Summary

Our constructive outlook for crypto markets in 2H25 is driven by several key factors, including a more optimistic perspective on US economic growth, potential Federal Reserve rate cuts, increased crypto adoption by corporate treasuries and progress with respect to US regulatory clarity. While there are potential risks, such as a steepening US Treasury yield curve and potential forced selling pressure from publicly-traded crypto vehicles, we think these risks are manageable in the near term.

Three key themes stand out for crypto markets, in our view. First, macro prospects appear more favorable than previously expected. The specter of recession has diminished, and the US economy shows signs of stronger economic growth. While a slowdown remains possible, conditions are unlikely to cause asset prices to revert to 2024 levels. Second, crypto adoption by corporate treasuries is an important source of demand, albeit there are valid concerns about potential systemic risks in the medium-to-long term. Third, significant regulatory developments, particularly regarding stablecoins and crypto market structure legislation, are underway and could significantly shape the US crypto landscape.

Despite the risks, we think bitcoin’s upward trend is expected to continue, though the prospect for altcoins may depend more on idiosyncratic factors. For example, the SEC is navigating numerous ETF applications, with potential decisions on in-kind creations and redemptions, staking inclusion, multi-asset funds and single-name altcoin ETFs – all expected before the end of 2025. The pending proposals and their related decisions could impact market dynamics.

Constructive outlook for 2H25

Our market outlook for 2025 remains constructive. A few months ago, we wrote that crypto performance would find its low in 1H25 and make new all-time-highs in 2H25. We still believe this will be the case, despite the recent bounce for bitcoin prices in late-May, which is to say that directionally, we think there could be more upside over the next 3-6 months. In our view, the peak of the macro disruption caused by the tariff saga is now behind us. Looking ahead, risk sentiment should broadly benefit from the US government’s pivot towards more market friendly policies with a new legislative fiscal package likely to be completed by late summer.

However, an important risk to our view is that the passage of the government’s spending bill could result in a steepening of the US Treasury yield curve, particularly in the 10-30Y area. Indeed, US 30Y bonds already saw their yields reach 5.15% in May – the highest in two decades – due to US deficit concerns. That could tighten financial conditions more than expected, raising borrowing costs for businesses and consumers and potentially undermining the growth needed to justify our market optimism. If long-term yields rise too quickly, we think that this could trigger volatility in equities and credit markets, particularly if investors begin to doubt the US’s ability to sustain higher deficits without adverse consequences.

Such a development would challenge the prevailing narrative of a front-loaded fiscal expansion and could lead to a reassessment of risk assets well before the longer-term fiscal risks fully materialize, especially if economic data or Fed policy disappoints the market’s growth expectations. On the other hand, we think this situation could improve the prospects for store-of-value assets like gold and bitcoin over altcoins, as BTC continues to benefit from the decline in the US dollar’s dominance.

Overall, we see three prevailing themes for crypto markets in the second half of the year:

• Macro prospects for the rest of 2025 appear more sanguine than they did previously, with respect to the US growth outlook
• Corporate treasury adoption of crypto is an important source of demand, but investors may worry about possible systemic risks
• The regulatory overhang for crypto has lifted in the US, but what’s the path ahead?

Theme 1: Specter of Recession Has Receded

Initially, trade disruptions in early 2025 raised concerns about a potential technical recession in the US this year, especially after a 0.2% QoQ contraction (annualized) in 1Q25 economic activity. (Recall headlines from The Economist and Wall Street Journal such as “Trump’s Trade War Threatens a Global Recession” and “How Trump’s Reciprocal Tariffs May Spark a US Recession”.) Technical recessions are defined by two consecutive quarters of negative real GDP growth.

However, we maintained our constructive 2H25 view at the time because it was (and remains) our view that the severity of a recession matters. While technical recessions can eat into investor confidence, they do not necessarily become the significant market disruption events that carry extreme consequences for the market, unless the negative macro momentum picks up. Indeed, the last true recession was 2008 (when US equities sold off by 53%) whereas 2015 and 2022 were relatively benign by comparison (see Table 1.) Moreover, the Federal Reserve Bank of Atlanta’s GDPNow estimate has recently spiked from around 1.0% QoQ in early May to 3.8% (seasonally adjusted) as of June 5, a massive shift based on available economic data.

Consequently, we think that at worst, we could see an economic slowdown or mild recession this year - if not avoid a recession altogether - rather than a severe recession or stagflation scenario. In the case of a slowdown, the market impact would likely be moderate, with potential sector-specific damage rather than a generalized, widespread downturn for all asset classes. But given the rise in liquidity metrics like the US M2 money supply and the rise of global central bank balance sheets more broadly, we think conditions are unlikely to cause asset prices to revert to 2024 levels, implying bitcoin’s upward trend will likely continue. Moreover, we’ve likely moved beyond peak tariff impacts, indicating a new normal, even if investors remain nervous ahead of the July 9 deadline on paused reciprocal tariffs for most nations (August 12 for China).

Table 1. Change in performance for various assets (peak-to-trough)

Theme 2: Corporate Adoption … Attack of the Clones?

Approximately 228 public companies hold a total of 820k BTC on their balance sheets worldwide. However, only about 20 of these firms along with 8 others for ETH, SOL, and XRP, according to Galaxy Digital, are employing the leveraged funding approach pioneered by Strategy (formerly MicroStrategy). In our view, many of these entities have emerged in recent months because of the crypto accounting rules that finally went into effect on December 15, 2024. Prior to this, the Financial Accounting Standards Board (FASB) only allowed companies to record impairments for declines in crypto holdings as intangible assets under US Generally Accepted Accounting Principles (GAAP). But in December 2023, FASB updated its guidance:%20Accounting%20for%20and%20Disclosure%20of%20Crypto%20Assets) to allow companies to report their digital assets holdings at fair market value.

Put simply, previous FASB guidance widely discouraged many companies from adopting crypto because these rules only allowed them to record their losses on crypto positions. However, companies were unable to show gains until the assets were sold, forgoing the potential upside. By providing a clearer depiction of crypto financial positions, the revised FASB guidelines have helped enhance the accuracy of these companies’ financial statements and removed accounting complexities that proved difficult for many CFOs and auditors.

But while this explains why more companies have announced crypto holdings on their balance sheets this year, a growing trend appears to be public companies focused solely on crypto accumulation. That is, early adopters like Strategy and Tesla initially incorporated BTC as investments alongside their primary businesses. Comparatively, these newer entities have been fundamentally built around accumulating BTC or other crypto assets as their primary goal. They issue equity and debt (often convertible notes) to fund their acquisitions, and many trade at a premium over their net assets.

The rise of such publicly-traded crypto vehicles (PTCVs) has significant market implications, both around potential demand for crypto but also around systemic risks for the crypto ecosystem. When we think about systemic risk, there are two parts to this: (1) forced selling pressure and (2) motivated discretionary selling.

Forced selling pressure. The risk of forced selling pressure arises because many of these PTCVs have issued convertible bonds to raise cheap money to buy various crypto assets. This gives bondholders the chance to profit if the companies’ stock prices go up, which can happen if the underlying crypto appreciates. If things don’t work out, investors get their money back, as the companies would need to repay the debts. Presumably, to service those debts, these PTCVs could be forced to sell their crypto holdings, possibly at a loss, unless they can refinance. Thus, the fear is that indiscriminate selling by many entities at once (to service those debts) could lead to market liquidations and a sell-off in crypto more broadly.

Motivated discretionary selling. The second, potentially subtler risk is that this setup could destabilize investor confidence within the crypto ecosystem. For example, if one or more of these entities unexpectedly offloads a portion of their crypto holdings, even if it’s for routine cash flow management or business operation purposes, it risks triggering a sudden price decline and market liquidations. That is, if prices start to fall and these entities perceive a narrowing exit, others may rush to sell as well, destabilizing the market well before any actual debt repayment issues emerge.

Ultimately, however, we think it’s unlikely that the downside pressure posed by either risk would mirror what we’ve seen with some of the failed crypto industry projects in the past. First, most of the debt from these entities will ultimately not mature until late 2029 to early 2030 based on our inventory of outstanding debt across nine entities, suggesting forced selling pressure is not a concern in the very short-term (see footnote). (The first major maturity is Strategy’s $3B convertible notes in December 2029 with an optional early redemption date of December 2026.) See Chart 3. Moreover, so long as the loan-to-value (LTV) ratios stay reasonable, we believe that the largest companies are likely to have access to refinancing methods that may help them navigate the situation without necessarily liquidating their reserve holdings.

Of course, our assessment could shift as debts mature and/or more firms engage in these strategies, depending on the level of risk-taking and length of the repayment periods. Indeed, there’s no consistent approach to how funds are being raised across PTCVs, making it difficult to keep track of capital structures. What’s clear is that Strategy’s pioneering efforts have captured the interest of other crypto-curious corporate executives, who may wish to investigate the investment rationale further for their respective companies. Ultimately, we haven’t reached market saturation yet, leaving room for the corporate accumulation trend to continue into 2H25.

Theme 3: Charting a New Regulatory Course

The first half of 2025 has witnessed unprecedented shifts in the US regulatory landscape, setting the stage for what could be the most transformative period in digital asset policy up to now. This is a dramatic change from the previous administration’s “regulation by enforcement” approach. We think 2H25 promises to redefine the US’s standing as a global crypto hub, supported by the White House’s decisive pivot toward crypto-friendly policies as well as Congress’s urgent efforts to establish a comprehensive framework for the asset class.

We think stablecoin legislation holds the greatest promise of being the first major piece of crypto-related legislation to be approved in the US, supported by strong bipartisan efforts. Momentum has been evident in both chambers, with complementary bills being advanced in the House of Representatives (STABLE Act) and Senate (GENIUS Act). The Senate may fully approve the GENIUS Act as early as next week, sending this to the House for review. Both bills establish reserve requirements and anti-money laundering compliance parameters for stablecoin issuers as well as consumer protections and bankruptcy priority provisions for stablecoin holders.

Two important differences between the bills center on the treatment of non-US stablecoin issuers and size thresholds for federal regulation transitions, issues that Congressional negotiators will need to resolve in the coming months. Administration officials have expressed confidence that a unified bill can reach President Trump’s desk before the August 4, 2025 Congressional recess. This could be a precursor to getting a crypto market structure bill enacted.

A crypto market structure bill could perhaps be the most significant long-term development to emerge this year, particularly after the US House Financial Services Committee introduced the bipartisan Digital Asset Market Clarity Act of 2025 (CLARITY Act) on May 29. This legislation would delineate the roles of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) in overseeing digital assets, according to whether those assets are categorized as “digital commodities” or “investment contract assets.”

The bill builds on the work established by the Financial Innovation and Technology for the 21st Century Act (FIT21) that was approved by the House last year, though there are some key differences. Most importantly, the current legislation would require the CFTC and SEC to jointly define key terms like “digital commodity” and address gaps through future rulemaking, suggesting that the precise boundaries of jurisdiction may continue to evolve. While we believe this bill is intended to be a basis for future bicameral discussions, it’s worth noting that these negotiations may prove significantly more complex compared to those regarding stablecoins.

ETF approval timeline. Separately, the SEC is navigating a challenging landscape of crypto ETF applications in 2025, with around 80 pending proposals spanning in-kind creation/redemptions of shares, staking capabilities, index funds and single-name altcoin ETFs:

• Several ETF issuers (Bitwise, Franklin Templeton, Grayscale, Hashdex) have filed for multi-asset funds that could track broad crypto indices. Decisions on these could come as early as July 2, as the SEC already has a framework for crypto index ETFs and many of the proposed funds are 90% weighted towards BTC and ETH.
• Proposals for in-kind creations/redemptions are currently under formal SEC review. The introduction of in-kind creations/redemptions could not only improve price alignment between share prices and NAV, but it could also help narrow the spreads for ETF shares. We think a decision is possible by July 2025, though the SEC could extend this to October 2025.
• The SEC has until October to decide on staking inclusion proposals, as reportedly, staff have unresolved questions around whether the structure of some funds qualify as “investment companies”. However, Bloomberg Intelligence believes the SEC may be forced to act sooner due to rule 6c-11 and its custom basket provisions and transparency standards.
• Finally, there are a number of single-name altcoin ETF applications, many of which have final statutory deadlines in October. We think the SEC may take the full amount of time to review these proposals.

Conclusions

Our crypto market outlook for 3Q25 is constructive, buoyed by a relatively sanguine US growth outlook, Fed rate cuts, increased corporate adoption of crypto and progress on US regulatory clarity. While risks such as potential yield curve steepening and forced selling pressures from publicly-traded crypto vehicles exist, we think that these are manageable in the short-term. That said, although we’re confident about bitcoin’s upward trajectory even in the face of such risks, we think only select altcoins may perform well depending on their idiosyncratic circumstances.

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