Risks and Returns for 2025: A New Year, New Risks, and Happy Returns

• Transformation of the Digital Asset Landscape (2025): The digital asset space remains dynamic, with Bitcoin outperforming traditional assets in 2024. Transformation is set to accelerate in 2025, driven by key U.S. regulatory shifts, including potential Ethereum staking ETFs, Solana spot ETFs, and the possibility of the U.S. adopting Bitcoin as strategic reserves, paving the way for greater market adoption.

• Ethereum ETF Staking: There are strong prospects under the next SEC Chair, Paul Atkin, for allowing a limited form of Ethereum staking in ETFs, which could further boost ETH demand and network security. With staking at 28% of Ethereum’s supply, this could rise to 35-40% during 2025, driven by growing institutional demand and staking adoption.

• U.S. Solana ETFs in 2025: The approval of U.S. spot Solana (SOL) ETFs is expected to gain momentum in 2025. Approval is unlikely by end of January 2025 but could gain approval later, pending resolution of regulatory issues, particularly Solana's (SOL) classification as a security. Growing interest in Solana as a digital assets suggests it could provide traditional investors easier access to SOL if approved.

• Sovereign Bitcoin Reserves: Growing adoption of Bitcoin as a reserve asset by sovereign nations is anticipated in 2025. If the U.S. adopts Bitcoin reserves, it may lead to "Bitcoinisation," where a growing list of other countries increasingly use Bitcoin, potentially replacing gold with digital assets, similar to Dollarisation (the adoption of the U.S. dollar, alongside or instead of a country’s own currency).

• Bitcoin and Gold Market Dynamics: Assets under management of U.S. Bitcoin ETFs are set to surpass gold ETFs by 2025, with even proposals like the BITCOIN Act potentially boosting Bitcoin's market cap eventually to levels comparable to gold, influencing its value in the coming years amid significant supply-demand imbalances

• Stablecoin Regulation and Adoption: The new U.S. administration and Congress are likely to address the urgent need for stablecoin regulation to maintain global competitiveness, as the U.S. currently lags behind the EU's MiCA framework. With regulatory clarity and growing demand from both digital asset finance and traditional finance, including adoption in payments and settlements, the stablecoin market could double from 2024.

• SEC and Crypto Token Designation: The SEC’s clearer regulations for crypto tokens under new leadership are anticipated to impact the industry. Distinguishing between securities and commodities will be crucial in shaping crypto’s regulatory framework and market access.

As we settle into the new year of 2025, the digital asset landscape remains both dynamic and complex, offering a blend of significant opportunities as well as challenges. In 2024, Bitcoin delivered returns that notably outpaced traditional risk assets (Tagus Bytes: Jan. 6, 2025), underscoring its emerging status as a compelling investment vehicle. Despite challenges in maintaining stability at record highs with periods of heightened volatility, Bitcoin’s risk-return profile has proven particularly impressive. The year also witnessed record-breaking achievements, including Bitcoin surpassing $100,000 for the first time. The launch of spot-based Bitcoin and Ethereum exchange-traded funds (ETFs) in the United States represented a watershed moment, cementing digital assets within the institutional investment framework.

Looking ahead, 2025 promises to be as transformative for digital assets as the last year, if not more so, driven in part by the new policy and regulatory environment under the administration of President Donald Trump. Notable developments may include the approval of some limited form of Ethereum staking ETFs in the U.S., which Tagus Capital has advocated for a while, and is not fully priced in to the market. This could be accompanied by the approval of U.S. spot Solana ETFs. Sovereign adoption of Bitcoin as a strategic reserve asset is set to expand, with the U.S. potentially joining this trend and more corporate treasuries are likely to add Bitcoin to their balance sheets. Furthermore, China might reconsider its cryptocurrency ban, potentially easing restrictions to enhance its competitiveness in global finance. Such a shift could reduce reliance on the U.S. dollar while strengthening China's position in global financial systems—arguably a more pragmatic strategy than advancing a unified currency among Brazil, Russia, India, China, and South Africa (BRICS) to achieve similar goals. These developments would further align Bitcoin with gold-like metrics, including the ‘prospects’ that Bitcoin ETF assets under management (AUM) could surpass those of U.S. physical gold ETFs by the end of 2025.

Meanwhile, stablecoins are set to become a critical focal point for U.S. policymakers. The absence of a comprehensive framework leaves the U.S. lagging behind the European Union’s Markets in Crypto-Assets (MiCA) regulation, which has established a robust standard for fostering institutional trust and adoption. Without decisive regulatory action, the U.S. risks losing its competitive edge in digital finance, particularly in stablecoin integration—a key driver of innovation, financial stability, and dollar dominance. Expectations are high for the newly appointed crypto-friendly SEC chair, Paul Atkins, to clarify the status of cryptocurrencies as either securities or commodities. While Bitcoin and Ethereum are widely regarded as commodities, this distinction remains pivotal for other tokens. Commodity classification would subject them to lighter oversight under the U.S. Commodity Futures Trading Commission (CFTC), whereas securities would face stricter regulation under the U.S. Securities and Exchange Commission (SEC).

In sum, the convergence of regulatory clarity, further institutional, corporate and sovereign treasury adoption, and political policy shifts promises to shape 2025 as a defining year for Bitcoin and the broader digital asset ecosystem. 

Ethereum ETF Staking: The SEC approved U.S. Ethereum (ETH) Spot Exchange-Traded Funds (ETFs) in May 2024, signalling further integration of digital assets into mainstream finance. However, these ETFs notably exclude staking, a fundamental feature of Ethereum's Proof of Stake (PoS) mechanism. Staking offers Ethereum holders an opportunity to earn returns by locking their ETH for a fixed period, contributing to blockchain operations and earning rewards. Under the current SEC Chair, Gary Gensler, staking is effectively classified as a security, which subjects it to stringent regulatory oversight (Tagus Bits ‘n Bobs Issue 6: Era of Ethereum, July 23, 2024). Prospects for permitting some limited form of Ethereum ETF staking are set to improve under the next nominated SEC Chair, Paul Atkin, as regulatory attitudes reflect a more pro-digital asset stance under the new US administration, led by incoming President, Donald Trump. Tagus Capital advocated for this shift during the U.S. elections, highlighting its potential benefits (Tagus Bytes: Nov. 5, 2024).

Staking has become a cornerstone of the Ethereum ecosystem, with 28% of the total Ethereum supply staked as of January 2025, compared to just 11.65% at the time of the Merge in September 2022. This mechanism provides annual yields typically ranging between 3% and 8%. Currently the Annual Percentage Rate (APR) is averaging around 3%. Some investors are likely to found the absence of staking opportunities in Ethereum ETFs less appealing and partially explains the proportionally more modest ETF inflows to date versus Bitcoin’s ETFs, adjusting for market cap.  

Source: Tagus Capital, beaconcha.in. 

Allowing staking in U.S. Ethereum ETFs could drive demand and enhance network security, but there are regulatory hurdles, liquidity risks, and potential for market manipulation. A hybrid approach that limits the amount of ETH staked per ETF or requires periodic reward distribution may address these concerns.

Whilst higher-for-longer U.S. interest rates challenge the attraction of Ethereum staking, the spread between Ethereum’s composite staking rate and the Federal Funds Rate has already been negative since mid-2023. However, the increasing proportion of staking suggests that demand for Ethereum yields is becoming more structurally embedded in the digital asset ecosystem. The gap between staking returns and traditional risk-free rates is also still likely to narrow as the Fed is expected to cut interest rates by 1-2 times later in 2025. Moreover, demand for staking through regulated products could rise once the SEC approves these offerings. Staking demand is therefore set to grow in 2025, potentially reaching 35-40% of Ethereum's circulating supply by year-end.

Spot U.S. Solana ETF: There are prospects for the first approval in 2025 by the SEC under the next nominated Chair, Paul Atkins, of U.S. spot Solana (SOL) ETFs. While there are some expectations that this could happen as soon as the end of January 2025, shortly after the presidential inauguration of Donald Trump, approval by then is considered unlikely. At least five companies, including VanEck, Grayscale, 21Shares, Bitwise, and Canary Capital, are competing for approval of these ETFs.

There is economic significance in issuing ETFs based on various digital assets beyond just Bitcoin and Ethereum, further emphasising the growing interest in the crypto market. A U.S. Solana ETF could provide traditional investors without centralised exchange accounts easier access to SOL. With its decentralisation, utility, and economic potential, SOL presents itself as a promising digital asset and an alternative for investors, developers, and entrepreneurs.

There are over $1 billion worth of Solana exchange-traded products already offered worldwide. Brazil’s approval of its first Solana ETF in August 2024 sets a precedent, but the U.S., even under a new pro-crypto administration, is likely to take more time to approve these ETFs. The SEC has a history of approving ETFs investing in futures before spot ETFs for cryptocurrencies. For instance, Bitcoin futures ETFs were trading on the market since 2021, before the SEC cleared spot Bitcoin ETFs in January 2024. Similarly, Ethereum futures ETFs were launched in October 2023, and the SEC approved spot Ethereum ETFs in May 2024. Nevertheless, as the restriction is solely based on the agency's interpretation of the Exchange Act, there is nothing preventing the SEC from approving a spot digital asset ETF without a futures market, and this could shift under new leadership.

For approval, SOL would though need to be deemed by the SEC as a commodity similar to the characteristics of Bitcoin and Ethereum. The SEC initially rejected applications from major players such as Grayscale and VanEck, citing Solana’s status as an unregistered security. However, with new leadership at the agency and a new U.S. administration, the landscape is shifting. Notably, the SEC classified SOL as a security in a 2023 past enforcement actionagainst Binance. Resolving these regulatory uncertainties is likely to be a key priority before the approval of a U.S. spot Solana ETF.

There is currently a 74% chance of approval of a U.S. spot Solana ETF sometime in 2025, according to the decentralised market trading platform, Polymarket. These odds are less than a50% chance of approval by July 31, 2025, which realistically reflect some of the above hurdles.

Source: Polymarket.

Bitcoin National Reserves: Sovereign adoption of Bitcoin as a strategic reserve asset is set to expand in 2025. There is a chance that the U.S. also establishes Bitcoin as part of its strategic reserves, with Donald Trump having further ‘suggested’ the idea of a U.S. Bitcoin reserve when asked about creating one similar to the U.S. strategic oil reserve.Such a move would have a significant disproportionate impact, encouraging other nations to follow suit and could potentially lead major central banks to complement or even substitute gold reserves with digital assets. 

According to the decentralised market platform Polymarket, the odds of the U.S. creating Bitcoin reserves within the first 100 days of Donald Trump taking office are 27%. Kalshi, a centralised exchange and prediction market, estimates a 44% chance that the U.S. will create Bitcoin reserves before January 1, 2026. It is unlikely, however, that Trump will announce a Strategic Bitcoin Reserve via Executive Order on Day 1, as expected by some in the crypto community. Instead, he may prefer to investigate this policy further. As an interim step, he could quickly enforce restrictions on the sale of the seized Bitcoins held by the U.S. government.

The U.S. is already the largest government holder of Bitcoin via its seizure of Bitcoin in criminal cases. If the U.S. government adopts Bitcoin reserves, the implications could extend beyond market supply constraints to a significant "Bitcoinisation" of the dollar. This would resemble Dollarisation, where countries adopt the U.S. dollar alongside or instead of their own currency (Tagus Bytes: Nov. 25, 2024). Beyond El Salvador and Bhutan, which have already adopted Bitcoin accumulation policies, other emerging market countries are likely to be enticed to adopt Bitcoin as a hedge against high inflation, reduce exposure to the volatility of local fiat currencies, and strengthen their position in the evolving global financial ecosystem. As countries around the world look for ways to diversify their reserves and reduce reliance on traditional assets like gold or the U.S. dollar, Bitcoin offers a digital, borderless alternative with increasing appeal.

Some nations may also incorporate Bitcoin as a strategic move to reduce their dependence on the dollar. China's potential adoption of Bitcoin reserves deserves attention. While much focus is on the U.S. potentially adopting Bitcoin reserves, China is also a key contender, as Tagus Capital has highlighted on several occasions (Tagus Bytes: Aug. 19 & Dec. 10, 2024). Despite China’s current ban on cryptocurrencies, this may be lifted as the country seeks to boost its fintech and trade position. By adopting Bitcoin as a reserve asset, China could enhance its economic influence and reduce reliance on Western financial systems, positioning itself as a leader in the evolving digital economy. This strategy could also offer a more flexible alternative to its dependence on the dollar and be a more viable option than the complexities of a unified currency among Brazil, Russia, India, China, and South Africa (BRICS) to achieve similar goals.

Top Government Bitcoin Holdings 

Source: Tagus Capital, Arkham, BitcoinTreasuries.

Bitcoin and Gold: U.S.-based spot Bitcoin ETFs now hold $107 billion in Assets Under Management (AUM), representing over 5.7% of the total Bitcoin supply. BlackRock’s iShares Bitcoin Trust ETF leads the market, managing 558,000 BTC valued at $52.5 billion, making up 49% of the market share. Given the rapid pace of AUM growth, U.S. Bitcoin ETFs in 2025 are on track to surpass the total AUM of the 35 U.S.-traded Gold ETFs, which currently stand at $138 billion.

Proposals such as the BITCOIN Act, which outlines a phased schedule for purchasing Bitcoin as national reserves in the U.S., if implemented could significantly enhance Bitcoin’s market capitalisation. The plan involves acquiring 200,000 Bitcoin (BTC) annually over five years, totalling 1,000,000 BTC, funded by revaluing gold reserves. The current circulating supply of Bitcoin is 19.8 million, and factoring in the halving event in 2028, Bitcoin’s supply would increase to around 20.5mn BTC over the next five years (factoring in the 2028 halving event). The market capitalisation of gold is currently valued at approximately $18.1 trillion, based on the amount of above-ground gold reserves, i.e., not incorporating recent discoveries such as China's Wangu Goldfield (the world's largest gold mine). Hypothetically, if Bitcoin were to match gold's market cap in five years, assuming all else remains equal and based on the projected supply, this would suggest a theoretical Bitcoin price of approximately $880,000.

U.S. Stablecoin Regulation: The new U.S. administration and Congress in 2025 are likely to respond to urgently needed stablecoin regulation to remain competitive in global digital finance. The House Financial Services Committee has grappled with stablecoin legislation for years. Although a Republican-led draft reached the full House in 2023, progress has stalled. With the change in U.S. administration, there is renewed momentum including bipartisan action. The EU has taken a significant lead with its Markets in Crypto Assets (MiCA) regulation, fully enforceable from December 31, 2024. Without comparable clarity and action, the U.S. risks losing ground to other financial and crypto hubs in integrating stablecoins into mainstream finance. Stablecoins are critical for integrating blockchain technology into mainstream finance, enabling faster cross-border payments, reducing reliance on traditional banking systems, and strengthening the dollar’s position as the global reserve currency with around 99% of all stablecoins pegged to the U.S. dollar (Tagus Bits ‘n Bobs Issue 6: Era of Ethereum, July 23, 2024).

A robust regulatory framework for stablecoins in the U.S. would not only encourage innovation but also ensure financial stability and consumer protection, and enhance the country’s leadership in the digital asset space. The elephant in the room is the regulatory treatment of Tether (USDT), the largest stablecoin by market capitalisation and dominance of 70%. The EU’s MiCA regulation, which enforces stringent transparency and disclosure requirements, has made compliance challenging for certain stablecoins, in particular Tether. Consequently, several European exchanges have delisted Tether, as it falls short of MiCA's reserve reporting and audit standards. USDT is issued by a non-US entity and transaction activity is located mainly outside the U.S. in emerging markets and is driven by retail investors and remittances. Despite this, Tether also faces heightened scrutiny and regulatory challenges in the United States (Tagus Bits ‘n Bobs Issue 6: Era of Ethereum, July 23, 2024). It has been subject to investigations, including a Justice Department probe into potential bank fraud and a New York attorney general inquiry into reserve misrepresentation, resulting in a $41 million fine by the U.S. CFTC. Additionally, Tether has been banned from operating in New York since 2021.

Potential regulatory developments in the United States under a Trump administration could offer Tether some relief. With Howard Lutnick, the CEO of Cantor Fitzgerald's, which is a Tether stakeholder, as the nominee for Commerce Secretary, and the new U.S. administration's pro-business stance, stablecoin regulations might take a more lenient direction. This could include less stringent requirements for reserve disclosures and redemption obligations compared to the EU, providing Tether with an opportunity to stabilise and expand its market presence. The divergence between the U.S. and EU regulatory landscapes underscores the potential for the former to position itself as a less restrictive environment for stablecoins, offering firms like Tether a reprieve from the regulatory headwinds faced in Europe. That said, it would be in the interest of the whole ecosystem for Tether to conform to more self-regulatory frameworks, set for example by the Circle’s USD coin (USDC). While USDT remains widely used, supported by numerous DeFi protocols, and popular for cross-border transactions due to its longer history, it differs from USDC in terms of transparency and backing. USDC has become the preferred stablecoin for MiCA-compliant transactions in the European Union.

Rating agencies typically favour USDC for its relatively high self-regulation, audits, and monthly reserve assurances, despite challenges such as the Silicon Valley Bank crisis. In contrast, USDT has faced investigations and fines for misleading users about its reserves. Furthermore, Tether has been criticised for its lack of transparency, providing only quarterly reports with limited detail, while USDC undergoes monthly detailed audits by independent firms and offers clear reserve reporting. S&P Global Ratings' stablecoin stability assessment evaluates a stablecoin's ability to maintain a stable value relative to a fiat currency on a scale of 1 to 5, with 1 being the highest. Tether (USDT) received a score of 4 (constrained), citing limited transparency, risk exposure, regulatory gaps, redeemability constraints, and insufficient asset segregation. In contrast, USD Coin (USDC) has been assigned a score of 2 (strong) for its ability to maintain its peg to the U.S. dollar.

Stablecoin Stability Scores: Tether (USDT) vs. USDC and Others

Source: Tagus Capital, S&P Global. 

The current market cap of stablecoins stands at $205 billion and could potentially double to $400 billion during 2025, driven by growing demand across both the digital assets ecosystem and traditional financial sectors, as regulatory clarity including the the possibility in the U.S. fosters even wider adoption and innovation in payments, remittances, and settlements.

Clarity and Changes in SEC's Crypto Designation and Implications: The U.S. designation of crypto tokens as securities or commodities carries significant implications, but the SEC has yet to provide clear and consistent guidelines. So far, the agency has largely indicated that only Bitcoin and Ethereum are commodities. With Paul Atkins expected to lead the SEC, a more crypto-friendly and transparent approach is anticipated, including greater clarity on the distinction between securities and commodities.

Securities, regulated by the SEC, require rigorous disclosure and registration processes to protect investors and ensure fair trading practices. Commodities, under the jurisdiction of the CFTC, are subject to lighter regulation, focusing primarily on market integrity. The SEC applies the Howey Test, established in 1946, to determine whether an asset qualifies as a security. The test evaluates four criteria: an investment of money, a common enterprise, an expectation of profits, and reliance on the efforts of others. Based on this framework, the SEC has classified most crypto tokens as securities, with Bitcoin and Ethereum standing out as exceptions. These designations significantly affect compliance requirements, market access, and investor engagement, shaping the regulatory landscape for digital assets.

SEC enforcement actions illustrate the regulatory uncertainty. In December 2020, the SEC sued Ripple (XRP) for allegedly conducting an unregistered securities. In June 2023, it took legal action against Binance, accusing the platform of operating as an unregistered broker and exchange. As part of the case, the SEC classified several tokens, including Solana (SOL), as unregistered securities. These high-profile cases highlight the SEC’s aggressive stance and underscore the urgent need for a more coherent and predictable regulatory framework for the crypto industry. Expectations are that such cases will be resolved quickly under the new SEC Chair, Paul Atkins, potentially paving the way for a more transparent designation of crypto tokens as securities versus commodities, with a broader remit for the latter than is currently the case.