Grayscale: Big Beauty Act, crypto vault companies are creating demand for BTC

Author: Grayscale Research; Translation: Golden Finance xiaozou

• As the dual driving force of macro demand and favorable regulatory measures continues to drive the crypto bull market, Bitcoin price hit a record high in May 2025.

• Investor demand for Bitcoin stems in part from the U.S. macroeconomic imbalance, including ongoing fiscal deficits. While the deficit is not a new phenomenon, the Comprehensive Tax and Spending Act, which is being promoted in Congress, is likely to keep the U.S. fiscal on an unsustainable path.

• U.S. fiscal risks seem to be raising demand for Bitcoin, which is reflected in the rise of "bitcoin vault" companies, i.e. listed companies holding Bitcoin on balance sheets. The valuation premiums obtained by such companies show that traditional stock market investors have a wide interest in crypto asset allocation. But we believe that the "crypto vault" strategy for tokens other than Bitcoin has limitations, because investors will eventually be able to obtain more configuration channels through spot crypto exchange-traded products (ETPs).

• The following progress has also been made this month: a breakthrough in the legislation of stablecoins and market structures; a brilliant performance of the decentralized exchange Hyperliquid; a blockchain-based identity verification project Worldcoin appeared on the cover of Time magazine.

Stocks rebounded in May as the U.S. and China reached a temporary easing over the tariff conflict. But the rise happened after the previous three months of continuous declines, and the S&P 500 index was still about 4% lower than its peak. Compared with relatively healthy stock markets, negative returns have occurred in the bond market (especially high-quality sectors), which seems to be due to the high government deficit and the corresponding issuance of long- term government bonds. According to the FTSE Grayscale crypto sector index, the risk-adjusted returns of Bitcoin and the entire crypto asset class are comparable to those of global stock markets (Figure 1). Bitcoin rose 11% that month, setting a record high of $112,000; Ethereum blockchain native token ETH rose 44%, partially regaining its previous weak performance against Bitcoin.

Figure 1: Risk-adjusted crypto market performance is on par with stock market

The Great Beauty Act

Bitcoin demand tends to rise when investors are concerned about the credibility of the fiat currency system. During May, this concern was once again in the spotlight. On May 22, the U.S. House of Representatives passed the comprehensive tax and expenditure bill now officially named OBBBA (One Big Beautiful Bill Act). Budget experts estimate that if implemented under existing provisions, the bill will increase the federal deficit by about $3 trillion over the next 10 years; if certain maturity clauses are extended, the deficit may reach $5 trillion. If the bill comes into effect, its revenue and expenditure combination will put U.S. Treasury on an unsustainable path (Figure 2). Partly due to the direction of US fiscal policy, Moody's downgraded the US sovereign credit rating from AAA to AA on May 16. Although the U.S. government will not default in the short term, unsustainable debt paths will increase the long-term risk of macro-management, thereby increasing investors' interest in non-sovereign value storage means such as gold and Bitcoin.

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

Crypto vault companies surge

Spot ETP listed in the United States can be said to be the most important source of new demand for Bitcoin since its launch. During May, these products continued to maintain high net inflows, totaling US$5.2 billion. In the coming months, the Bitcoin purchase volume of "bitcoin vault" companies (i.e. listed companies purchase Bitcoin for their balance sheets) may remain flat or even exceed the purchase volume of spot Bitcoin ETP. Corporate Bitcoin investment pioneer Strategy (formerly MicroStrategy) increased its holdings by about 27,000 bitcoins (about 2.8 billion US dollars) in May. Strategy's market value is far beyond the value of Bitcoin on its balance sheet, indicating that the market has an excessive demand for gaining Bitcoin exposure through equity instruments (Figure 3).

Figure 3: Strategy's market value has a premium over its Bitcoin holdings

As the stock market pays a premium for Bitcoin in this structure, more companies have begun to adopt this strategy, and some have expanded it to other digital assets outside of Bitcoin . For example, a consortium composed of Tether, Bitfinex and SoftBank created Twenty One Capital, which will initially hold 42,000 Bitcoins (about $4.4 billion), mainly provided by Tether. Similarly, Bitcoin Magazine CEO David Bailey transformed existing publicly listed company KindlyMD into Bitcoin vault company Nakamoto Holdings. The company plans to issue approximately $700 million in the U.S. market for the purchase of Bitcoin, and will subsequently replicate the strategy in other countries around the world. Finally, Trump Media & Technology Group, a holding company of Trump's social app Truth Social, announced that it would raise $2.5 billion to allocate Bitcoin to its balance sheet.

In addition to Bitcoin, SharpLink Gaming announced that it will transform into an Ethereum Treasury bond company with the support of investors in cryptocurrency fields such as Consensys (Figure 4). Other entrepreneurs have further expanded the model to create crypto vault companies targeting Solana (Upexi), XRP (VivoPower) and even Trump-themed meme (Freight Technologies). From the surge in crypto vault companies, it can be seen that investors have a strong interest in crypto assets exposure traded through stock exchanges. But the popularity of spot crypto ETP may ultimately limit the demand of crypto vault companies, because ETP can track the price of the underlying token more efficiently.

Figure 4: Cryptocurrency companies surge

Digital Assets Legislation

In terms of legislation, the White House and Congress continue to promote legislation on digital asset regulation in the United States. On May 5, the House Financial Services Committee and the Agriculture Committee jointly issued the draft Digital Asset Market Structure Act—a comprehensive financial services legislation that is comparable to the Dodd-Frank Act or the Sarbanes Act in terms of regulation. The House plans to hold a hearing on the updated draft on June 4. In addition, the GENIUS Act (the Innovation Act for Guiding and Establishing the United States Stablecoin National Innovation Act) received bipartisan support on May 19 to pass the Senate's termination of debate and is about to enter the amendment process. Although the two legislations still need to go through multiple links before they take effect, the existing progress and bipartisan support attitude have sent a positive signal for the final passage.

The prospect of a brighter regulatory framework appears to have catalyzed institutional investors' stake in the industry since the U.S. election last November. This trend continued in May, manifested as a number of major deals and/or policy adjustments. The most important one is that Coinbase acquired Deribit, a professional crypto options platform for US$2.9 billion, setting a record for the largest merger and acquisition transaction in the industry's history. Coinbase also ranked 187th in the S&P 500 this month. Its rival Kraken (also active in the M&A sector) announced that it would launch a tokenized stock service in non-U.S. markets, while Robinhood said it would acquire Canadian crypto platform WonderFi. Other institutional trends worth noting include Brown University’s disclosure of Bitcoin ETP positions, New Hampshire’s legislation allowing public funds to invest in crypto assets, and Morgan Stanley’s plan to launch crypto trading services in its E-Trade products.

ETH and token performance

Ethereum (ETH) significantly outperformed Bitcoin in May, but partly due to the statistical point: Since the beginning of 2023, the ETH price trend has basically been synchronized with the "smart contract platform" crypto sector (Figure 5). We expect smart contract platforms to benefit from U.S. regulatory reforms that will drive wider adoption of stablecoins, tokenized assets and decentralized finance—all relying on smart contract platform infrastructure. Although this is a highly competitive segment in the crypto market, Ethereum has the advantages of large scale of on-chain funds, advocating decentralized culture, and attaching importance to network security and neutrality. However, the price of ETH tokens needs more support for the growth of activity on the Ethereum main network (Layer1) rather than many L2 networks (Layer2). Although the Pectra upgrade implemented in May brings beneficial improvements, it will not immediately increase the activity of the mainnet.

Figure 5: Ethereum performance is basically synchronized with its crypto sector

Despite the strong performance of ETH that month, the most prominent performance of the large assets with a market capitalization of over $5 billion is Hyperliquid's HYPE token . Hyperliquid is both a professional perpetual contract decentralized exchange (DEX) and a general smart contract platform. The Hypercore products of this chain currently account for more than 80% of the transaction volume of perpetual contracts on the chain. During May, Hypercore's perpetual contract trading volume exceeded US$17 billion, and its single-day revenue even exceeded Ethereum, Tron and Solana's three major (based on fee income) smart contract platforms (Figure 6). Last year, the agreement set a record for the largest airdrop in crypto history—over $8 billion at current prices— prompting the industry to rethink token economics and financing models without venture capital support. Hyperliquid has always maintained high natural utilization and strong liquidity, and will increasingly compete with centralized derivatives exchanges such as Binance and Bybit in the future.

Figure 6: Hyperliquid processing fee income exceeds that of the top smart contract platforms

Performance of AI encryption sector

With the rapid development of blockchain AI technology, Grayscale Research recently added the "Artificial Intelligence Encryption Section", becoming the sixth largest independent sector in our encryption industry classification framework. Currently, the sector contains 20 tokens with a total market value of approximately US$20 billion (Figure 7).

Figure 7: The current market value of the AI ​​encryption sector is about US$20 billion

Projects that have made significant progress in the sector include Worldcoin , an identity network founded by Sam Altman, aims to build a "proof of personality" system to address the increasingly severe challenges of real- person/robot recognition in the AI ​​era. Worldcoin announced this month that it has reached an important milestone: a $135 million financing through a16z and Bain Capital Crypto acquisition of WLD tokens in the open market. The project has attracted widespread attention with its moves to the cover story of Time magazine, the promotion of the iris scanning device "Orb" and the crypto wallet World App in the US. Other important advances in the blockchain AI field include: the increase in attention to Bittensor subnetwork, and the leading stablecoin issuer Tether disclosed that it will launch an AI agent network plan based on crypto-native architecture.

In the next few months, the crypto market is likely to continue the current driving logic: the macro demand for Bitcoin caused by stagflation risks and tariff uncertainties, the continuous improvement of the regulatory environment in the United States and overseas, and technological innovation in blockchain AI and other fields. The asset class has performed well in the past two years and the support for fundamental improvements remains.