Original Title: July 2025: Ethereum Comes Alive

Original Source: Grayscale

Original Translation: Blockchain in Plain English

In July 2025, the price of ETH on the Ethereum network surged nearly 50%. Investors turned their attention to stablecoins, asset tokenization, and institutional adoption—areas where Ethereum's status as the oldest smart contract platform sets it apart from its competitors.

The passing of the "GENIUS Act" was a milestone moment for stablecoins and the entire crypto asset class. While market structure-related legislation may still take time to pass through Congress, U.S. regulatory agencies can continue to support the development of the digital asset industry through other policy adjustments, such as approving staking in crypto investment products.

In the short term, crypto asset valuations may experience consolidation, but we remain very optimistic about the outlook for the asset class in the coming months. Crypto assets provide investors with the opportunity to engage with blockchain innovation and may offer some immunity to certain risks associated with traditional assets, such as the ongoing weakness of the U.S. dollar. As a result, Bitcoin, ETH, and many other digital assets are expected to continue to attract investors.

On July 18, President Trump signed the "GENIUS Act," providing a comprehensive regulatory framework for U.S. stablecoins. This marks the "end of the beginning" for the crypto asset class: public blockchain technology is transitioning from an experimental phase to the core of a regulated financial system. The debate on whether blockchain technology can bring tangible benefits to mainstream users has ended, and regulators have now shifted their focus to ensuring industry growth while incorporating adequate consumer protection and financial stability mechanisms.

In July, the crypto market was buoyed by the passage of the "GENIUS Act" and supported by favorable macroeconomic conditions. Stock market indexes in most regions around the world rose, while returns in the fixed income market were led by high-risk sectors, such as U.S. high-yield corporate bonds and emerging market bonds (see Chart 1). As market volatility decreased, related investment strategies performed quite well.

The FTSE / Grayscale Cryptocurrency Market Index (a market-cap-weighted investable digital asset index) rose by 15%, and the price of Bitcoin increased by 8%. ETH, Ethereum's native asset, emerged as the star of the month, skyrocketing by 49%, with a cumulative increase of over 150% since its low point in early April.

Chart 1: Ethereum Shines Bright in the Strong July Crypto Asset Performance

Alias This Is "The Return of the King"

Ethereum is the largest smart contract platform by market capitalization and serves as the foundational infrastructure for blockchain finance. However, until recently, ETH's price performance has lagged far behind Bitcoin and even trailed other smart contract platforms such as Solana. This has led some to question Ethereum's development strategy and its competitive position in the industry (see Chart 2).

Chart 2: Ethereum's Outperformance Relative to Bitcoin Since May

The renewed enthusiasm for Ethereum and ETH may reflect the market's focus on stablecoins, asset tokenization, and institutional blockchain adoption—areas where Ethereum excels (see Chart 3). For example, including its Layer 2 networks, the Ethereum ecosystem hosts over 50% of stablecoin balances and processes around 45% of stablecoin transactions (measured by USD value).

Ethereum is also where about 65% of the total value locked in decentralized finance (DeFi) protocols resides, as well as nearly 80% of tokenized U.S. Treasury bond products. For many institutions building crypto projects, including Coinbase, Kraken, Robinhood, and Sony, Ethereum has been the network of choice.

Chart 3: Ethereum Leads in Stablecoins and Asset Tokenization

The adoption of stablecoins and tokenized assets will benefit Ethereum and other smart contract platforms. According to Grayscale research, stablecoins have the potential to disrupt certain areas of the global payments industry through lower costs, faster settlement times, and higher transparency (for more background, see "Stablecoins and the Future of Payments").

Stablecoin-related revenue comes in two forms: the net interest margin (NIM) earned by stablecoin issuers (such as Tether, Circle) and the transaction fees collected by the blockchains processing the transactions. As Ethereum has established a leading position in the stablecoin space, its ecosystem appears poised to benefit from the growth in stablecoin adoption through higher transaction fees.

The same applies to tokenization (the process of bringing traditional assets onto the blockchain) (for more background, see "Public Blockchains and the Tokenization Revolution"). The current market size of tokenized assets is relatively small (around $120 billion), but the potential for growth is significant. Tokenized U.S. Treasury bonds represent the largest category of tokenized assets at present, with Ethereum being the market leader. In the realm of alternative assets, Apollo Global recently partnered with Securitize to launch an on-chain credit fund.

In addition, the tokenization of equity markets, while small, is growing: Robinhood has launched tokenized shares of private companies such as SpaceX and OpenAI, and eToro also plans to tokenize stocks on the Ethereum blockchain. Apollo's products are available on multiple blockchains, while Robinhood and eToro's tokenized equity products are within the Ethereum ecosystem.

ETP Boom and More Trends

Investor interest in Ethereum has led to significant net inflows into physically-backed ETH exchange-traded products (ETPs). In July, U.S.-listed physically-backed ETH ETPs saw a net inflow of $5.4 billion, marking the largest monthly net inflow since the launch of these products last year (see Chart 4).

Currently, ETH ETPs hold around $21.5 billion in assets, equivalent to nearly 6 million ETH, representing about 5% of the total circulating supply. Based on CFTC's trader positioning report data, we estimate that only $1 billion to $2 billion of net inflows into ETH ETPs are from hedge funds engaging in "cash and carry" trades, with the rest coming from long-term capital.

Chart 4: ETH ETP Net Inflows Exceed $5 Billion

Some publicly traded companies have also started accumulating ETH to gain exposure to the token through equity instruments. The two largest "crypto fund management firms" holding ETH are Bitmine Emersion Technologies ($BMNR) and SharpLink Gaming ($SBET). These two companies collectively hold over 1 million ETH, totaling $3.9 billion in value.

The third publicly traded company, BTCS ($BTCS), announced in late July plans to raise $2 billion through the issuance of common and preferred shares to further purchase ETH (BTCS currently holds approximately 70,000 ETH, valued at around $250 million). In addition to net inflows in ETH ETP products, buying pressure from Ethereum enterprise fund management companies may have also contributed to the price surge.

Furthermore, Ethereum has gained market share in this month's cryptocurrency derivatives market, indicating increasing speculative interest in the asset. In traditional futures listed on the Chicago Mercantile Exchange (CME), open interest (OI) for ETH futures has risen to around 40% of Bitcoin (BTC) futures OI (Chart X). In perpetual futures contracts, the number of open interest contracts for ETH has increased to around 65% of Bitcoin (BTC) open interest contracts. This month, trading volume for Ether perpetual futures has also surpassed that of Bitcoin perpetual futures.

Figure 5: ETH Futures Open Interest Growth

Despite ETH receiving much attention for most of July, demand for Bitcoin investment products also continued steadily. The net inflows of listed Bitcoin ETPs in the U.S. reached $6 billion, currently estimated to hold 1.3 million Bitcoins. Several publicly traded companies have expanded their Bitcoin treasury strategies. Market leader Strategy (formerly MicroStrategy) issued $2.5 billion in new preferred shares to acquire more Bitcoin.

In addition, Bitcoin early adopter and Blockstream CEO Adam Back announced the formation of a new Bitcoin treasury strategy company—Bitcoin Standard Treasury Corporation ($BSTR). The company will use Bitcoin held by Back and other early adopters as capital and will raise equity. BSTR's transaction is very similar to the SPAC deal organized earlier by Cantor Fitzgerald for Twenty One Capital—another large Bitcoin treasury strategy company backed by Tether and SoftBank.

Crypto Asset Boom

In July, the valuations of various sectors in the crypto market all saw an increase. From a crypto asset sector perspective, the best-performing sector was the smart contract sector (benefiting from a 49% increase in ETH), while the worst-performing sector was artificial intelligence, dragged down by a few tokens' particular weakness (see Chart 6). During July, the open interest of many crypto assets' futures and the funding rates (the cost of leverage long positions) both rose, indicating an enhanced investor risk appetite and increased speculative long positions.

After experiencing strong returns, valuations may undergo a certain degree of correction or consolidation. The passage of the "GENIUS Act" was a significant positive for the crypto asset class, driving absolute and risk-adjusted returns. Congress is also considering legislation on crypto market structure, with the House's "CLARITY Act" receiving bipartisan support on July 17. However, the Senate is deliberating on its own version of market structure legislation, and significant progress is not expected before September. Therefore, short-term legislative catalysts supporting the increase in crypto asset valuations may be limited.

Summary

Nevertheless, we remain very optimistic about the future prospects of cryptocurrency in the coming months. First, even without legislation, regulatory tailwinds persist. For example, the White House recently released a detailed report on digital assets, presenting 94 specific recommendations to support the development of the American digital asset industry. Sixty of these fall within regulatory agencies' purview (the remaining 34 require action by Congress or Congress in conjunction with regulators). With regulatory support, crypto investment products (such as staking features or a broader array of spot crypto ETPs) could attract new capital to the asset class.

Second, we anticipate the macro environment to continue favoring crypto assets. These assets offer investors exposure to blockchain innovation while demonstrating some resilience to certain risks associated with traditional assets (such as the ongoing weakness of the US dollar). In addition to the crypto-related legislation passed in July, President Trump also signed the One Big Beautiful Bill Act, locking in massive federal budget deficits for the next decade.

He has also made it clear he wants the Fed to lower interest rates, emphasizing that a weaker dollar would benefit US manufacturing, and has increased tariffs on various products and trading partners. Large budget deficits and lower real interest rates may continue to weigh on the dollar's value, especially with implicit White House support. Scarce digital commodities like Bitcoin and ETH may benefit from this, serving as partial hedging tools in portfolios facing the ongoing risk of a weak dollar.

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