Grayscale March Review: Market Resilience in a Wartime Environment

Source: Grayscale Research, compiled by: Jinse Finance

Key takeaways

• In March, the valuation of crypto assets remained resilient, managing a slight uptick despite declines in most other major assets except crude oil. Although we believe current prices are still an attractive entry point for long-term investors, the valuation rebound still requires geopolitical uncertainty to ease somewhat.

• In mid-month, the U.S. Securities and Exchange Commission (SEC) clarified how several longstanding, unresolved U.S. securities laws apply to crypto assets. Meanwhile, the prospects for the CLARITY Act remain unclear, and all sides continue to debate issues related to stablecoin yield.

• The best-performing assets in March were Hyperliquid (benefiting from a rise in commodity futures trading volume) and Bittensor (driven by major technical breakthroughs in the decentralized AI space).

The Iran conflict almost overshadowed all other market developments in March. For the global economy, its most important impact has been a pronounced oil-price shock: spot oil prices are currently up by about $46 per barrel (a 63% increase), and forward futures prices have risen in tandem as traders expect supply disruptions to last longer. Inflation concerns sparked by this have pushed up interest-rate expectations for major economies. Broad equity indices, U.S. Treasuries, and precious metals all fell across the board.

Despite market turbulence, crypto assets still managed a modest gain (see Figure 1). We believe the resilience shown by the crypto market is, to some extent, due to the fact that market risk has been largely released over the past few months. Even as overall market volatility increased in March, crypto spot ETPs still recorded modest net inflows of capital, and perpetual contract open interest also inched up. Bitcoin in particular received a boost from Strategy, which bought about 44,400 BTC (worth roughly $3.1 billion) on strong demand for its STRC preferred stock product.

Figure 1: Crypto currencies saw a modest rise in March

The crypto market may also benefit from improving regulatory clarity, including the SEC’s latest interpretive guidance on how federal securities laws apply to crypto assets. This joint statement, issued together with the U.S. Commodity Futures Trading Commission (CFTC), addresses a range of long-standing unresolved issues that have troubled founders in the crypto industry (and their legal counsel). The guidance mainly contains three specific points:

• A framework for classifying crypto assets. The SEC divides crypto assets into five broad categories (see Figure 2).

• Digital securities are securities (which is obvious).

• Stablecoins may be deemed securities (if they do not meet the requirements of the GENIUS Act and have security-like attributes).

• All other crypto assets are not securities.

• The distinction in defining tokens. Most tokens are not securities, but even non-security tokens may form an “investment contract,” and thus require registration with the SEC. In this regard, the SEC adopts the classic Howey test standard: if investors can reasonably expect profits based on the issuer’s business activities, the related issuance activities may be deemed a securities issuance.

• Regulatory definitions for mining, staking, wrapped assets, and airdrops. Overall, these activities are not considered securities transactions.

So what does this mean in practice? Blockchain provides new avenues for fundraising, but potential issuers want to ensure they fully comply with existing law. This entirely new joint guidance reduces uncertainty, and may therefore stimulate new investment activity. For investors in crypto assets, the direct impact is:

Lower tail regulatory risk;

More potential new token issuances, which may make on-chain activity more active.

Ultimately, increased activity like this may provide value support for the underlying layer-1 chains and their native assets (such as ETH, SOL, SUI, BNB, AVAX).

Figure 2: SEC clarifies that most digital assets are not securities

Meanwhile, the outlook for the CLARITY Act in the U.S. Senate remains unclear; Polymarket’s prediction contract shows a passage probability of about 50%. Stablecoin rewards have become the core of the debate—most likely because this model threatens some banks’ revenue (see Figure 3).

On March 20, senators announced an agreement in principle to move the bill forward for approval in the Senate Banking Committee. On March 24, a new framework was released: it would prohibit paying yield on stablecoins held purely passively, but allow limited activity-based rewards tied to payments or platform usage. The proposal aims to ease banks’ concerns about deposit outflows while leaving room for innovation.

In response, industry participants have begun submitting counterproposals collectively, seeking a more flexible regulatory approach for yield rewards. Negotiations are still ongoing, with the goal of completing committee clause revisions in April and the earliest possible approval of the bill in May.

Figure 3: Competition for payment revenue may be affected by the CLARITY Act

Hyperliquid and Bittensor perform strongly

During March, the crypto financial sector performed best, with Hyperliquid leading the pack. The platform’s growth is mainly driven by HIP-3 (see Figure 4), which supports around-the-clock trading of traditional assets such as stocks and commodities—an advantage that is especially pronounced in volatile market environments where traditional exchanges are still closed.

In addition, TradeXYZ (the HIP-3 deployer) partnered with S&P Dow Jones Indices to launch the first officially authorized S&P 500 index perpetual contract on the Hyperliquid platform, further deepening integration with traditional financial markets.

Finally, as market interest in prediction markets continues to heat up, the highly anticipated HIP-4 upgrade has also gained momentum.

Figure 4: March’s high-liquidity HIP-3 open interest continues to set record highs

At the same time, AI-related narratives continue to gain traction. Bittensor has become a standout beneficiary of this theme’s upside, with the TAO token up 71% in March, as investors increasingly focus on the integration of blockchain and artificial intelligence technologies.

On March 10, a Bittensor subnet announced training a 72-billion-parameter large language model (LLM) using a permissionless node network, indicating that decentralized infrastructure has the potential to support large-scale AI research and development.

Later that month, during an interview with Nvidia CEO Jensen Huang on the All-In podcast, Bittensor was mentioned, sparking broad market attention.

Taken together, these developments highlight Bittensor’s unique positioning at the intersection of the two major structural trends: artificial intelligence and decentralization.

Figure 5: Crypto sector returns show pronounced dispersion

Waiting for the fog to clear

Ongoing military conflict in the Middle East continues to cast a shadow over the outlook for crypto assets. Before the war, the global economy had been performing strongly—indeed, even accelerating—so central banks in various countries also tend to start cutting rates. If this round of conflict ends quickly and oil prices fall, the market may reset and reprice in favor of a more favorable macro environment. Conversely, if oil prices keep rising, economic growth could be dragged down and market recovery delayed. At present, we judge that until geopolitical risks become clear, many investors will still choose to wait and see.

Despite many uncertainties, we believe this is still an opportune time for long-term crypto investors to build positions. Since the outbreak of the conflict, asset valuations have stayed resilient, suggesting the market may have already formed a more solid bottom. In addition, the major long-term trend driving blockchain applications—especially the steadily increasing adoption of stablecoins and tokenized assets—has not changed. For token prices to rebound sharply, it may require further fading of macro uncertainty. But looking back, such phases are often proven to be extremely attractive entry opportunities.