Grayscale: April 2025: A Still Point in a Moving World

The White House's new tariff policy can be considered the most significant global trade policy transformation in over fifty years. Bit and gold, as "value storage" assets, have synchronized in appreciation. We believe that the continued uncertainty of government policies, stagflation risks, and the potential long-term weakness of the US dollar will continue to drive demand for Bit and other digital assets. Beyond trade conflicts, cryptocurrency regulation became clearer this month, with increasingly evident signs of institutional investors increasing their layout. The Ethereum Foundation adjusted its development focus, and progress was made in the blockchain-based artificial intelligence field. In August 1971, President Nixon suddenly announced a 10% tariff on US imported goods and terminated the dollar's convertibility to gold. While these measures ended the Bretton Woods multilateral exchange rate system established after World War II without prior consultation with allies, intensive negotiations followed over the next four months. The Smithsonian Agreement was ultimately reached in December 1971, with the G10 agreeing to appreciate their currencies against the US dollar in exchange for tariff reductions. Despite the tariff policy being short-lived, these events permanently transformed the global trade landscape and profoundly impacted financial markets (Chart 1). The current situation differs significantly, and tariff rates will take months to stabilize - Treasury Secretary Bessen stated that the third quarter is a "reasonable time window for the market to clarify tariff policies" [1]. However, regardless of negotiation outcomes, we anticipate that President Trump's measures to reshape global trade will continue to influence the economy and financial markets in the coming years. Investors need to assess their impact on investment portfolios and may need to seek alternative income sources and diversification tools. Encouragingly, the market performance in April 2025 suggests that digital assets like Bit may become part of the solution (Chart 2). During a month of significant traditional asset volatility - with the VIX volatility index exceeding 50% - Bit prices rose 15%, and our market-cap-weighted crypto industry index increased 11%. US stocks declined by 1%, with cyclical sectors leading the downturn. After risk adjustment, gold and some foreign exchange assets showed gains comparable to Bit. Tariffs and trade conflicts may not directly impact Bit but could promote its adoption in the medium to long term. First, stagflation often negatively affects traditional assets like stocks but benefits scarce commodities like gold (Chart 3). While Bit has not experienced past stagflation cycles, it is increasingly viewed as a modern value storage tool. Second, trade tensions might reduce US dollar reserve demand, creating space for competitive assets like alternative currencies, gold, and Bit (see market review "Tariffs, Stagflation, and Bit"). Based on these factors, last month's events have strengthened our confidence in the continued growth of Bit allocation demand. Listed companies continue to provide stable demand through Bit purchases. Bit investment pioneer Strategy (formerly MicroStrategy) purchased an additional 25,000 Bit (approximately $2.4 billion) in April, with its holdings now representing about 3% of circulating supply, valued over $5 billion. Additionally, Tether, Bitfinex, SoftBank, and Cantor Fitzgerald have jointly established a new company, Twenty One Capital, with initial capital including 42,000 Bit [3]. Despite trade disputes dominating market focus, regulatory clarity continues to drive institutional crypto sector investments. Two major trends are emerging: (1) traditional financial institutions investing in crypto assets; (2) crypto-native enterprises entering traditional financial services. Last month's developments included the Netherlands' ING Bank developing stablecoins, Mastercard integrating stablecoin payment networks, Kraken announcing stock and ETF trading, BitGo and others applying for US banking licenses, and Circle launching a new payment platform [5]. On the regulatory front, the Federal Reserve withdrew previous guidelines on commercial bank crypto and stablecoin activities, integrating such businesses into standard regulatory processes. At the mid-April meeting, Fed Chair Powell remarked on the crypto industry: "I believe the environment is changing, and the entire industry is moving towards mainstream," expressing encouragement about congressional stablecoin legislation progress [6]. Technically, the Ethereum Foundation's (EF) development focus adjustment was a key event. From an ETH investment perspective, we believe the critical point is refocusing on Layer 1 scaling (improving mainnet transaction throughput). According to EF sources, Layer 1 transaction speeds are expected to triple annually, with a long-term goal of 10,000 TPS (Chart 4). Beyond major assets, many crypto investors continue monitoring blockchain-based AI and decentralized AI (deAI). According to data provider Kaito, AI-related projects occupied about one-third of the crypto industry's "mind share" over the past three months (Chart 5). Crypto assets encompass numerous projects with diverse application scenarios but share a common vision of borderless finance and decentralization. Investors have recognized Bit's qualities, which may explain its strong performance during traditional asset volatility. We believe ongoing policy uncertainty, stagflation risks, and potential long-term US dollar weakness will drive investors to seek alternative income sources and diversification tools.