Digital asset treasuries (DATs)—publicly listed companies that hold cryptocurrencies on their balance sheets—have surged in recent months, but investor demand may be reaching saturation. Valuation premiums for large-scale projects are compressing. Bitcoin prices briefly hit an all-time high of approximately $125,000, but closed August lower. While Bitcoin's price performance in August lagged behind other cryptocurrencies, the pressure on Federal Reserve independence served as a stark reminder of why investor demand for Bitcoin is so strong. By August 2025, the total cryptocurrency market capitalization stabilized at around $4 trillion, but underlying volatility was evident. The crypto asset class encompasses a wide range of software technologies driven by distinct fundamental drivers, so token valuations don't always move in sync. While Bitcoin's price fell in August, Ethereum (ETH) rose by 16%. The second-largest public blockchain by market capitalization appears to be benefiting from investor concerns about regulatory changes, which could bolster adoption of stablecoins, tokenized assets, and decentralized finance (DeFi) applications—areas in which Ethereum currently leads the industry. Figure 1 illustrates changes in various sectors in August using Grayscale's "Crypto Track" framework, a rigorous digital asset taxonomy and index portfolio developed in partnership with FTSE Russell. The Currency, Consumer & Culture, and Artificial Intelligence (AI) crypto sector indices all saw slight month-over-month declines. The weakness in the AI sector reflects the underperformance of AI-related stocks in the public equity markets. Meanwhile, the Finance, Smart Contract Platform, and Utilities & Services crypto sector indices all saw gains during the month. Despite a month-over-month decline, Bitcoin reached a new all-time high of approximately $125,000 in mid-August; ETH also reached a new all-time high just below $5,000. Chart 1: Cryptocurrency Returns in August The GENIUS Act and the Future We believe that Ethereum's recent outperformance is closely tied to fundamentals: most importantly, increased regulatory clarity surrounding digital assets and blockchain technology in the United States. The most significant policy change this year was undoubtedly the passage of the GENIUS Act in July. The bill provides a comprehensive regulatory framework for stablecoin payments in the US market (see "Stablecoins and the Future of Payments"). Ethereum is the leading stablecoin blockchain today (in terms of transaction volume and balances), and the passage of the GENIUS Act drove ETH's price up nearly 50% in July. The same factors appear to have driven Ether's price higher in August. However, US policy changes this year extend far beyond stablecoins, encompassing a range of issues from crypto asset custody to banking regulatory guidance. Figure 2 summarizes what we believe to be the most significant specific policy actions by the Trump administration and federal agencies regarding digital assets this year. These policy changes—and more to come—have spurred a wave of institutional investment across the crypto industry (see "The Institutional Chain Reaction" for more details). Figure 2: Policy Changes Bring Greater Regulatory Clarity to the Crypto Industry In August, Federal Reserve Board Governors Waller and Bowman both attended a blockchain conference in Jackson Hole, Wyoming, something that would have been unthinkable just a few years ago. The event took place immediately prior to the Fed’s annual Jackson Hole economic policy conference. In their speeches, they emphasized that blockchain should be viewed as a fintech innovation, and that regulators should strike a balance between maintaining financial stability and creating space for the development of new technologies. In September, the Senate Banking Committee plans to consider cryptocurrency market structure legislation—regulations that would cover areas of the cryptocurrency market beyond stablecoins. This Senate effort builds on the CLARITY Act, which passed the House of Representatives with bipartisan support in July. Senate Banking Committee Chairman Scott said he expects the market structure legislation to also receive bipartisan support in the Senate. However, several significant issues remain to be resolved. Industry groups are particularly focused on ensuring that the market structure legislation includes protections for open-source software developers and non-custodial service providers. Lawmakers are likely to continue debating this issue in the coming months (notably, Grayscale was a signatory to a recent industry comment letter to members of the Senate Banking and Agriculture Committees). Is there an overabundance of DATs? BTC underperformed in August, while ETH outperformed, a phenomenon evident in flows across a range of venues and products. Part of this drama unfolded on Hyperliquid, a decentralized exchange (DEX) offering spot trading and perpetual contracts (see "The Rise of DEXs" at https://www.jinse.cn/blockchain/3716302.html). Starting on August 20th, a single Bitcoin "whale" (a large holder) sold approximately $3.5 billion in BTC and immediately bought approximately $3.4 billion in ETH. While it's impossible to determine the investor's motivations, it's encouraging to see such a significant risk transfer occurring on a DEX rather than a centralized exchange (CEX). In fact, on its highest-volume day of the month, Hyperliquid's spot trading volume briefly surpassed Coinbase's (Chart 3). Figure 3: High-Liquidity Spot Trading Volume Surges. Net inflows into cryptocurrency exchange-traded products (ETPs) in August also reflected a similar preference for ETH. US-listed spot BTC ETPs saw a net outflow of $755 million, the first such outflow since March. In contrast, US-listed spot ETH ETPs saw a net inflow of $3.9 billion this month, following a net inflow of $5.4 billion in July (Figure 4). Following a surge in ETH net inflows over the past two months, both BTC and ETH ETPs hold over 5% of their respective tokens' circulating supply. Figure 4: ETP Net Inflows Shift Towards ETH Bitcoin, ether, and many other crypto assets have also seen support from purchases by digital asset treasuries (DATs), publicly traded companies that hold cryptocurrencies on their balance sheets and serve as an on-ramp for equity investors. Strategy (formerly MicroStrategy), the largest Bitcoin DAT by holdings, purchased an additional 3,666 BTC (approximately $400 million) in August. Meanwhile, the two largest Ethereum DATs purchased a combined 1.7 million ETH (approximately $7.2 billion). According to media reports, at least three new Solana DATs are in the works, including an investment vehicle valued at over $1 billion sponsored by Pantera Capital and a consortium including Galaxy Digital, Jump Crypto, and Multicoin Capital. Additionally, Trump Media & Technology announced plans to launch a DAT based on the CRO token, which will be associated with Crypto.com and its Cronos blockchain. Other recent DAT announcements have focused on Ethena's ENA token, Story Protocol's IP token, and Binance Smart Chain's BNB token. While sponsors continue to offer these investment vehicles, price performance suggests that investor demand may be reaching saturation. To gauge the supply-demand imbalance for DATs, analysts typically monitor their "mNAV," the ratio of a company's market capitalization to the value of its crypto assets on its balance sheet. If there's excess demand for crypto assets in the form of public equity instruments (i.e., a DAT shortage), mNAV can trade above 1.0; if there's an excess supply of crypto assets in the form of public equity instruments (i.e., a DAT glut), mNAV can trade below 1.0. Currently, the mNAV of some large DATs appears to be converging towards 1.0, suggesting that supply and demand for DATs are balancing (Exhibit 5). Figure 5: DATs' Valuation Premiums Are Decreasing Back to Basics: The Bullish Case for Bitcoin As with all asset classes, much of the public discussion about the cryptocurrency market focuses on short-term issues, such as regulatory changes, ETF flows, and DATs. However, it may be helpful to step back and consider the core investment thesis. While the cryptocurrency space encompasses many different assets, Bitcoin's raison d'être is to provide a monetary asset and peer-to-peer payment system based on clear, transparent rules that are independent of any specific individual or institution. Recent threats to the independence of the Federal Reserve serve as a fresh reminder of why many investors are so interested in these assets. For context, most modern economies employ a "fiat" monetary system. This means the currency has no explicit backing (i.e., it's not pegged to any commodity or other currency) and its value is based entirely on trust. Throughout history, governments have repeatedly exploited this feature to achieve short-term goals (such as reelection). This can lead to inflation and erode trust in the fiat monetary system. Therefore, for fiat currencies to be effective, there needs to be a way to ensure that governments uphold their promises not to exploit the system. The approach taken by the United States and most developed market economies is to give central banks clear objectives (usually in the form of inflation targets) and operational independence. Elected officials typically exercise some oversight over central banks to ensure democratic accountability. With the exception of a temporary spike in inflation following the COVID-19 pandemic, this system of clear objectives, operational independence, and democratic accountability has achieved low and stable inflation in major economies since the mid-1990s (Figure 6). In the United States, this system is now under strain. The fundamental drivers are not primarily inflation, but deficits and interest payments. The US federal government's total debt is currently around $30 trillion, equivalent to 100% of GDP, and despite a peacetime economy and low unemployment, it remains at its highest level since World War II. As the Treasury refinances this debt at an interest rate of around 4%, interest payments on the debt continue to rise, diverting resources that could be used for other purposes (Figure 7). Figure 7: Interest Payments Eat Up More of the Federal Budget The Big Beautiful Bill (OBBBA), passed in July, will lock in high deficits for the next decade. Unless interest rates fall, this will mean higher interest payments and further squeeze other uses of government revenue. Consequently, the White House has repeatedly pressured the Federal Reserve to lower interest rates and called for the resignation of Fed Chair Powell. These threats to the Fed's independence escalated in August with the ouster of Lisa Cook, one of the six current members of the Fed's seven-member Board of Governors. While this may help elected officials in the short term, diminished Federal Reserve independence increases the risk of prolonged high inflation and monetary weakness. Bitcoin is a monetary system based on transparent rules and predictable supply growth. When investors lose confidence in the institutions that protect the fiat monetary system, they turn to trusted alternatives. Unless policymakers take steps to strengthen the institutions that back fiat currencies—so that investors can trust their commitment to low and stable inflation over the long term—demand for BTC is likely to continue to rise.
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