Grayscale Research Institute: Institutional influx, regulatory approval, multiple positive factors behind Ethereum's strong rise

Ethereum's price surged by nearly 50% in July 2025, driven by institutional adoption, stablecoin growth, and regulatory milestones like the GENIUS Act, which provided a framework for stablecoins in the U.S.
Ethereum dominates key areas: hosting over 50% of stablecoin balances, 65% of DeFi value, and nearly 80% of tokenized U.S. Treasuries, reinforcing its leadership in blockchain finance.
Spot ETH exchange-traded products (ETPs) saw record net inflows of $5.4 billion in July, with institutional and corporate demand (e.g., public companies accumulating ETH) contributing to price momentum.
Ethereum's derivatives market activity grew, with futures open interest and trading volume rising, reflecting increased speculative interest.
Despite Bitcoin's steady inflows ($6 billion into ETPs), Ethereum outperformed, with its ecosystem benefiting from stablecoin adoption and tokenization trends.
Macroeconomic factors, including potential dollar weakness and regulatory tailwinds, support long-term optimism for crypto assets like ETH and BTC as hedges against traditional risks.
Short-term consolidation may occur, but Grayscale Research remains bullish on crypto's outlook, citing innovation exposure and structural advantages over traditional finance.

Author: grayscale

Compiled by: Vernacular Blockchain

In July 2025, the price of ETH on the Ethereum network soared by nearly 50%. Investors focused on stablecoins, asset tokenization, and institutional adoption—areas that distinguish Ethereum, the oldest smart contract platform, from its competitors.

The passage of the GENIUS Act marks a milestone for stablecoins and the entire cryptoasset class. While market structure legislation may take time to pass Congress, US regulators can continue to support the digital asset industry through other policy adjustments, such as approving staking functionality in crypto investment products.

While cryptoasset valuations may see some short-term consolidation, we remain highly bullish on the asset class's outlook in the coming months. Cryptoassets offer investors exposure to blockchain innovation while potentially offering some protection from some of the risks associated with traditional assets, such as the continued weakness of the US dollar. Therefore, we expect Bitcoin, Ether, and many other digital assets to continue to attract investors.

On July 18th, President Trump signed the GENIUS Act, providing a comprehensive regulatory framework for stablecoins in the United States. This marked the end of the beginning for the crypto asset class: public blockchain technology is moving from the experimental stage to the core of the regulated financial system. The debate over whether blockchain technology can bring tangible benefits to mainstream users has ended, and regulators have now turned their attention to ensuring that the industry grows while incorporating appropriate consumer protections and financial stability mechanisms.

In July, the crypto market was buoyed by the passage of the GENIUS Act, supported by favorable macroeconomic conditions. Equity indices rose across much of the globe, while fixed income market returns were led by riskier sectors such as US high-yield corporate bonds and emerging market bonds (see Chart 1). With market volatility declining, relevant investment strategies also performed well.

The FTSE/Grayscale Crypto Market Index (an index of investable digital assets weighted by market capitalization) rose 15%, while Bitcoin's price increased 8%. Ethereum's ETH was the star of the month, surging 49% and bringing its total gain to over 150% since its early April low.

 Chart 1: Ethereum shines during a strong July for crypto assets

It's also called "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 significantly underperformed Bitcoin and even lagged behind other smart contract platforms like Solana. This has led some to question Ethereum's development strategy and its competitive position in the industry (see Chart 2).

 Chart 2: Ethereum has outperformed Bitcoin since May

The renewed enthusiasm for Ethereum and ETH likely reflects the market's focus on stablecoins, asset tokenization, and institutional blockchain adoption—all of which are Ethereum's strengths (see Chart 3). For example, including its Layer 2 network, the Ethereum ecosystem hosts over 50% of stablecoin balances and processes approximately 45% of stablecoin transactions (in terms of USD value).

Ethereum is also home to approximately 65% of the value locked in decentralized finance (DeFi) protocols and nearly 80% of tokenized U.S. Treasury products. It has been the network of choice for many institutions building crypto projects, including Coinbase, Kraken, Robinhood, and Sony.

 Chart 3: Ethereum is the leading blockchain for stablecoins and tokenized assets

The increased adoption of stablecoins and tokenized assets will benefit Ethereum and other smart contract platforms. Grayscale Research believes that stablecoins have the potential to disrupt certain areas of the global payments industry through lower costs, faster settlement times, and greater 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 (e.g., Tether and Circle), and transaction fees earned by the blockchains that process transactions. Given Ethereum's established position in the stablecoin space, its ecosystem appears poised to benefit from increased stablecoin adoption through higher transaction fees.

The same is true for tokenization—the process of putting traditional assets on a blockchain. (For more background, see "Public Blockchains and the Tokenization Revolution.") The tokenized asset market is currently small (approximately $12 billion), but its growth potential is enormous. Tokenized U.S. Treasuries are currently the largest tokenized asset class, with Ethereum being the market leader. In the alternative asset space, Apollo Global recently partnered with Securitize to launch an on-chain credit fund.

Furthermore, the tokenized equity market is small but growing: Robinhood has launched tokenized shares in private companies like SpaceX and OpenAI, and eToro plans to tokenize stocks on Ethereum. While Apollo’s products are available on multiple blockchains, Robinhood and eToro’s tokenized equity products are based on the Ethereum ecosystem.

The ETP craze and more trends

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

Currently, the ETHETP holds approximately $21.5 billion in assets, equivalent to nearly 6 million ETH, representing approximately 5% of the total circulating supply. Based on data from the CFTC's Commitment of Traders report, we estimate that only $1 billion to $2 billion of net inflows into the ETHETP came from hedge funds' "basis trades," with the remainder being long-term capital.

 Chart 4: ETHETP net inflow exceeds $5 billion

Some publicly traded companies have also begun accumulating ETH, hoping to gain access to the tokens through equity instruments. The two largest ETH holders are Bitmine Emersion Technologies ($BMNR) and SharpLink Gaming ($SBET). Together, they hold over 1 million ETH, valued at $3.9 billion.

A third publicly traded company, BTCS ($BTCS), announced in late July that it plans to raise $2 billion through the issuance of common and preferred shares to purchase additional ETH. (BTCS currently holds approximately 70,000 ETH, valued at approximately $250 million.) In addition to net inflows into ETH ETP products, buying pressure from Ethereum-based corporate money managers may have also contributed to the price increase.

Furthermore, Ethereum's share of the cryptocurrency derivatives market grew this month, indicating rising speculative interest in the asset. Among traditional futures listed on the Chicago Mercantile Exchange (CME), open interest (OI) in ETH futures rose to approximately 40% of Bitcoin (BTC) futures OI (Chart X). Among perpetual futures contracts, ETH's OI rose to approximately 65% of Bitcoin (BTC) OI. Trading volume in ETH perpetual futures also surpassed that of Bitcoin perpetual futures this month.

 Figure 5: ETH futures open interest increases

While Ethereum (ETH) dominated the spotlight for much of July, Bitcoin investment products also continued to see steady demand from investors. US-listed spot Bitcoin ETPs saw net inflows of $6 billion and currently hold an estimated 1.3 million Bitcoins. Several public companies also expanded their Bitcoin fund management strategies. Market leader Strategy (formerly MicroStrategy) issued $2.5 billion in new preferred shares to purchase additional Bitcoin.

Separately, early Bitcoin pioneer and Blockstream CEO Adam Back announced the formation of a new Bitcoin money management firm, Bitcoin Standard Fund Management ($BSTR). The firm will be capitalized with Bitcoin from Back and other early adopters and will raise equity. BSTR's transaction is very similar to an earlier SPAC (special purpose acquisition company) deal organized by Cantor Fitzgerald for Twenty One Capital, another large Bitcoin money management firm backed by Tether and SoftBank.

Crypto asset boom

Valuations across all sectors of the crypto market rose in July. From a sectoral perspective, the best performer was the smart contract sector (thanks to ETH's 49% gain), while the worst performer was the artificial intelligence sector, dragged down by idiosyncratic weakness in a few tokens (see Chart 6). Futures open interest and funding rates (the cost of funding leveraged long positions) rose across many crypto assets during July, indicating increased investor risk appetite and a buildup of speculative long positions.

 Chart 6: All crypto market sectors rose in July

After strong returns, valuations may experience some degree of correction or consolidation. The passage of the GENIUS Act was a significant positive for the crypto asset class, boosting both absolute and risk-adjusted returns. Congress is also considering crypto market structure legislation, with the House of Representatives' CLARITY Act passing with bipartisan support on July 17. However, the Senate is currently reviewing its own version of market structure legislation, with no significant progress expected before September. Therefore, legislative catalysts supporting upward crypto asset valuations may be limited in the short term.

summary

Despite this, we remain highly optimistic about the outlook for crypto assets in the coming months. First, even without legislation, regulatory tailwinds remain. For example, the White House recently released a detailed report on digital assets, offering 94 specific recommendations to support the development of the US digital asset industry. Sixty of these recommendations fall within the purview of regulators (the remaining 34 require action by Congress or both). With regulatory support, crypto investment products (such as staking features or a wider range of spot-crypto ETPs) could attract new capital to the asset class.

Second, we expect the macro environment to remain favorable for crypto assets. These assets offer investors exposure to blockchain innovation while offering some protection from certain risks associated with traditional assets, such as the continued 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 also explicitly expressed his hope for lower Federal Reserve interest rates, emphasizing that a weaker dollar would benefit U.S. manufacturing, and increased tariffs on a variety of products and trading partners. Large budget deficits and low real interest rates are likely to continue to depress the value of the dollar, especially with implicit support from the White House. Scarce digital commodities like Bitcoin and Ether could benefit from this and serve as a partial hedge in portfolios exposed to the risk of continued dollar weakness.