With major cryptocurrencies like Bitcoin, (BTC -3.12%) Ethereum, (ETH 0.81%) Solana, and XRP outperforming the stock market by a significant margin during the past three months, there’s a handful of factors that suggest the remainder of the year is going to be a very profitable time for many cryptocurrency holders.
In particular, three significant tailwinds are lining up at once. Put together, they could ignite one of the sharpest rallies since 2021. Let’s dig in and examine each.
1. Policy tailwinds are blowing in the right direction
After a long period of regulators and politicians eschewing or fighting crypto, Washington is now handing the industry a rule book instead of a subpoena.
On July 18, the president signed the Genius Act, thereby creating a federal framework for dollar-backed stablecoins and requiring crypto-asset issuers to disclose audited reserves. That law reassures risk officers at banks and other financial institutions that dollar-backed stablecoins are legitimate assets, and it also gives crypto-native companies a clear path to attaining national bank charters.
Second, the Securities and Exchange Commission (SEC) is softening its stance on how it regulates the crypto sector. The SEC’s new leadership has expressed a regulatory preference for developing rules and guidelines to govern the cryptocurrency market proactively rather than implementing enforcement actions, as had been done previously. Fewer surprise enforcement actions mean lower legal risks for every serious project.
Image source: Getty Images.
Finally, the U.S. aspires to keep accumulating Bitcoin to hold in the currently unimplemented Strategic Bitcoin Reserve (SBR) instead of auctioning them off after seizures, effectively removing thousands of coins from circulation each quarter.
And with supply shrinking and regulatory clouds parting, capital that has been sitting on the sidelines now has a reason to wade back in.
2. Ethereum’s engine is finally revving again
Crypto’s second-largest chain, Ethereum, has spent the past year and beyond repairing potholes like high gas (user) fees, slow settlement times, and developer fatigue.
Those fixes are now starting to show up in prices. Because of the chain’s role as the home of decentralized finance (DeFi) in the crypto sector, it’s a tailwind that’s worth paying attention to. Scaling tools are cutting costs and boosting throughput, potentially luring back decentralized app (dApp) developers who wandered off to cheaper chains last year.
That turnaround is happening precisely when DeFi is starting to perk up across the board. DeFi lending alone, across all blockchains, now commands more than $62.6 billion in total value locked (TVL), up roughly 40% from April lows.
In other words, there’s some motion happening, and it might be just getting started.
When activity perks up on Ethereum’s chain, history says other smart contract platforms and DeFi hubs tend to follow as users chase yield further out the risk curve, to less-established chains and also to smaller projects on Ethereum. On that front, investors should watch hard-usage metrics like transactions, yields, app revenue, and network fee revenue to stay abreast of what’s going on, as upticks indicate real value is migrating.
If Ethereum continues to break out on real usage growth of its chain and its associated Layer 2s (L2), it could drag the entire DeFi complex and broader crypto sentiment upward, and it seems to be happening already.
3. Corporate treasuries are turning into crypto vacuum cleaners
This is the year that altcoin-based crypto treasury companies hit prime time, and it’s a surefire sign that there’s a lot of big buyers in the market.
SharpLink Gaming in mid-July disclosed purchases of more than 280,000 Ethereum coins, financed by selling new shares, making it the largest public holder at roughly $840 million. BitMine Immersion followed with a purchase of 19,683 coins funded entirely by a direct equity offering. And, of course, Strategy, formerly known as MicroStrategy, is still hoovering up more and more of the Bitcoin supply every month.
The playbook of these businesses is simple: Sell stock or issue convertible bonds or another form of debt; use the proceeds to buy crypto; and then market yourself to investors as a proxy for digital-asset exposure. Investors have generally rewarded the strategy, at least so far.
Importantly, and perhaps regrettably, there is no law of nature limiting the use of this business model to Bitcoin or Ethereum.
XRP, Solana, and even Dogecoin and other meme coins will soon live on balance sheets as companies compete for who can deliver the most headline-grabbing treasury strategy so as to attract investors’ capital. Assuming the trend continues, every equity-funded purchase soaks up additional coins, amplifying price moves. Make no mistake, this is a brave new world, and it marks a new vector for integration of the traditional finance and cryptocurrency sectors.
Debt-financed buying adds leverage to corporate balance sheets, and any sharp crypto decline will inevitably hurt shareholders. But as long as markets reward the behavior, corporate boards will keep green-lighting it, and that means persistent upward pressure on scarce digital assets. Enjoy the uptrend powered by treasury companies while it lasts. Eventually, there will be a hangover for those who dipped into debt too carelessly and invested it in highly risky altcoin assets too aggressively.