- May 30, 2025
Vikara May 2025 Update – Will Stablecoin Regulation Spark Mass Adoption?
The month of May saw rates, equities, and crypto move higher. This is a perplexing backdrop, given rate markets and rating agencies are concerned about US debt issuance, while equity markets dismissed any impact on earnings or multiples.
Trump’s plan of burning down the post-World War II system is creating an increasingly bifurcated world. For decades, the US has relied on allies and trade partners to buy its treasuries and finance its debt, but this dynamic is rapidly changing.
Digital assets are at the centre of what seems to be the continuation of an ever more volatile and polarized political leadership class. While most understand that Bitcoin unlocks stranded power, many miss that US dollar stablecoins unlock substantial demand for US treasuries.
A stablecoin holder comes with zero demands on the US (unlike the demands of allies or trade partners). In addition, decentralized ownership and self-custody is a critical hedge many will eventually put in place to safeguard themselves from continued reckless government behaviour.
Treasury Secretary Bessent estimates stablecoin demand could reach $2 trillion in the “near term”, which is why the US government is accelerating the GENIUS Act (to regulate stablecoins) and is pushing its largest banks to offer stablecoin services as a way to find new buyers for its treasuries.
Chart 1 – Stablecoins may become one of the largest holders of US treasuries (May 2025)
Source: Vikara Capital, Grok
While these numbers seem enormous, companies like Visa, Mastercard, PayPal, and Meta are all discussing US stablecoin issuances to help monetize global userbases, which would essentially allow corporate America to accelerate treasury ownership by the end user.
Which gets us to the ultimate sales pitch for Vikara. If Bitcoin is about to become a global reserve asset like many believe, and trillions of dollars are about to enter the stablecoin market, is it really that hard to believe the $600bn alts market captures some of this value along the way?
Will privacy solutions gain share? What about security infrastructure? Decentralized media and communication? Fiat to crypto payments? Trading infrastructure? It shocks us that there is a reasonably high probability these solutions are needed in the short term and yet so few are paying attention.
We continue to believe that the formation of a global digital capital market will drive substantial change in all markets, and early investors in its critical infrastructure should be rewarded.
Macro
May was a strange month, with Trump’s binary bet that he can reduce inflation while tearing down a deflationary globalized post-world war system entering stage 2. Markets are not buying a successful outcome, which can be seen by the decoupling of gold prices and real interest rates (Chart 2).
Chart 2 – Gold price versus 10-year US real yields (2005-2025)
Source: @MichaelAArouet
We had hoped Trump would implement a different agenda for America, by united allies through balanced trade and growth. Instead, he has decided to isolate, alienate and re-inflate. Fortunately, the solution to an ever more volatile political landscape remains in Trump’s agenda (Figure 1).
Figure 1 – The tripartite system.
Source: Christopher Weyant, Vikara Capital
As peace in Ukraine slips away, the war in Gaza intensifies, Iranian talks stall and the public shaming of China continues, the America we have been disgruntled with for many years seems unchanged. Elon Musk leaving DOGE tells us all we need to know about the US budget deficit (Chart 3).
Chart 3 – Cumulative Budget Deficits by Fiscal Year (2023-2025)
Source: @qthomp
Sprinkle an extension of tax Trump’s cuts (that were expected to roll off), which Wharton estimates will drive $4 trillion budget deficits over the next four years (Chart 4), and it becomes obvious that inflation isn’t going lower, if at all.
Chart 4 – Change in annual biudget deficits by year if the House Big Beautiful Bill is voted
Source: Penn Wharton Budget Model, Congressional Budget Office, Joint Committee on Taxation, House Committees, Bloomberg
Is it any wonder that global bond markets continue to sell off? The largest economy in the worlds is communicating that it is a sprint to devalue its currency, why wouldn’t global debt continue on its eye watering trajectory (Chart 5)?
Chart 5 – World Debt ($ trillion) (1957-2025)
Source: Bloomberg, Bravos Research
If America has no plans on changing its frivolous fiscal policy, why would Republicans be so focused on enabling digital assets? The only reason we can thinks of is as an insurance policy should Trump’s plan fail. The decline in the US dollar is a picture that talks to this perfectly (Chart 6).
Chart 6 – US Dollar Currency Index (DXY) (1957-2025)
Source: Tradingview.com, Vikara Capital
At the same time as American purchasing power declines on a relative basis, it is also quickly declining on an absolute basis, with the Dow Jones Industrials Index collapsing relative to gold since Trump announced his first round of tariffs on China in 2018 (Chart 7).
Chart 7 – Dow Jones Industrial Index (DJI) relative to Gold (1957-2025)
Source: Tradingview.com, Vikara Capital
The last time the US reshaped the global order (when Nixon removed the US from the gold standard), US purchasing power declined substantially relative to gold (see above). Sadly, this is happening again, except its likely to be relative to gold and Bitcoin.
Logically, US bonds continue to crater and 1-year US credit default swaps continue to rise (Chart 8).
Chart 8 – Price of one-year credit default swaps on US government debt (bps) (2008-2025)
Source: LSEG, Investing.com
Early signs of a new order are already being highlighted, with the Taiwan Dollar experiencing its largest strengthening on record as the US-China trade war escalated (Chart 9).
Chart 9 – Taiwan Dollar’s Record Move (1985-2024)
Source: @amital13
Japan’s bond market is in free fall (Chart 10), with investors realizing the Japan will need to reshore, remilitarization and redevelop despite having a debt-to-GDP ratio of 251%.
Chart 10 – Japan’s Super-Long Bond Yields Climb Further (2005-2025)
Source: Bloomberg, @KobeissiLetterv
To add insult to injury, Trump is calling out companies directly and threatening direct tariffs on specific brands and products unless they are made in America. This is likely why business confidence has collapsed in the last two months, with huge declines in capital spending plans (Chart 11).
Chart 11 – Business Confidence and Capital Spending Expectations (2006-2024)
Source: Goldman Sachs Investment Research, @GunjanJS
Uncertainty is everywhere, with consumer sentiment recording one of its worst readings in 70 years (consumption is around two thirds of US GDP) (Chart 12).
Chart 12 – University of Michigan’s index of consumer sentiment (1960-2020)
Source: @MichaelAArouet
The same report showed that consumers expect their financial situation one year from now to be in the worst shape in living memory (Chart 13).
Chart 13 – UMich Expected Change in Financial Situation ina Year (1990-2024)
Source: Kevin Gordon, @KobeissiLetter
Consumers are feeling the pain of inflation and a weakening labour market, with US employment growth falling below 1.2% (a level it has never reached when it wasn’t either in a recession or imminently headed into one) (Chart 14).
Chart 14 – U.S NonFarm Employment Annual Growth (1960-2025)
Source: PaulsenPerspectives.substack.com, @jimwpaulsen
At the end of the day, it comes back to one outstanding point: if the strength of the real trade weighted dollar is all time highs (Chart 15), and every part of the US system is telling you that the sole intention is to devalue this, isn’t it time to allocate somewhere else? We think so.
Chart 15 – Real Trade-Weighted US Dollar index (1900-2025)
Source: Augur Infinity, @TaviCosta
The bulls argue that the trends in the ISM manufacturing surveys have turned, with eleven sectors growing in April (a new cycle high and the strongest reading since July 2022) (Chart 16). This might be true, and we are open to a bottom in the business cycle should tariff noise abate.
Chart 16 – ISM Manufacturing Survey: Number of Industries Reporting Growth (2006-2028)
Source: LSEG Datastream, Global Macro Investor, @BittelJulien
Our concern is that modest improvements in manufacturing are not enough to offset a resurgence in consumer inflation, which is showing early signs of returning (Chart 17). We hope this is price gauging ahead of tariffs, but only time will tell.
Chart 17 – Richmond Manufacturing Survey Expected Manufacturing New Orders (2017-2025)
Source: TheDailyShot.com
Even a modest bounce in inflation would crush consensus expectations of the three Federal Reserve cuts this year, which is one of the largest risks for digital assets this year. The other risk is that Trump’s negotiation style delays Fed rate cuts in the event the economy requires them (Chart 18).
Chart 18 – Number of Federal Reserve rate cuts priced in for 2025 (1998-2025)
Source: TheDailyShot.com
All in all, we continue to see moderating inflation in the short term but are very aware of the medium- and longer-term headwinds that are forming.
Digital Assets
We noted last month that altcoins rose from the dead starting on April 21. This performance continued throughout May as shown in the table below that lists the top 50 tokens excluding Bitcoin (BTC), Ethereum (ETH) and stables. The group was up [13.5%] MTD through 2pm AEST on May 30.
Figure 2 – Perf of top 50 tokens by market cap excld BTC, ETH & stables (YTD and MTD)
Source: Haruko; as at 2pm AEST 30 May.
Further, ETH may have finally bottomed versus BTC per the ETH:BTC ratio (Chart 19). The ratio reached a 5.5 year low on April 21 at 0.01775 and now sits at 0.02430, up 35%.
Chart 19 – ETH:BTC ratio (May 2020 – May 2025)
Source: Tradingview
While altcoins are still a long way from their previous highs, the amount of assets “locked” (or total value locked (TVL)) in various protocols reached an all-time high in May, totaling >$350bn.
The top five protocols by TVL are: Tether (USDT), Circle (USDC), Aave (AAVE), Lido (LDO) and Sky (SKY) (fka Maker), with >$200bn in USDT and USDC alone.
Chart 20 – Total Value Locked (TVL) across various protocols
Source: Token Terminal
We note TVL can be used as a metric to quantify the perceived financial health, trust, reliability and developer and/or investor interest in a protocol.
While total TVL has been steadily increasing since late 2023, total TVL will likely explode assuming the recently introduced GENIUS Act becomes law.
The GENIUS Act, short for the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act of 2025 is the first comprehensive federal framework for regulating stablecoins in the United States and aims to provide clarity on what a stablecoin is and who can issue them. As an aside, besides regularly using corny acronyms, using the word genius to describe nearly everything coming out of the halls of Congress is absurd.
One of the key measures of the bipartisan legislation is the requirement for full reserve backing meaning stablecoin issuers are mandated to maintain a 1:1 reserve ratio, backing each stablecoin with US dollars or similarly liquid assets like short-term Treasury securities. Pretty cheeky way to create underlying demand for US government securities.
While the GENIUS Act successfully cleared a significant procedural hurdle with a vote of 66-32, allowing for a full Senate floor debate, a final date for a vote has yet to be determined.
Shortly after the bill cleared the hurdle, the Wall Street Journal reported that four of the biggest banks in the US, JP Morgan, Bank of America, Citigroup and Wells Fargo are exploring a partnership to issue a joint stablecoin.
Beyond stablecoins, cryptocurrencies are becoming more common as corporates treasury holdings.
MicroStrategy paved the way for a token treasury business model. Prior to becoming what is effectively a Bitcoin holding company, MicroStrategy was a sleepy data analytics and security software company.
Starting in August 2020, they began acquiring Bitcoin, rebranding as a way for equity investors to gain exposure to BTC, although it has acted as a leveraged vehicle, trading at a premium to NAV throughout its life. Shareholders have been rewarded with MSTR stock up nearly 29x from August 2020.
Chart 21 – MSTR stock price chart (May 2020 – May 2025)
Source: TradingView; Vikara Capital
This once novel strategy is going mainstream. There are now dozens of publicly listed companies that have Bitcoin treasuries. Meme stock GameStop recently purchased 4,710 BTC, valued at over $512m, at an average price of $108,837 per BTC, for example.
Former US Presidential candidate Vivek Ramaswamy’s Strive raised $750m to build a Bitcoin treasury, with plans to buy Mt. Gox Bitcoin claims and to use active strategies to outperform the BTC price.
The Trump family’s Trump Media is raising $2.5bn to purchase Bitcoin.
Figure 3 – Trump Media to raise $2.5bn to acquire BTC
Source: Trump Media; x.com
Others are expanding beyond Bitcoin. SharpLink Gaming announced a $425m deal to launch an Ether treasury and appointed Ethereum co-founder and ConsenSys (Metamask wallet) founder Joseph Lubin as chairman of the board. Investors included crypto venture capital firms and infrastructure providers such as ParaFi Capital, Electric Capital, Pantera Capital, Arrington Capital, Galaxy Digital, Ondo, White Star Capital, GSR, Hivemind Capital, Hypersphere, Primitive Ventures, and Republic Digital.
SharpLink’s stop price skyrocketed, up from $6 to over $52 per share in 24 hours after the announcement, peaking at $92 per share 48 hours later, up >1,400%.
Chart 22 – SharpLink stock price rose >1,400% after announcing a ETH treasury
Source: TradingView
Then there is DeFi Development Corporation. A real estate software company based in Miami (fka Janover) with TTM revenue of sub $2m, they’ve rebadged themselves as a Solana Foundation treasury company, acquiring 609,233 SOL tokens at an average purchase price of $139.66 and announcing they are buying a Solana validator node for $3.5m and will also run a BONK meme coin node in partnership with the BONK community.
DFDV stock price went from a post-split price of $0.57 on April 4 to nearly $54 on May 23 (they did a 7:1 split on May 21) for a return of >9,300% in less than two months.
Chart 23 – DeFi Dev Corp stock price rose >9,300% after announcing a SOL treasury
Source: TradingView
They own $103.6m worth of SOL assuming $170 per token. At the peak, their market cap was $934m with it now sitting at $387m. That’s a price/SOL ratio of 3.75x. Not bad for a business that had a market cap of less than $10 million less than two months ago.
On May 29, VivoPower International PLC, a Nasdaq-listed energy company, announced a $121m capital raise to build out what it describes as the world’s first XRP-focused corporate treasury model.
VivoPower’s stock had a much more muted response, rising only 12% on the news followed by a drop of 37% the following day. Maybe the strategy has playing itself out for now.
That said, it’s not a longbow to draw for others to purchase tokens such as SUI, NEAR or other larger market cap tokens to build similar strategies. This will naturally create buying pressure that hasn’t historically been there for many of these tokens, especially if corporates adopt token treasuries en masse.
Further, it represents a way for token holders who are locked up, either as part of founder or investor agreements, or for those that own stakes, to potentially sell their tokens, likely at a discount to the treasury vehicle. The same way one would transact in equity markets via a block trade or a cross between buyer and seller.
While we’ve been offered off-market deal on attractive terms on tokens we like, as a liquid fund, it’s challenging to purchase tokens with long lock-ups. A treasury vehicle likely can navigate that issue, while acquiring tokens at a discount to spot.
Given the response to treasury token strategies acquiring SOL or ETH, for example, has been extraordinary, we imagine capital will continue to support the creation of new vehicles with many already in the queue, while the recently announced vehicles are all trading at a premium to token holding NAV (Figure 4).
Figure 4 – Comparison of non-BTC token treasury strategies
Source: TradingView; Vikara Capital; tokens and market cap as at 30 May 2025. Notes: *Assumes $425m used to purchase ETH at $2,600 per token. **7.9m shares outstanding + 69.1m new shares issued for total SBET s/o of 77m at $79.21 per share. ***Assumes $121m used to purchase XRP at $2.25 per token
We assume this premium to NAV is largely due to scarcity value given limited options for equity investors wanting exposure to tokens outside proxy ETFs or the fact MSTR has been able to trade at a significant premium since rebranding in 2020.
As more spot ETFs are approved, or access to direct token purchases becomes less cumbersome, we question whether the premium to NAV will be permanent or it will move the way of publicly traded closed end funds, where the entity trades at a premium in times of high demand and vice versa when tokens are in a bear market.
While many tokens performed well during May, there was also plenty of good news during the month.
- US Vice President JD Vance spoke at the Bitcoin Conference in Las Vegas, advocating for a Bitcoin Strategic Reserve as part of the US’s competitive base versus China.
- Proton Mail announced that its >100 million users can now send Bitcoin with only an email address.
- FIFA signed a partnership with Avalanche (AVAX) to build its own blockchain.
- Ondo Finance (ONDO) released it on-chain securities trading platform on Solana.
- Crypto-exchange Kraken announced plans to enable non-U.S. users trade over 50 US stocks and ETFs on the Solana blockchain, 24/7. These tokenized assets called xStocks will be backed 1:1 by actual shares redeemable via fiat.
- Swiss watchmaker Franck Muller released 1,111 Solana watches with each linked to a wallet via QR code.
- Carmaker DeLorean launched an onchain reservation system and marketplace on Sui, giving users priority access to its upcoming electric vehicle.
- Sui decentralized exchange, Cetus Protocol (CETUS), was exploited for $220m.
- The Dubai Land Department (DLD), the Central Bank of the United Arab Emirates, and the Dubai Future Foundation partnered to launch the first licensed tokenized real estate project in the Middle East and North Africa (MENA) region. The tokens will be tradeable on the newly launched “Prypco Mint” platform.
- Telegram announced a potential partnership with Elon Musk’s xAI in a $300m deal to integrate Grok AI into the messaging app. Toncoin (TON) is Telegram’s sole cryptocurrency for non-fiat transactions, including ad purchases and premium feature payments.
- JP Morgan’s CEO stated at their annual investor day that “We are going to allow you to buy it (Bitcoin).” How nice of him LOL.
- Thailand’s Ministry of Finance announced plans to issue $150m worth of digital investment tokens, that would allow smaller retail investors to buy government bonds.
- A judge in Victoria ruled that Bitcoin qualifies as a form of money rather than property, likening the digital asset to Australian dollars rather than to shares, gold or foreign currency. The interpretation could set a legal precedent, potentially placing Bitcoin transactions outside the scope of Australia’s current CGT regime. Refreshing in light of the Australian government’s new policy of taxing unrealized gains in retirements accounts worth >$3m. Looking forward to seeing how’s both no tax on BTC and taxing money you don’t actually have is going to work out.
In terms of the market, altcoins are still a long way off previous highs based on prior cycle performance. As we’ve noted many times, the four-year cycles, whether a coincidence or not, are likely to be less volatile and potential no longer valid, as more institutional money comes into digital assets.
This can be exemplified in Bitcoin’s performance relative to the previous two market cycles. Bitcoin’s performance from the cycle bottom in 2022 through today (pink) is lower than the 2014-2017 (orange) and 2018-2021 (green) cycles in Chart 24.
Chart 24 – BTC Market Cycle Bottom ROIs
Source: Intothecryptoverse
There are of course a number of factors driving this deviation, namely much less accommodative global monetary policy, but also the law of numbers. Bitcoin is a much larger asset held by longer-term holders, including ETFs and corporates. While potentially providing more consistent long-term demand, the days of 1,000% in a year, at least with Bitcoin, are likely behind us.
That said, an overheated market has yet to happen this cycle as measured by Benjamin Cowen’s “Bitcoin Time Spent in Risk Bands” metric.
Chart 25 – BTC time spent in risk bands
Source: Intothecryptoverse
Previously cycles saw Bitcoin and in turn alts move into the “sell” bands, which are represented by levels >0.80, towards the cycle top. It’s worth noting that levels haven’t reached that point one time since the 2022 Bitcoin bottom.
In terms of flows to alt coins, both USDT dominance and centralized exchange volumes have unsurprisingly corresponded to higher alt coin prices.
USDT dominance continued to move lower throughout May, likely meaning cash was moving into the markets.
Chart 26 – USDT dominance
Source: Tradingview
Centralized exchange volumes have also increased from the April lows, although have a long way to go to get back to the late 2024 peak.
Chart 27 – Centralized Exchange Volumes
Source: theblock.co
Last, but [hopefully] not least, we leave you with the almost famous Raoul Pal chart with Global M2 vs the Bitcoin price with a 12-week lag.
Chart 28 – Global M2 vs the Bitcoin price with a 12-week lag Source: GMI
Source: GMI
Assuming correlations hold, prices are going higher. And if the ETH:BTC bottom is in, alt coins are going much higher.
As Raoul put it in a recent note, can it really be this easy? In markets, the answer is certainly almost always no.
Luke McFarlane
Co-Founder & Portfolio Manager
Vikara Capital
Mark Riccio, CFA
Co-Founder & Portfolio Manager
Vikara Capital
Contact Us
Vikara is a liquid, open-ended fund investing in digital assets (excluding Bitcoin and Ethereum) with no lockups (add or redeem monthly). Vikara’s proprietary investment and rigorous risk management processes aim to outperform the broader digital asset markets. Founders have over 40 years combined investment experience at Millennium, Balyasny, Platinum, Merrill Lynch and Macquarie.
Vikara, in Sanskrit, describes the process of change. Its definition is constantly evolving, changing with economic cycles, technology, and geopolitics. It is a transformation of thought or logic, a modification in the direction of travel, an alteration in action or participation. It is one thing to want change, but another to drive it. We believe in a world where commerce doesn’t need intermediaries. Where people are paid directly for content, time, and effort. Where privacy, data and free speech is given, not something to opt-in for.
This material is for the general information only and should not be construed as an offer to sell or the solicitation of an offer to buy any security or asset in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any specific action based on this material. It does not constitute a recommendation or take into account the particular investment objectives, financial conditions, or needs of individual clients. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The material is based on information that we consider reliable, but we do not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only and only represent the views of the author and not those of Vikara, unless otherwise expressly noted.
This material is produced as of a particular date. Accordingly, this material may have already been updated, modified, amended and/or supplemented by the time you receive or access it. Vikara is under no obligation to notify you of such changes and you should discuss this material with your Vikara representative to ensure such material has not been updated, modified amended and/or supplemented.
Be the First to Know
Keep up to date with industry news and events