Newsletter December: Key Insights

TL;DR

Key Insights from December:

• Despite a ~3% decline in December, Bitcoin ended the year with an impressive 120% gain, solidifying its status as the top-performing global asset of 2024.

• Ethereum spot ETFs wrapped up December on a high note, contrasting with Bitcoin's notable mid-month redemption pressures.

• The Total Value Locked (TVL) in decentralized finance saw a strong resurgence in Q4, with platforms like Berachain capturing significant attention for 2025.

• Public blockchains generated close to $6.5 billion in fees throughout 2024, highlighting the sector's sustained economic activity.

• Stablecoin circulation exceeded $200 billion in December, reaffirming their position as a cornerstone of crypto adoption.

Macro

The U.S. macroeconomic outlook for 2025 presents a complex environment with significant implications for the cryptocurrency market. Cryptocurrencies, deeply intertwined with broader economic forces, cannot be analyzed in isolation. The historical reliance on the negative correlation between stocks and bonds has unraveled, as shown by the simultaneous declines in both asset classes during 2022. This shift underscores the necessity for nuanced strategies that account for the intricate interplay between assets and macroeconomic trends.

Financial markets resemble chaotic systems, where unpredictable forces influence outcomes. Asset price movements are driven by visible trends and hidden factors affecting supply and demand. These drivers are fluid, evolving over time, which necessitates thorough analysis and attribution to avoid relying on outdated assumptions. Market psychology, often swinging between extremes of optimism and pessimism, exacerbates volatility, leading to dramatic price fluctuations that do not always reflect underlying fundamentals. Cognitive biases and oversimplified narratives, such as assuming rate cuts will ensure a bullish economy, further distort market dynamics.

In the post-2008 financial landscape, aggressive monetary policies and historically low interest rates fueled asset price growth, benefitting older generations and creating barriers for younger ones. Rising housing costs and diminished access to traditional wealth-building avenues have left younger Americans exploring alternative financial systems, such as cryptocurrencies. Bitcoin’s growing legitimacy, bolstered by the approval of spot ETFs, signals a shift in investment preferences, particularly among younger demographics disillusioned with traditional markets.

Macro forces—growth, inflation, and liquidity—remain central to understanding investment outcomes. Economic growth drives opportunities, while inflation and liquidity shape asset pricing through interest rate sensitivity and capital availability. As inflation rises and liquidity tightens, passive investment strategies lose efficacy, necessitating active portfolio management to navigate these challenges. Cryptocurrencies, as an emerging asset class, are particularly sensitive to these macroeconomic shifts, offering both risks and opportunities in a transforming financial landscape.

That said, 2025 is poised to bring transformative developments for Bitcoin and the broader cryptocurrency ecosystem. Here are some potential milestones that could act as significant catalysts:

1. Federal Strategic Bitcoin Reserve: The establishment of a strategic Bitcoin reserve at the U.S. federal level could signal a groundbreaking shift in government adoption of digital assets.

2. State-Level Bitcoin Reserves: U.S. states may independently accumulate Bitcoin reserves, setting a precedent for decentralized governmental adoption.

3. Global Bitcoin Reserves: Other nations around the world could follow suit, integrating Bitcoin into their strategic financial frameworks.

4. Elimination of SAB-121: The removal of restrictive accounting guidance, such as SAB-121, could unlock greater institutional participation in crypto markets.

5. Regulatory Clarity: Comprehensive rules from the SEC and CFTC could provide the much-needed regulatory framework for cryptocurrency, reducing uncertainty and fostering growth.

6. Legislation on Stablecoins: The passage of a stablecoin bill could establish clear standards for these assets, driving mainstream acceptance and use.

7. Market Structure Overhaul: Legislative efforts to refine the market structure for cryptocurrencies could streamline trading and enhance investor confidence.

8. Banks Entering Crypto: U.S. banks offering prime brokerage and trading services for digital assets could bridge traditional finance and the crypto world, attracting institutional investors.

9. Mainstream Web3 Adoption: Increased consumer adoption of Web3 and crypto technologies could mark a new era of integration between blockchain and everyday life.

These developments, individually or collectively, could serve as pivotal moments in the maturation and mainstream acceptance of cryptocurrencies.

Bitcoin

Bitcoin’s evolution in 2024 reflects a complex interplay of innovation, institutional adoption, and economic forces, solidifying its dual role as a hedge against traditional financial systems and a foundational asset in the decentralized economy. With the approval of Bitcoin spot ETFs and the halving within a high-interest-rate environment, Bitcoin has firmly established itself as a digital counterpart to gold while redefining its narrative for both individual and institutional investors.

The approval of Bitcoin spot ETFs has bridged traditional finance with the crypto space, offering secure and regulated access to Bitcoin investments. This milestone marks Bitcoin’s formal integration into legacy financial systems, enabling broader participation from institutional investors who increasingly view it as a viable alternative to physical commodities like gold. Unlike gold, Bitcoin’s digital nature enhances portability and divisibility, addressing historical challenges associated with physical assets. As the world continues its digital transformation, Bitcoin’s potential to rival or even surpass gold in market cap becomes increasingly plausible.

Bitcoin’s inherent design as a decentralized, censorship-resistant system is pivotal to its appeal. By eliminating reliance on centralized intermediaries, Bitcoin offers a trustless monetary system underpinned by mathematics and energy. Its proof-of-work consensus mechanism ensures immutability and security, solving long-standing problems like the Byzantine Generals Problem and the Double-Spending Problem. These attributes position Bitcoin as more than a store of value; it serves as a philosophical and economic counterweight to the vulnerabilities of fiat-based systems.

The 2024 halving reduced block rewards, intensifying Bitcoin’s scarcity and pushing miners to adapt their revenue models. This transition highlights the growing importance of transaction fees in sustaining the network’s security as block subsidies decline.

Meanwhile, Layer 2 solutions and protocols like Ordinals and Runes have sparked innovation, enabling Bitcoin to support more complex financial instruments and use cases. However, questions remain about their long-term sustainability and their role in maintaining network activity. Despite all this, BTC remains squarely “on track” its normal 4-year price cycle, as seen by the chart below.

Bitcoin’s role as “digital gold” is complemented by its speculative appeal. While gold preserves wealth, Bitcoin offers potential for rapid growth, attracting investors who seek not only to safeguard assets but to capitalize on its volatility. One of those investors is MicroStrategy and its CEO, Michael Saylor. MicroStrategy, a publicly traded company and prominent Bitcoin investment vehicle, has emerged as a significant driver of Bitcoin demand in the U.S. In Q4 2024, it purchased 194,180 Bitcoin, valued at $18.2 billion by year-end, aligning closely with net inflows into spot Bitcoin ETPs during the same period. The company finances these acquisitions through shares and debt instruments and plans to continue buying Bitcoin over the next three years. Crypto investors should track MicroStrategy’s financial metrics, especially the gap between its market capitalization and Bitcoin holdings, as a premium in share value may incentivize further acquisitions.

Yet, Bitcoin’s low velocity compared to stablecoins underscores its current position as a store of value rather than a medium of exchange. Stablecoins dominate daily transactions due to their lower volatility, and in 2024, the aggregate stablecoin supply reached all-time highs, surpassing $200B.

The emergence of Bitcoin-focused yield-generating protocols, or BTCFi, presents opportunities for greater utility, but adoption has been limited. Wrapped Bitcoin on Ethereum and other platforms has facilitated productive use cases, yet challenges around centralization and regulatory risks persist. Decentralized wrapping solutions could address these concerns, aligning Bitcoin’s utility with its decentralized ethos.

Ultimately, Bitcoin’s impact transcends finance, challenging established power structures and sparking wealth redistribution and economic freedom debates. Its fixed supply and decentralized design position it as a transformative force in an era of economic uncertainty. As Bitcoin approaches mainstream recognition, it remains a testament to the power of collective belief—a psychological commodity that blends scarcity, innovation, and a vision for a more decentralized future.

Ethereum

Ethereum in 2025 is pivotal, navigating an evolving narrative and increasing competition from streamlined Layer 1 chains like Solana and new entrants like Aptos and Sui. While Ethereum remains the most prominent smart contract platform, its reliance on Layer 2 solutions and modular scalability has sparked debates about its long-term value and identity. This modular approach, aimed at addressing scalability, has fragmented liquidity and shifted activity off the Ethereum mainnet, challenging the "ultrasound money" narrative that positioned ETH as a deflationary asset.

The success of Layer 2 solutions such as Arbitrum and Base has driven activity into rollups, often bypassing Ethereum’s core settlement layer. Innovations like EIP-1559, which aimed to burn transaction fees and create deflationary pressure, have struggled to maintain their intended impact as gas costs decrease and activity migrates to other layers. Meanwhile, EIP-4844 further reduced Layer 2 costs, diverting activity away from Ethereum’s on-chain ecosystem and leaving ETH's price underwhelming despite these technological advancements.

Ethereum's future, however, lies in its ability to bridge traditional and decentralized finance. The tokenization of real-world assets like treasuries, stocks, and money market funds could bring trillions of dollars on-chain, offering a pathway to address criticisms of DeFi’s circular economy. High-profile endorsements, such as Larry Fink's support for Ethereum as a platform for tokenized assets, highlight the network’s potential to redefine financial markets by integrating legacy systems with blockchain infrastructure.

Solana

The competition from monolithic chains like Solana poses a stark contrast to Ethereum's modularity. Solana’s high throughput and low fees have attracted developers and users seeking simplicity, while Ethereum's ecosystem, despite its scalability promises, remains complex and fragmented. This dynamic has led to questions about where value accrues within Ethereum's ecosystem. While Layer 2 tokens represent protocol-specific value, Ethereum itself risks losing its position as the central reserve asset in its modular structure.

Institutional adoption has provided a new lens for evaluating Ethereum. As ETH becomes accessible through spot ETFs, it is increasingly viewed as a risk-adjusted asset suitable for portfolios alongside Bitcoin. However, this shift toward institutional investment emphasizes stability over the explosive growth Ethereum once promised, redefining expectations for its future performance.

The rise of competing Layer 1 and Layer 2 solutions further complicates Ethereum’s outlook. Modular systems diversify value across multiple components, such as rollups and sequencers, but this decentralization dilutes the attention and capital focused on Ethereum's core. At the same time, appchains and niche-focused Layer 1 projects like Hyperliquid and Blast are emerging with tailored use cases that differentiate themselves in a crowded market.

Ultimately, Ethereum's challenge lies in balancing its identity as a scalable platform for decentralized applications with its role as a store of value. To maintain its dominance, Ethereum must foster meaningful innovation, avoid liquidity dilution, and strengthen its narrative amid growing competition. The future of Ethereum will depend on its ability to address fragmentation, leverage real-world asset tokenization, and redefine its value proposition in an increasingly diverse blockchain landscape.

DeFi

Total Value Locked (TVL): Ethereum Leads, Emerging Players Rise

Ethereum continued its dominance as the undisputed leader in total value locked (TVL), holding over two-thirds of the market share across major blockchains and Layer 2 networks. While Ethereum maintained its position, Bitcoin and Solana saw notable TVL growth throughout the year. In contrast, Tron experienced a decline in market share due to stagnation in TVL expansion.

Sui and Base emerged as standout performers, beginning the year with under $1 billion in TVL and closing out with over $2 billion. This surge underscores the rapid increase in economic activity on these networks.

DEX Trading Volume: Solana’s Memecoin Frenzy

Decentralized exchange (DEX) trading volume provided further evidence of Solana’s memecoin mania. Platforms like pump.fun facilitated the creation of these tokens, many of which transitioned to trading on Raydium. At its peak, Raydium handled nearly $80 billion in weekly trading volume, cementing its position as a leader in the DEX ecosystem.

AI

The convergence of AI and cryptocurrency in 2025 marks a transformative period that challenges traditional economic and technological frameworks. Advances in artificial intelligence, paired with blockchain innovation, are reshaping industries and financial markets at an unprecedented pace. AI, no longer merely a tool, is evolving into an autonomous force capable of outperforming human intelligence in diverse fields. This evolution has profound implications for labor markets, financial systems, and investment strategies, pushing businesses and individuals to adapt or risk obsolescence.

In financial markets, AI’s ability to process vast amounts of data at hyperspeed introduces volatility and unpredictability. Traditional investment principles, such as the Efficient Market Hypothesis, are being tested by AI-driven decision-making, which can amplify short-term noise and create hypersensitive feedback loops. While this mechanized efficiency reduces human error, it also risks introducing irrationality into markets, driven by algorithms optimizing for conflicting objectives. As a result, capital allocation strategies must evolve, favoring agility and innovation over rigid, traditional models.

The intersection of AI and cryptocurrency is particularly noteworthy. Blockchain’s inherent transparency and decentralization provide a robust infrastructure for integrating AI-driven solutions, from automated trading to decentralized governance. Cryptocurrencies, as digital-native assets, are well-positioned to benefit from the demographic shift toward younger, tech-savvy investors. This generation, increasingly disillusioned with traditional financial systems, sees blockchain and AI as tools for creating more equitable and efficient alternatives.

However, the rise of automation poses existential questions about the future of work and human value. As AI replaces routine tasks, the remaining roles will emphasize distinctly human qualities—creativity, empathy, and ethical judgment. These capabilities, irreplaceable by machines, will define the value of human labor in an AI-driven economy. Simultaneously, as automation reduces reliance on centralized systems, communities built on shared values and mutual trust will become essential sources of social and economic capital.

In this rapidly evolving space, adaptability is the key to survival. Businesses that integrate AI and blockchain technologies will lead the charge, leveraging their capabilities for real-time innovation and decentralized solutions. Meanwhile, those clinging to outdated models risk falling behind. For investors, understanding the interplay between AI, blockchain, and macroeconomic trends is critical for identifying opportunities and mitigating risks. Ultimately, the synergy of AI and cryptocurrency offers a glimpse into a future where technological innovation drives both disruption and unprecedented possibilities for growth.