Investors often watch the correlation between bitcoin and tech stocks when deciding where to place funds. During 2024, both bitcoin and tech stocks rallied, so there was no shift or rotation from one to another. This scenario showed that a risk on appetite continues to guide many market participants. Now there is a question about where these digital assets might head next, especially since macro drivers of bitcoin often revolve around liquidity and inflation expectations. When the Federal Reserve cuts interest rates, it tends to inject more liquidity. A rise in monetary aggregates, such as U.S. M2 and global M2, can give markets added momentum. If financial disruptions appear, central bankers may supply even more liquidity to reduce volatility, which has usually been a benefit for digital asset prices.
Some investors worry that inflation might return stronger. Current inflation measures remain stubborn and resist falling to the 2% target central banks prefer. In the 1970s and 1980s, there were distinct waves of inflation. Central banks thought they had tamed inflation, only to see a fresh surge. This time, the presence of high structural fiscal deficits, combined with a Federal Reserve that is cutting rates, might create another inflation wave. The longer end of the bond curve seems to reflect this possibility, since bond yields have stayed high. Gold appeared to anticipate sticky or reaccelerating inflation throughout 2024, and bonds may now be signaling the same. If these conditions persist, anything worse than a soft landing could escalate into stagflation. That scenario combines low or declining GDP with elevated inflation. Bitcoin has never lived through a true stagflationary period. During the pandemic, it encountered a short recession and a sharp sell-off, but it recovered in tandem with equities. Inflation only took hold later, so the conditions never lined up for a genuine stagflation environment.
If stagflation did occur, bitcoin’s outcome would depend on fiscal and monetary responses. If policymakers tried to combat weak economic conditions by increasing liquidity through more spending or monetary tools, bitcoin could benefit over time, though perhaps with some delay. However, if they decided controlling inflation was more important and reduced the money supply, liquidity, and fiscal spending, bitcoin might see headwinds on a relative basis. Gold’s performance in past cycles has inspired some to wonder if bitcoin could mirror gold’s behavior when inflation surges again. In the 1970s, gold soared the most during the second wave of rising prices, hinting that digital assets might also thrive if a second wave materializes.
Many portfolios still look to bitcoin because it can offer potential diversification. If a recession unfolds and policymakers respond with further liquidity, that setup might support higher prices. If risk assets keep climbing and inflation overshoots targets, bitcoin might also do well. Only a drastic cut in fiscal spending, money creation, and liquidity might slow its momentum, which seems less likely because high structural deficits and a heavily indebted system remain in place.
Ethereum also attracts attention. Its rollup-centric roadmap aims to keep Layer 1 decentralized while Layer 2 solutions handle most transactions. The Deneb-Cancun upgrade, which lowered base-layer fees, triggered a debate about whether Ethereum should keep Layer 1 fees higher for revenue or let rollups drive adoption. Some think Ethereum sacrifices immediate cash flow by letting fees on the base layer fall, but it may gain network effects as more users move onto Layer 2s. Layer 2 solutions inherit Ethereum’s liquidity and security, while Ethereum gains more usage of ether tokens. The mutualistic relationship holds if Ethereum provides cheap data availability and large liquidity. If Ethereum core developers push further to make data availability cheap, Layer 2 adoption may keep growing. Blob counts have gone up, which helps store data off-chain. Blob fees might not offset the revenue lost when base-layer fees dropped, but the long-term benefit could be a larger user base.
In the future, Ethereum might collect more fees from blob usage. Developers hope that network effects and rising adoption will eventually produce enough fees to exceed issuance. That scenario could make ether deflationary. Some doubt whether usage will rise that much, while others think the supply of blobs will allow enough capacity to attract more Layer 2 projects. It is possible that these low fees on the base layer will encourage developers to pursue more specialized Layer 2s for unique use cases. Ethereum wants to maintain a path where high-value transactions can remain on the main chain while mass adoption occurs on rollups. The Prague/Electra upgrade might increase the blob count to a target of six and a maximum of nine, giving Layer 2 solutions more capacity. PeerDAS, planned for 2026, could boost overall throughput further. If those upgrades roll out successfully, Ethereum might offer cheap transactions at scale while making total fees large enough to surpass ether issuance.
Solana is also experiencing growth and plans a Firedancer upgrade that could boost transactions per second. Ethereum’s upcoming upgrade is Prague/Electra, but it may not change ether’s value proposition as much from an investor’s viewpoint. While Solana has strong developer activity and a solid community, many think Ethereum is less dependent on speculative trading. Large amounts of Ethereum’s usage come from decentralized exchanges like Uniswap, while Solana’s memecoin trading drove much of its recent revenue. Memecoins tend to thrive in bull markets but often falter during bear markets. The question is whether Solana’s shorter-term upgrade hype will lead to more outperformance relative to Ethereum in 2025. If Solana does well, many investors might rotate back to ether, especially if they think Ethereum offers more stable fundamentals. Ether also retains an advantage because of exchange-traded products (ETPs). If regulators open the door for more Solana-based funds, that may change, but no one knows when that might happen.
Bitcoin’s base layer has also faced shifts in its fee environment. The correlation with tech stocks remains high, yet many investors want a recognized store of value that moves independently in times of macro stress. The 2024 halving led to a cut in block rewards. Meanwhile, average fees per day have decreased due to fewer on-chain transactions. Spot Bitcoin ETPs launched in January 2024, letting many investors gain exposure without transacting on-chain themselves. This shift to third-party solutions means less base-layer activity. Miners saw a dual squeeze: the block subsidy dropped while fees were low. Some hoped that Ordinals, inscriptions, or Runes would solve this by spurring fee spikes, but each mania appeared short-lived. That left miners who rely on high fees searching for ways to reduce costs, or those with cheap energy supplies continuing to mine.
A concern exists that if fees stay low, mining could become centralized or unprofitable. Yet states, institutions, or third-party custodians might continue to operate mines at a loss if it secures the network they depend on. A big bank could regard mining as an operational cost to protect its bitcoin holdings. That approach might support decentralized security without the need for constant on-chain activity. Convenience drives many adoption trends. Some investors trust large institutions more than smaller crypto companies, so they hold bitcoin in ETPs or with custodians. Cryptographers can still self-custody, run nodes, and mine at home. Both methods can coexist and grow the network.
Some propose new ideas to improve Bitcoin’s base layer. Soft forks that add covenants, such as OP_CHECKTEMPLATEVERIFY (BIP-119) or OP_CAT (BIP-420), could bring more advanced scripting features to allow vaults and other complex contracts. These might allow partial spending limits, scheduled unlocks, or multi-step pay channels without negotiation. The community debates if such changes are needed, but high fee spikes may encourage solutions that create new scaling methods. ARK, a Layer 2 protocol, and the Lightning Network also keep evolving to provide more payment channels and shared UTXOs. Many believe that the bitcoin ecosystem will see more user privacy and complex transactions if these proposals pass, but bitcoin has a culture that prefers minimal code changes to preserve trust in the network. Whether these ideas gain traction depends on user sentiment during high fee periods.
Stablecoins have also grown. Some see them as an on-ramp to USD-pegged assets for people in countries with weaker currencies. Stablecoins can offer cheap cross-border transactions and help with remittances. Remittances often remain expensive through traditional channels, and stablecoins might lower those costs if used on blockchains with cheap transactions. The tokenization of real-world assets is another major trend. Tokenizing assets like real estate, bonds, or shares can open more liquidity and faster settlement. Developers speak of bringing trillions of dollars of value onto public blockchains. They note that stablecoins can serve as a medium of exchange in these systems, just as the Eurodollar market enabled dollar deposits in foreign banks. The goal is to reduce friction in global finance. Some point to large stablecoin holdings in U.S. Treasuries to show that stablecoins might help soak up increased government debt if their market caps grow. As digital assets move further into mainstream finance, regulation follows. The EU passed rules that govern stablecoins. Others may do the same, forcing issuers to hold one-to-one reserves and remain transparent about holdings. Stablecoins benefit from clarity that fosters trust.
DeFi also sees changes. Developers introduce new networks that cater to specific uses, such as high-throughput trading or specialized lending. Protocols that create yield opportunities for idle bitcoin, like Solv Protocol or Babylon, try to unlock capital. DeFi lending markets grew after recovering from the bear market. Aave has the largest share, but competition is fierce, and more capital is flowing into new protocols. Some lenders plan to accept bitcoin as pristine collateral. A rising number of institutions realize they can offer bitcoin financing services, bridging the gap between digital assets and legacy finance. This could push more companies to hold bitcoin, knowing they can borrow against it if needed.
Nation-states might also establish strategic bitcoin positions. The United States, China, the United Kingdom, Ukraine, Bhutan, and El Salvador hold bitcoin, though some of that came from seizures. Some governments have laws about auctioning that bitcoin. Yet if certain governments choose to hold large allocations, other countries might feel pressured to follow, especially if they face inflation or currency worries. El Salvador and Bhutan gained a lot from their bitcoin holdings, and this might encourage others. Some U.S. politicians have talked about a bitcoin reserve, but it is unclear if they will push that policy. If they do, it may be done quietly to avoid bidding against themselves. Many digital asset enthusiasts think more favorable policies will appear soon. Lawmakers may see that failing to support innovation could leave them behind.
Spot Bitcoin ETPs grew popular fast. They allow direct exposure to the digital asset while avoiding custody complexities. Many large institutions joined, driving billions of dollars of inflows and making these some of the most successful exchange-traded products ever. Strong spot demand also fueled a cash-and-carry strategy, where traders profit from the basis between spot and futures prices. Demand for bitcoin futures rose on the CME because of these arbitrage plays. Options on these ETPs have launched too, letting investors take different market views. People expect that 2025 might bring more structured products, such as actively managed digital asset funds. With more acceptance, managers may design specialized funds for different digital asset niches.
Tokenization is a buzzword but also a real opportunity. More developers try to tokenize real-world assets, including money market funds, global bonds, private credit, and precious metals. The total on-chain nominal value of real-world assets is estimated at billions of dollars and could grow further. Some governments are also exploring how to tokenize services, like motor vehicle titles in California. They hope blockchains bring faster and cheaper processes for things like property registration. Solutions like Story Protocol want to tokenize intellectual property. This technology can attract big enterprises if it lowers costs and boosts transparency. If stablecoin usage keeps expanding, and more real-world assets come on-chain, there may be a feedback loop that raises the overall liquidity in digital assets.
Developers see Layer 2 scaling solutions on Ethereum as key to future growth. Optimism, Arbitrum, and Base all attempt to reduce fees and latency by running transactions off-chain, then batching them onto the main chain. They can help reduce costs for decentralized exchanges, lending, and other DeFi applications. Low fees help bring in more users. Yet we see that social media on blockchains, or SocialFi, is still in early days. Projects like Lens want to give users ownership of their content. Farcaster aims to let users port their identities across apps. The hope is that better ownership and interoperability will appeal to a niche audience that may one day reach the size of mainstream platforms if the user experience improves.
Decentralized AI efforts also receive attention. Some think blockchains can decentralize data or CPU resources for machine learning. Protocols like Bittensor or Render aim to share compute power or knowledge in a collaborative way that rewards users. This might solve the problem of large data centers controlling AI. It might also open AI to more participants who do not have the funds to buy expensive GPUs. Developers could combine zero-knowledge proofs with AI to allow private data usage. This new field is still in a trial phase.
Many changes point to a broad theme: digital assets are moving into traditional systems while also building new ecosystems. Bitcoin’s correlation with tech stocks might remain, but it seems to have unique properties that draw attention during risk on markets. Ethereum tries to improve its rollup-centric roadmap, focusing on Layer 2 expansions, while also balancing fees and issuance. Solana invests in the Firedancer upgrade to reach more transactions. Stablecoins provide USD access to individuals around the world. Tokenization might disrupt entire sectors by cutting down settlement times and broadening access. DeFi addresses capital efficiency, letting people borrow and lend in a permissionless environment. Nation-state adoption remains a wild card. Some governments see bitcoin as a hedge, while others see it as risky. But the gains of certain early movers stand out.
Investors remain calm yet interested in how these stories may shape 2025. When they assess an asset like bitcoin or a technology like Ethereum rollups, they consider how liquidity, inflation, or high structural deficits might push them toward or away from digital assets. They also watch for any second wave of inflation, possible stagflation, or a Federal Reserve that might revert to expanding liquidity if troubles arise. Institutions can now buy spot Bitcoin ETPs or stablecoins, which keeps fueling a risk on mindset. Smaller events, such as Ordinals or Runes, might spur short-term fee spikes on Bitcoin’s base layer, but sustained usage might come from serious institutional flows, tokenization of traditional assets, or novel DeFi projects. For Ethereum, developer activity and total value locked in DeFi speak to strong fundamentals. Solana competes with faster speeds but still relies on memecoin trading to prop up revenue. Meanwhile, Ethereum’s broad use cases in DeFi, NFTs, and stablecoins look more diversified. This dynamic captures the attention of traders who rotate between networks.
Additional approaches for scaling or adding features may arrive for Bitcoin. Covenants like CTV or OP_CAT could enable new vault designs or advanced payment channels. The community debates changes, given that Bitcoiners want to avoid any risk to the core protocol. People also wonder if further adoption of stablecoins and tokenized assets will keep boosting demand for digital assets. Remittances alone are a large market. If stablecoins become the cheaper option for sending value across borders, that demand could surge. On top of that, the Eurodollar market has historically grown because many need dollar liquidity. A blockchain-based stablecoin market could complement this by letting people access dollars 24/7. That might drive more spending on U.S. Treasuries by stablecoin issuers, pushing the market for tokenized debt securities to expand.
DeFi remains a hotbed of innovation as well. More specialized blockchains may appear to solve certain tasks with better performance or cheaper costs. Payment-for-order-flow might take root in self-custody wallets, letting them generate revenue while routing transactions. Layer 2 scaling solutions should keep evolving, making DeFi more accessible. AI agents on blockchains might automate complex tasks in lending, trading, or governance. SocialFi might allow creators to keep ownership of their content. Networks like Helium and Render reveal how physical infrastructure networks, known as DePIN, might crowdsource WiFi hotspots or GPU power. Decentralized AI wants to share resources without relying on a single service provider. All these trends could spark further mainstream diffusion if they prove practical and user-friendly.
As the digital asset space grows, more institutions offer structured products, from spot Bitcoin ETPs to actively managed funds. With more capital coming in, the correlation with risk on assets like tech stocks could remain high, but bitcoin’s unique attributes could shine in times of macro stress. Central bankers keep an eye on sticky inflation, second waves, and stagflation risk, driving investors to safe havens like gold and possibly bitcoin. Meanwhile, stablecoins continue to link the crypto world to traditional finance. Many believe we are still early in this evolution. There is a sense of calm confidence that, while adoption grows, major changes may unfold for years or decades. This feeling keeps investors engaged, even if they do not expect overnight transformations. They see enough momentum in the correlation between digital assets and a risk on approach, along with liquidity conditions, inflation risks, and the possibility of more structural deficits to keep digital assets relevant in portfolios.
