January 2025 Market Commentary

Galaxy Research recently published a report delivering 23 bold predictions on what could be next for digital assets in 2025—read the full report here.

Keep reading our newsletter to learn about the launch of Galaxy's Absolute Return Fund or contact us directly at invest@galaxy.com.

Market Commentary

The crypto market closed the year with a modest correction. BTC retreated 15.4% from its all-time high of $108,135 to $93,714. Over the month, BTC declined by 3.7% while ETH dropped more significantly by 10.10%. The broader market also decreased by 9.9%, measured by the BGCI index.

The crypto market benefited from the tailwinds of the presidential election. On December 4th, Paul Atkins, former SEC commissioner and a proponent of a progressive approach to regulation, was named as the nominee to be the new SEC chair by President-elect Trump. Atkins’ nomination, along with other pro-crypto news from Trump’s transition team, contributed to BTC breaking the $100,000 barrier on the same day, a major milestone in Bitcoin’s history. Additionally, other news suggesting that pro-crypto policies would take hold in the next administration gained momentum, such as new House Financial Services Chairman French Hill signaling his plans to prioritize passage of stablecoin and crypto market structure bills, further underscored anticipation of a more favorable regulatory landscape for digital assets in 2025.

This favorable regulatory momentum was further strengthened by the implementation of the FASB Fair Accounting standards for BTC on December 15th, opening the doors for a wave of corporate adoption of BTC as a treasury asset. MicroStrategy, among the first companies to add BTC to its balance sheet and one of the world’s largest holders of BTC, marked a major milestone by being included in the Nasdaq 100 Index’s yearly reconstitution, with its market capitalization soaring 5.73x over the past year due to the rising value of its BTC holdings. Inspired by this trend, the National Center for Public Policy Research proposed that Microsoft follow suit, though the proposal was rejected by shareholders citing BTC's volatility. Despite such reservations, the push for broader adoption continued at the state level, with Ohio’s House Republican leader Derek Merrin introducing a bill on December 17th to allow the state treasurer to purchase Bitcoin, paving the way for greater state adoption in digital assets. Galaxy Research predicted that at least 5 Nasdaq 100 and 5 nation-states or sovereign wealth funds would adopt BTC as a treasury asset in 2025.

Building on this momentum, partnerships in the stablecoin market are rapidly expanding to drive broader adoption. On December 11th, Binance and Circle announced a collaboration to deepen the integration of Circle’s USDC into Binance’s ecosystem and corporate treasury. Similarly, Ethena Labs introduced USDtb, a new stablecoin backed primarily by BlackRock USD Institutional Digital Liquidity Fund (BUIDL), with reserves composed of 90% BUIDL and 10% USDC for liquidity. Leveraging BlackRock’s brand, Ethena aims to use USDtb as a gateway for TradFi participants to explore on-chain opportunities like USDe, though some may prefer BUIDL as a more conservative alternative. These partnerships align with Galaxy Research’s 2025 predictions, which anticipate at least 10 stablecoin partnerships with TradFi firms in 2025.

The momentum in crypto investment vehicles continues to build as WisdomTree filed for a spot XRP ETF. In Europe, Bitwise has launched a Solana staking ETP, expanding the range of staking-focused products available to investors. Going into 2025, Bloomberg analysts anticipated "wave of new crypto ETFs" set to debut in the U.S., driven by increasing regulatory clarity and institutional demand. Reflecting this trend, BlackRock has recommended a 2% allocation to Bitcoin in diversified portfolios, which implies a $1 trillion inflow to U.S. bitcoin ETFs, as the current AUM in the U.S. wealth management market is ~$50 trillion.

All in all, 2024 marked a significant year in crypto’s history. From early January’s Bitcoin spot ETF launch to November’s presidential election, the crypto market witnessed innovative product launches, record ETF inflows, monumental policy shifts, and growing institutional adoption. With these foundations in place, 2025 is poised to be a transformative year, unlocking even greater opportunities for growth and mainstream integration.

Galaxy Absolute Return Fund

On January 15, 2025, Galaxy is launching a new actively managed hedge fund strategy, the Galaxy Absolute Return Fund (“the Fund”). The Fund seeks to provide digital asset exposure with equity-like volatility across traditional financial instruments and crypto-adjacent technologies while prioritizing risk management and no direct crypto token holdings.

The Fund offers unique entry points into emerging value propositions as digital asset markets expand, capitalizing on new IPOs, public listings, and M&A opportunities. As regulatory clarity paves the way for an accelerated pipeline of IPOs and market activity, the Fund is ideally positioned to uncover alpha in this evolving landscape.

The Fund is led by Chris Rhine, a seasoned portfolio manager with over 20 years of experience in equities, digital infrastructure, and thematic digital asset investments, bringing a track record of innovation and risk management. Supported by a team of investment professionals with expertise spanning digital assets and traditional finance, the fund is designed to meet the needs of institutional clients seeking sophisticated exposure to the rapidly evolving digital asset ecosystem.

Contact invest@galaxy.com for more information or to subscribe to the Galaxy Absolute Return Fund.

Portfolio Considerations

2024 marked a transformative year for the digital assets landscape, characterized by robust technological advancements (Ethereum’s Dencun upgrade, Bitcoin’s staking platform), the evolution of regulatory frameworks globally, and increasing institutional adoption with the approval of US spot ETFs. The year also saw altcoins such as Solana and Uniswap redefine their utility and establish new narratives, consolidating their positions in the sector. While speculative and memecoin-driven projects persisted, the growing adoption of cryptocurrencies by industries and individuals—led largely by stablecoins—demonstrated the sector’s maturation. In this report, we analyze seven cryptocurrencies we reviewed over the year: Solana, Uniswap, NEAR Protocol, Chainlink, MakerDAO, Arbitrum, and Lido.

Solana emerged as a leading high-performance blockchain, supported by its unparalleled throughput and cost-efficiency. Its ecosystem saw substantial growth, fuelled by memecoin activity and decentralized exchanges. By the end of 2024, Solana’s market capitalization surged to $14 billion, a near 95% increase year-over-year. Daily active addresses on the network rose significantly, driven by Pump.fun, a platform enabling the creation of over 4.2 million tokens. Solana’s transaction fees briefly outpaced Ethereum's during the November post-election rally for the first time. However, its low-fee model means Solana should keep transaction volumes higher than Ethereum for sustainable revenue generation. Solana’s innovation in gaming, NFTs, and payment solutions positions it as a strong contender for 2025 with projects like $PENGU, particularly among younger demographics engaging in smaller-value transactions.

Uniswap retained its dominance as the premier decentralized exchange despite facing regulatory pressures and competition from platforms such as Raydium on Solana that offer superior user incentives. While rivals like Raydium and PancakeSwap experienced higher price appreciation, Uniswap maintained its position as the market leader in transaction volumes and activity. Key developments, such as the launch of Unichain, a Layer 2 solution, and the introduction of protocol fee rewards for $UNI holders, showcased Uniswap’s commitment to innovation. UNI’s price rose by 17% following the launch of Unichain, reflecting optimism around its enhanced staking and transaction capabilities. Despite a $175,000 fine from the CFTC, Uniswap’s total value locked (TVL) remained stable at $6 billion ahead of other exchanges by more than $4 billion of TVL.

NEAR Protocol leveraged its AI-driven origins to redefine its role within the Layer 1 ecosystem earlier this year following AI thematics outside digital assets sectors. Apart from its AI-driven origins, it also focuses on interoperability and high transaction speed. NEAR Protocol further demonstrated its commitment to improving transaction speed by implementing sharding, a blockchain scaling technology. By mid-2024, active addresses on the NEAR network surpassed 2 million, a 40-fold increase from the previous year. During this period, $NEAR outperformed its Layer 1 peers, recording a modest 8.1% decline in April compared to an average 28.4% drop across the infrastructure sector. It concluded the year on a positive note, achieving a 57% increase.

The popularity of financial asset tokenization brought the importance of oracles back into the spotlight in 2024. Oracles allow blockchains to securely interact with external data feeds and provide critical off-chain, real-world data needed by smart contracts or any applications on-chain. Chainlink reinforced its dominance in the oracle sector, expanding its influence through real-world asset tokenization and cross-chain interoperability. Partnerships with industry leaders in 2024 such as BlackRock, SWIFT, and Sony highlighted its role as a bridge between traditional finance and blockchain ecosystems. 2024 also marked a significant year for Chainlink for its technical improvement as it enhanced its technical capabilities with the full implementation of the Cross-Chain Interoperability Protocol (CCIP). CCIP is designed to establish a standardized framework for seamless communication between different blockchains, addressing a critical need for interoperability in capital markets and financial institutions. As these institutions increasingly adopt blockchain technology, many are expected to develop proprietary blockchains that will still require interaction with external chains used by counterparties. This interoperability is essential for ensuring the scalability and integration of on-chain solutions in the broader financial ecosystem.

MakerDAO demonstrated its leadership in DeFi through its "Endgame" strategy, which included the rebranding to SKY and significant diversification into real-world assets. To diversify into traditional financial asset class, the allocation of $1 billion to tokenized U.S. Treasury funds underscored MakerDAO’s adaptability and strategic foresight for the future growth of its ecosystem. The introduction of USDS, a rebranded stablecoin with enhanced compliance features, was hailed as a commitment to align with evolving regulatory demands as one of the oldest DeFi protocols in the space. However, its rebrand to SKY was not as successful as it had hoped for. While the USDS stablecoin demonstrated strong performance, surpassing a $1 billion market capitalization, the governance token $SKY faced significant challenges, debuting with only $60 million in market cap, less than half of that of $MKR, the original governance token. This underwhelming launch exerted downward pressure on $MKR, which fell below $2 for the first time since January 2024. Although both $SKY and $MKR have since recovered in price, $MKR remains more widely adopted on centralized exchanges. The reliance on centralized exchange listings for the adoption and success of forks from established projects like MakerDAO underscores a critical lesson for future crypto initiatives: centralized platforms continue to play a pivotal role in driving liquidity and broader adoption.

Layer 2 projects were highly active in 2024, advancing cutting-edge technologies, but Arbitrum stood out as a dynamic ecosystem that strategically embraced tokenization and capitalized on the growing RWA trend. The Stable Treasury Endowment Program (STEP), introduced in April 2024, diversified $35 million worth of ARB tokens into stable, liquid, and yield-bearing assets, setting a precedent for on-chain and off-chain diversification. Arbitrum’s efforts to integrate RWA, including collaborations with BlackRock and Ondo Financial, demonstrated that DAOs and protocols can lead to bridging traditional finance to blockchain.

Lido retained its leadership in the liquid staking sector, adapting to emerging challenges through strategic collaborations. The launch of a restaking initiative with Symbiotic addressed competition from EigenLayer and highlighted Lido’s adaptability. By the end of 2024, Lido’s total value locked reached $35 billion, the largest among liquid staking protocols. The introduction of a points-based incentive system further engaged its community, ensuring its relevance in the evolving staking landscape.

While some of the tokens covered in our monthly market reports underperformed relative to earlier expectations, the underlying fundamentals and technical architecture of these projects remain intact: Layer 2 and liquid staking protocols continue to address critical scalability and usability challenges for locked assets, underscoring their importance in the broader adoption of blockchain technologies. Oracle networks are poised to play a pivotal role in bridging traditional financial institutions with the crypto ecosystem, offering the necessary infrastructure to support secure, real-time data integration. As institutional interest in DeFi grows, the adoption of robust oracle solutions will be a cornerstone for capital markets' expansion into digital assets.

We believe the fundamental economic drivers and underlying incentives behind the key trends of 2024 are unlikely to shift significantly in the coming year. The rise of memecoins in 2024, driven by increasingly accessible tools for token creation, reflects the evolving dynamics of market sentiment and speculative activity. While often viewed as a niche segment, memecoins could continue to capture retail interest, providing an entry point for new participants in the digital asset space. Finally, the tokenization trend that defined 2024 is expected to catalyze further adoption of tested and proven protocols. The shift toward tokenizing RWAs has solidified its position as a transformative force in the industry, with protocols that facilitated this evolution well-positioned for sustained growth. As these protocols demonstrate their scalability, security, and adaptability, they are likely to see increased integration across institutional and retail use cases in 2025.

Institutional Adoption Highlights

• Stablecoins Could Reach $3 Trillion Market Cap by 2029 amid Institutional ETF Adoption

• Franklin Templeton predicts rising sovereign, institutional adoption for Bitcoin in 2025

• Bitcoin ETPs Set to Cross $250B in AUM by 2025: Galaxy Research Prediction

• Ethereum ETF Staking Could Boost Institutional Adoption: Experts

Crypto Performance and Volatility Data