finance – all of which rely on smart contract platform infrastructure. While this is a highly competitive segment of the crypto market, Ethereum has advantages such as a large scale of on-chain funds, a decentralized culture, and a focus on network security and neutrality. However, the ETH token price needs to be supported by the growth of activity on the Ethereum mainnet (Layer 1) rather than on the many L2 networks (Layer 2). While the Pectra upgrade implemented in May will bring beneficial improvements, it will not immediately increase mainnet activity.

Figure 5: Ethereum's performance is basically in sync with the cryptocurrency sector it belongs to.

Despite ETH's strong performance during the month, the most prominent of the large assets with a market cap of more than $5 billion was Hyperliquid's HYPE token. Hyperliquid is both a decentralized exchange (DEX) professional perpetual contracts and a general smart contract platform. The chain's hypercore products currently account for more than 80% of the 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 three major (in terms of fee income) smart contract platforms (Figure 6). Last year, the protocol set a record for the largest airdrop in crypto history — more than $8 billion at current prices — prompting an industry-wide rethink of tokenomics and funding models without VC backing. Hyperliquid has always maintained high organic usage and strong liquidity, and will increasingly compete with centralized derivatives exchanges such as Binance and Bybit in the future.

Figure 6: Hyperliquid's fee income surpasses that of leading smart contract platforms.

Performance of AI Cryptocurrency Sector

With the rapid development of blockchain AI technology, Grayscale Research has recently added the "Artificial Intelligence Crypto Sector," becoming the sixth independent sector in our cryptocurrency industry classification framework. Currently, this sector includes 20 types of tokens, with a total market capitalization of approximately $20 billion (Figure 7).

Figure 7: The current market value of the artificial intelligence cryptocurrency sector is approximately 20 billion USD.

Recent significant progress in this sector includes Worldcoin—an identity network founded by Sam Altman aimed at establishing a "proof of personhood" system to tackle the increasingly severe challenges of distinguishing between humans and robots in the AI era. This month, Worldcoin announced an important milestone: completing a $135 million financing through the acquisition of WLD tokens in the public market via a16z and Bain Capital Crypto. The project has attracted widespread attention with initiatives such as landing on the cover story of Time magazine, promoting the iris-scanning device "Orb" in the U.S. market, and the crypto wallet World App. Other important developments in the blockchain AI field include the rising attention on the Bittensor subnet and leading stablecoin issuer Tether disclosing plans to launch an AI agent network based on crypto-native architecture.

In the coming months, the cryptocurrency market is likely to continue the current driving logic: macro demand for Bitcoin spurred by stagflation risks and tariff uncertainties, continuous improvement in the regulatory environment in the US and overseas, and technological innovations in areas such as blockchain AI. This asset class has performed well over the past two years, and the supporting factors for fundamental improvement still exist.