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How Crypto Can Move Forward Without CLARITY

An agreement on the CLARITY Act, the bipartisan crypto market structure bill, is technically still possible. But the realities of the Senate calendar and of election year politics mean the chances of passage this year now appear low.

Fortunately, CLARITY not passing won’t have an immediate impact on the functioning of major blockchains, the demand for Bitcoin as a store of value, or on the growth of stablecoin payments. The legislation would have provided a more comprehensive rulebook for digital assets in the US, but the industry has moved forward for almost 17 years without it.

However, the lack of comprehensive market structure legislation could hold back new investment activity in the United States. The CLARITY Act created a new path for capital formation using blockchain technology, included measures to support the growth and development of tokenized securities markets, and created a comprehensive oversight framework for digital asset intermediaries. It also offered a long list of other protections for consumers, investors, and software developers. The legislation was a sensible, tradfi-like rulebook for digital asset markets in the US, and this looks like a missed opportunity.

Under the current administration, regulatory guidance has already supported the digital assets industry in many ways, including through new rules around institutional custody, improved access to banking, clear policies around staking, and a framework that has stimulated growth in crypto exchange-traded products (ETPs). This will continue without the law, and investors should expect the SEC and other regulators to fill in the blanks with rulemaking over the coming months, especially around tokenized securities. The SEC’s interpretative guidance on the application of Federal securities laws to crypto assets was already a big step forward for the industry.

Even with more agency rulemaking, the lack of fulsome market structure regulation in the US may drive entrepreneurial activity overseas on the margin—due to friendlier token issuance rules, developer protections, and other factors. This trend, already in place, had partly reversed at the start of the Trump Administration but could resume (Exhibit 1).

Key Takeaway: Crypto will move forward without CLARITY, supported by expected rulemaking by the SEC and other regulators. However, without comprehensive market structure rules, a greater share of new investment may occur overseas, in our view.

Exhibit 1: Developer activity had shifted overseas before the Trump Administration

Younger Investors Are Looking Beyond Stocks and Bonds

The global alternatives market has grown nearly seven-fold since the 2008 Global Financial Crisis, as investors increasingly look beyond traditional public equities and fixed income.1 Private equity, private credit, hedge funds, real assets, and crypto continue to represent a larger share of global portfolios (Exhibit 1).

Generational allocation preferences suggest this trend could strengthen as wealth changes hands. A BofA survey of high-net-worth individuals found that investors ages 21 to 43 allocate 53% of their portfolios outside traditional stocks and bonds, compared with 26% among those over age 44.2 With more than $100 trillion expected to transfer to younger generations over the coming years, this stronger preference for alternatives could create a durable tailwind for crypto.

One explanation for the shift is that alternatives have become easier to access. New products and platforms allow investors to invest in the asset class without the specialized infrastructure or expertise historically required. Crypto has followed a similar path, as regulated investment products like Bitcoin exchange traded products (ETPs) and institutional market infrastructure have introduced more streamlined and familiar ways to gain exposure. Combined with strong historic returns, these lower barriers have helped attract more capital to alternative assets.

Key Takeaway: Rising allocations to alternatives – particularly among younger investors – may support continued growth of the crypto asset class.

Exhibit 1: Alternative assets have become a larger part of global markets

Preqin, based on 2025 estimates.

https://newsroom.bankofamerica.com/content/newsroom/press-releases/2024/06/bofa-private-bank-study-of-wealthy-americans-finds-generational-.html

Assessing the Impact of Recent Bitcoin Self-Custody Losses

Users of the Bitcoin self-custody wallet Coldcard suffered losses in recent days as hacker groups discovered and exploited a vulnerability in the wallet’s software.¹ Estimates suggest hackers have so far drained ~1,400 BTC (~$90mn) from user wallets. The incident is an unfortunate setback for Bitcoin self-custody, which is critical to the healthy functioning of the Bitcoin network in the longer-term, in our view.

However, there are several mitigating factors investors should keep in mind:

Bitcoin itself was not hacked. The security vulnerability affected one specific Bitcoin wallet provider, not the Bitcoin blockchain. To date, Bitcoin’s cryptography and consensus layer have never suffered a lasting successful security compromise.

Cybersecurity losses have trended lower. Crypto cybersecurity losses are on track to total roughly $1.7 billion this year. While a large number in absolute terms, this is the lowest level in nine years and just ~0.1% of aggregate crypto market capitalization (Exhibit 1).²

Bitcoin ETPs provide alternative custody options. Bitcoin exchange-traded products (ETPs) use institutional custody arrangements, which typically include segregated offline storage, multi-signature wallets, SOC attestations, and insurance policies. These vehicles may be attractive to institutional investors and/or individuals who prefer to avoid the complexity of Bitcoin self-custody.

Key Takeaway: Recent security incidents are an unfortunate setback for Bitcoin self-custody, but they did not affect a) the blockchain itself, or b) any BTC held in commingled vehicles (such as ETPs and ETFs). Cybersecurity losses have also trended lower over time, and other robust custody options are available for investors.

Exhibit 1: Crypto cybersecurity losses are in long-term decline

The vulnerability related to insufficient randomness or “entropy” in the creation of seeds and therefore private keys. See the report from Square Engineering for technical detail.

The Coldcard exploit was the third largest crypto cybersecurity exploit this year (after KelpDAO and Drift), and roughly the 30th largest of all time. Source: https://rekt.news/leaderboard

Onchain Vaults: The Next Evolution in Managed Credit

Innovations from the crypto industry are arriving in traditional finance, including stablecoins, tokenized assets, and perpetual futures. In our view, the next innovation to break through to the mainstream will be onchain vaults.

Vaults are a vehicle for onchain asset management. The vault structure is highly flexible, but many vaults operate with specific investment parameters and hold yield-generating assets. In the context of traditional finance, vaults closely resemble CLOs (collateralized loan obligations). Like CLOs, vaults pool investor capital into professionally managed portfolios designed to maximize risk-adjusted returns and distribute cash flows generated by the underlying assets (Exhibit 1).

The difference is that vaults are fully onchain. They use smart contracts rather than trustees and custodians, and settle transactions natively on blockchain networks like Ethereum, Base, and Solana. This means that vaults can offer full transparency, operational efficiencies, and potentially higher liquidity.

There are currently about $7 billion in assets invested in more than 3,000 vaults managed by 57 curators, 79% of which are focused on stablecoins (Exhibit 1).1 By comparison, the CLO market totals roughly $1.5 trillion across thousands of vehicles managed by more than 250 firms.2

As onchain credit markets mature, vaults are emerging as a foundational investment vehicle for digital assets, serving a role similar to CLOs and other actively managed credit products in traditional finance. However, US securities regulation remains a key source of uncertainty, particularly where investors might rely on a curator to actively manage the vault.

Key Takeaway: Vaults, a structure for onchain asset management, may be the next crypto innovation to break through to the mainstream.

Exhibit 1: Onchain vaults are similar to – but different from – CLOs

Blockworks, Vault Dashboard. As of July 23, 2026.

CLO Premium, Manager Concentration in US BSL, MM and EU CLO Markets. As of February 14, 2026.

Hyperliquid is Still Cheap versus its Fintech Peers

Hyperliquid, the breakout success story in perpetual futures, is not a traditional business and does not issue shares. However, trading activity on the platform accrues value to the HYPE token and, like many other crypto assets, the token can be valued with cash flows. On that basis, we think it looks cheap.

Traditional equities can be valued based on earnings per share (EPS). Blockchain protocols like Hyperliquid can be valued based on “earnings per token” (EPT).

For earnings, we assume the platform will make ~$1bn in 2027, up ~20% from 2025 on the back of an expected recovery in crypto trading volume and a new stablecoin partnership.1

The supply of HYPE tokens is dynamic and depends on network activity. Staking emissions and contributor unlocks (i.e., vesting) add to HYPE supply, while fee burns reduce HYPE supply. There are currently about 270 million HYPE tokens in circulation. We project that circulating supply will total between 270 and 310 million tokens by the end of 2027, based on our baseline expectations for earnings and a range of assumptions for team unlocks.2

Together these estimates equate to roughly $3.25 to $3.75 in EPT, and, at the current HYPE price of $54, a forward “earnings multiple” for HYPE of roughly 15 to 18x, suggesting the token may be undervalued compared to fintech equities (Exhibit 1). Risks to our forecasts include lower than expected network revenue growth and/or higher than expected token supply growth.

Key Takeaway: Despite the gains in Hyperliquid’s HYPE token this year, it still looks cheap compared to fintech equities.

Exhibit 1: HYPE multiple can be compared to traditional fintechs

1. A portion of stablecoin reserve income will be directed to the protocol under Hyperliquid’s Aligned Quote Asset version 2 (AQAv2) infrastructure. The median public equity in Exhibit 1 is expected to grow earnings by ~80% between 2025 and 2027, based on Bloomberg consensus earnings estimates.

2. Hyperliquid core contributors have been unlocking HYPE tokens at a rate of ~550k per month. We assume a range of 550k (the current run rate) to 2,750k (5x the current run rate) in our projected supply estimates. Estimated emissions are based on current staked HYPE supply and the current staking reward rate.

CLARITY Act Coming Down to the Wire

The CLARITY Act, bipartisan legislation creating a comprehensive rulebook for crypto capital markets, is coming down to the wire. The bill needs to clear the US Senate in the next two weeks (before the August recess), or it will likely get drowned out by midterm election politics.

On July 22, Senate Republicans released a complete draft text for the bill for the first time.1 Grayscale supports passage of the CLARITY Act and believes it will create a solid legal foundation for software developers, token issuers, investors, and other market participants, helping drive growth of public blockchain adoption.

The key sticking point is around the so-called “ethics” provisions—limits on public officials from issuing or sponsoring digital assets while in office. The Republican draft includes those limits but press reports suggest Democrats would like to see revisions.

Other key elements of the bill are less contentious. The legislation includes protections for non-custodial software developers—key for ensuring continued growth in decentralized finance (DeFi)—as well as rigorous requirements around KYC/AML and other protections against illicit finance.

Prediction markets put the probability of passage close to a toss-up (Exhibit 1). If the bill does not become law, public blockchain technology will continue to make inroads into the mainstream financial system, in our view, with use cases like stablecoins and tokenized assets. But investors and developers would need to continue to rely on guidance from regulatory agencies, without the long-term certainty offered by legislation.

Key Takeaway: The CLARITY Act may soon clear the Senate if bipartisan negotiators can make progress on a few remaining issues. The bill would create long-term regulatory certainty for crypto investors, developers and market participants and help drive the adoption of public blockchain technology.

Exhibit 1: Prediction markets suggest passage of CLARITY Act is a close call

The bill includes elements from both the Senate Banking Committee and the Senate Agricultural Committee. The new draft text combines material from both.

Bitcoin: Four-Year Cycle or Macro Asset?

When will the Bitcoin bear market end? Among market participants, there are two common perspectives.

Believers in the “four-year cycle” theory see Bitcoin halving events as the key driver of price movements and expect the current bear market to play out like those in the past. Historically, Bitcoin’s price has bottomed about a year after the cyclical peak and roughly 2.5 years after the halving event. Cumulative drawdowns have averaged ~80%.1 The four-year cycle theory implies that Bitcoin’s price could fall further, with a bottom in September or October.

The alternative perspective is that Bitcoin has “grown up” as an asset, and its price will henceforth be influenced by shifts in the macro backdrop, like virtually all major asset classes. For example, Bitcoin bear markets in the past have corresponded with slowing economic growth and/or rising real interest rates (Exhibit 1). The current bear market has also featured a major shift in Fed policy expectations and rising real interest rates. Naturally, if macro factors are in the driver’s seat, Bitcoin’s price could bottom when these macro factors turn around.

We subscribe to the latter view. If the Fed forgoes rate hikes and economic growth holds up well, Bitcoin’s price may already have bottomed.

Key Takeaway: The “four-year cycle” view predicts lower lows for Bitcoin’s price, but a macro perspective suggests the bottom may already be in.

Exhibit 1: Bitcoin price cycles have corresponded to shifts in macro backdrop

Based on median magnitude and duration of past drawdowns. Source: Coin Metrics, Grayscale Investments. Data as of July 21, 2026.

Earning Bitcoin Option Income in the Range

Although we see some positive signs, we can’t be sure exactly how the latest Bitcoin (BTC) bear market will play out. If Bitcoin’s price has found a durable bottom but trades sideways before recovering, covered call strategies can offer a way to help generate income from Bitcoin’s volatility while managing exposure to spot prices. As a reminder, in a covered call strategy, an investor buys a spot position and then sells a call option against it, earning the premium.

For example, a hypothetical covered call strategy1 for end-2026 with a spot Bitcoin price of $65,000 and implied volatility of 40% would offer:

An annualized yield of roughly 22%…

Positive returns above a breakeven price of $58,500…

And higher returns than spot BTC up to $72,500.

In other words, in this scenario an investor would earn ~22% annualized if Bitcoin’s price remains unchanged, and positive returns if Bitcoin’s price is above ~$58,500 at expiry (Exhibit 1). The option premium provides income as well as downside protection, in exchange for ceding some upside if Bitcoin rallies sharply. If the spot price of Bitcoin falls below the breakeven price, the covered call strategy loses money, but less than an outright long (by an amount equal to the premium on the call).

This simple example includes just spot BTC and a single call option. Many Bitcoin covered call strategy ETFs are designed to produce similar outcomes by selling a rolling portfolio of BTC call options.

Key Takeaway: Bitcoin covered call strategies can offer attractive 20%+ annualized yields at current prices and offer a compelling risk/reward provided the price of Bitcoin stays in a range.

Exhibit 1: Covered call strategies can outperform if spot Bitcoin prices stay in a range

Options involve risk and are not suitable for all investors. For information on the uses and risks of options, you can obtain a copy of the Options Clearing Corporation risk disclosure document titled Characteristics and Risks of Standardized Options by clicking here.

1. A covered call strategy buys a spot position in an asset and then sells call options against. This hypothetical example buys spot BTC at $65,000 and sells a December 2026 ATM call with implied volatility of 40%. Source: Grayscale Investments. Implied yield based on annualized return to expiry and excludes financing costs; implied yield is expressed relative to spot price; forward price assumed to equal spot price. Price thresholds as of expiry date. Data as of July 14, 2026.

Crypto Markets Are Rewarding Fundamentals

The crypto bear market and rising institutional adoption are driving greater performance differentiation across crypto assets—and those with stronger fundamentals are standing out.

We can show this with our Crypto Sectors family of indexes, developed in partnership with FTSE/Russell.1 The Financials Crypto Sector includes protocols at the heart of onchain finance. Their fundamentals are closely tied to adoption of stablecoins, tokenized assets, and other blockchain use cases. Many of the protocols, including Hyperliquid, may produce significant revenue and can be valued with cash flows.

In contrast, the Consumer & Culture Crypto Sector includes mostly memecoins like Dogecoin.2 Although we think promising consumer applications may emerge eventually, this Crypto Sector does not have many projects with strong fundamentals today.

Since the start of 2024, the Financials Crypto Sector is up roughly 15% while the Consumer & Culture Crypto Sector is down about 75% (Exhibit 1).

Key Takeaway: Crypto markets are rewarding tokens with strong fundamentals. These include Hyperliquid and other leading financial applications of blockchains.

Exhibit 1: Financials are outperforming their Consumer & Culture peers

Crypto Sector Indexes are weighted by the square root of token market cap. See here for more information.

Memecoins currently account for ~85% of the market cap of the Consumer & Culture Crypto Sector. Source: FTSE/Russell, Grayscale Investments. Data as of July 10, 2026.

The Evolution of Tokenized Equities

The tokenization of global equity markets is underway. Tokenized stocks are expected to bring a variety of user benefits, including 24/7 trading. The next big step forward will be the launch of the DTCC’s tokenization pilot on the Canton Network, which will allow tokenized equities (and other assets) to move across blockchain infrastructure within the regulated financial system. We see the tokenization of equity markets progressing in three phases, with each phase driving value to different types of blockchain infrastructure (Exhibit 1).

Phase 1 is the third-party “wrapper” model where issuers hold equities in a Special Purpose Vehicle (SPV) and the tokenized stock is a claim against the SPV. Today, more than 70% of tokenized stocks by market cap use this model. Wrapper-style tokenized stocks do not represent true ownership but can be used throughout DeFi and may be attractive to retail investors. They trade on Ethereum, Solana, BNB Chain, and other networks.

Phase 2 is the “entitlement” model and is exemplified by the DTCC pilot. Rather than creating new versions of securities, DTCC is bringing existing eligible securities onchain through its regulated post-trade infrastructure, with the Canton Network serving as the first blockchain for its pilot.

Phase 3 is the issuer-sponsored model where companies issue securities natively onchain. Last week, Securitize became the first public company to tokenize its own common stock at the time of its NYSE listing. We believe this model has the greatest long-term potential but will require additional regulatory clarity. The issuer-sponsored model favors open-architecture blockchains like Ethereum and Solana, as well as hybrid networks like Avalanche, in our view.

All three tokenization models are likely to coexist for years.

Key Takeaway: There are multiple models for tokenized equities. The blockchain networks best positioned to capitalize on the growth in tokenization include, in our view, Ethereum, Solana, BNB Chain, Avalanche, and Canton Network.

Exhibit 1: Third-party platforms currently dominate the tokenized equity market, while Ethereum, Solana, and BNB Chain account for the majority of onchain assets