Market Dynamics For The New Year

If you’ve been following the monthly updates, you’ve seen that 2024 was a typically wild year for the crypto markets. It began with the approval of the Bitcoin ETF in January and ended with the election of a seemingly highly pro-crypto congress in November. In between, the largest narrative was undoubtedly the clear emergence of stablecoins as the breakout example of product market fit for this technology and asset class.

The total circulating supply of stablecoins in the market grew by over 60 percent to over $200bn. In terms of transaction volume, roughly $20t in transfer volume occurred in 2024, with monthly volume growing 160% year over year. This now exceeds the volume of transactions and transaction value of Visa and is driven by adoption in emerging markets populations seeking access to the US dollar and growing numbers of merchants and corporations utilizing stablecoins for payments and international transfers.

The utility offered by stablecoins as a digital dollar alternative existed pre-2024. But the maturation of blockchain infrastructure, enabling these transactions to occur instantly and costlessly on networks like Solana and Tron has now made them a truly attractive asset and cemented their product market fit. I wrote about this in December, but we can think of this like the adoption of broadband internet creating a market for streaming video like YouTube and Netflix in the early 2000s.

With this non-speculative use cases growing in number, more and more users are finding their way on chain with exposure to digital assets and the compounding effects of this growing user base, more favorable US markets and the broad gains in token markets over the past year are setting up for a very active 2025 where more widespread adoption is very likely to occur.

The intersection of crypto and AI was a major theme in the latter half of the year, and I believe this will significantly boost crypto adoption. Although market hype has centered on AI agents, such as Truth Terminal, which created the meme coin Goatseus Maximus (reaching a $1.3 billion peak valuation), this seemingly frivolous event likely foreshadows the emergence of more advanced agent-driven experiences in 2025.

This combination of a chatbot with a memecoin is the perfect distillation of the more “degen” side of crypto in 2024. As I have written in the past, it is easy to look down your nose on these seemingly crazy behaviors as people essentially buy lottery tickets on worthless tokens like DOGE, I find there’s always something to learn and keep an eye on as the experimentation in this realm occurs and often leads to some more practical and valuable use cases longer term. 

For example, with NFTs we had a mania of activity that famously came crashing down in 2022. But NFTs themselves didn’t die. Just look at companies like our portfolio company Legitimate, offering digital experiences to buyers of collectibles like limited edition sneakers that just happen to be NFTs beneath the surface. Tokenized assets like real estate are also NFTs in a different form.

Investing out of Fund I, the goal has been to find companies that aren’t at the center of today’s prevailing trends, but rather to invest in great teams who have an insight on a market opportunity that today may feel small but that is likely to expand over the next several years. They seek to be early movers in these growing markets and take advantage of macro tailwinds that are likely to build and contribute to their success over time. 

For example, we’ve been quite active in energy markets, with investments in Neutral, Plural and Jasmine all in the portfolio. This aligns with the thesis that I articulated in a blog post earlier this year where we are seeing a massive new demand for energy resources underway through the immense buildout of compute capacity for AI workloads. This trend, along with the opportunities to innovate in a market that’s seeing the introduction of large numbers of distributed energy resources like solar panels, home battery storage, EVs, etc. creates an attractive convergence that we think intersects with crypto in exciting ways.

AI is another area we have been active in and written about here and here over the past few years, with our investments in Crunch, Nevermined, and 375ai playing roles in various parts of the stack, from model development to payments to data collection. Preparing for 2025 and beyond, the biggest areas of crypto opportunity I’m preparing for are the mundane extension of crypto efficiency in largely unseen ways and the possibility of some extreme seeming sci-fi style applications related to AI.

As mentioned above, stablecoins have evolved from niche financial instruments to essential tools in global digital finance. Their promise of price stability—pegged to fiat currencies or commodities—has made them indispensable for payments, remittances, and savings in many markets. There is about to be an explosion of stablecoin issuance as fintech and traditional financial services companies launch proprietary versions of these coins to lower their costs and improve efficiency of payments and transfers globally. This proliferation will commoditize stablecoins, driving widespread adoption and reshaping the digital payments landscape.

However, the current ecosystem remains fragmented and intimidating for many users. Custody solutions and crypto wallets can deter mainstream adoption as they try to be a gateway to all of crypto, rather than merely an easy to use home for your assets. This presents a significant opportunity for innovation: developing streamlined onboarding experiences and wallets with the simplicity of Venmo and creating ways for these stablecoins to be abstracted further from their crypto backend. This will onboard two sides of the population. First, the long tail small dollar consumers in both emerging and developed markets who become exposed to the simplicity and value of these assets. Second, the high net worth market where, if presented intelligently, stablecoins can offer an attractive mechanism to store and transfer money internationally without the arcane processes and restrictions of the traditional banking system.

Beyond generic stablecoins like USDC or USDT, the concept of branded currencies is where I expect the biggest growth. Companies like Starbucks, McDonalds and others save hundreds of millions of dollars by creating a closed payments system through their mobile apps, with customers loading money in bulk onto their Starbucks accounts and reducing transaction fees traditionally paid to credit card processors on a per-swipe basis. Instead of paying $.30 + 3% (9% aggregate processing cost) on every $5 in store purchase, the company incurs these costs only on a one time $25 top up (roughly 4% aggregate processing cost) and then each subsequent purchase occurs on their own internal ledger improving their margins by roughly 5%.

While Starbucks carries this out on their own centralized accounting and payments system, the opportunity is clear for this to be commercialized as a broader platform underpinned by stablecoin rails. While today we have USDC, USDE, USDT as generic dollar equivalents, I expect to see more branded stablecoins emerge, merging loyalty programs with digital payments. Imagine airline reward points that function as stablecoins or retail giants launching currencies tied to exclusive discounts. 

By integrating payments with customer loyalty through a stablecoin solution, businesses can build systems to incentivize repeat spending, recapturing lost margin on processing and international transfers. By moving this to decentralized stablecoin rails, they gain the benefits of lower administrative and operational costs to manage these programs. 

This could also become a trend in crypto markets. Instead of projects launching their own fixed-supply token, they might move toward a branded, uncapped stablecoin reward system. This would address regulatory issues and simplify reward and token programs for market participants where a variable price native token is often unnecessary.

Bitcoin (BTC) is transitioning from a speculative asset to a foundational component of diversified portfolios. Increasingly, individuals are holding Bitcoin as a hedge against inflation and macroeconomic uncertainty. Similarly, corporations are adding BTC to their treasuries, following high-profile examples like MicroStrategy and Tesla.

Governments are also beginning to recognize Bitcoin’s value, particularly in the face of geopolitical tensions and potential shifts in U.S. trade policy under the new administration. As a decentralized, borderless store of value, Bitcoin offers a hedge against dollar volatility, appealing to nations with significant exposure to U.S. economic policies.

This growing adoption creates a self-reinforcing cycle of legitimacy. As Bitcoin gains acceptance, its network effects strengthen, attracting more participants and increasing its utility.

Price action in Bitcoin markets has historically driven developer interest in crypto broadly. The increasingly crypto-friendly U.S. regulatory environment will accelerate this trend. A new generation of developers will enter the crypto space, bolstered by the halo effect from Bitcoin’s mainstream adoption that further legitimizes the broader crypto asset class and its underlying technology.

In response to a regulatory shift, the U.S. is entering a new era of crypto acceptance, particularly in the B2B space. In the past several years, regulated entities have shied away from servicing the crypto industry and meaningfully experimenting or implementing crypto solutions, in many cases due to outright threats from regulators. With the new administration, banks and other regulated entities are becoming more comfortable interacting with crypto companies, enabling safer operations and broader collaboration. 

Tokenization offers significant advantages that organizations like Blackrock and Franklin Templeton have already adopted. By reducing administrative overhead, tokenized assets can lower costs while providing broader distribution opportunities. For individuals, tokenized assets could redefine net worth, making previously illiquid assets (like real estate, watches, whiskey or intellectual property) tradeable and usable as collateral. Companies that are operating in these markets, bringing previously untapped financial assets on chain, become exciting opportunities in this new landscape.

Regulatory clarity in the U.S. will also unlock previously inaccessible consumer applications. Platforms like Polymarket—a decentralized prediction market—have operated in legal grey areas overseas but could become accessible to U.S. users under new guidelines. Similarly, decentralized futures and derivatives exchanges could gain traction, offering consumers innovative ways to manage risk and invest. I’m eager to see what types of new product experiences emerge from this new opportunity to experiment with novel token incentive structures for US users and build on the excitement that the DEPIN sector has catalyzed through physical infrastructure buildouts and virtual networks. Markets like energy, medicine, and others seem ripe for experimentation.

One of the most exciting developments in the U.S. market will be the evolution of crowdfunding through tokenization. Clearer classifications of securities and commodities will enable businesses to raise capital from a broader pool of investors. This could lead to entirely new models of corporate formation, where startups issue tokens instead of traditional equity, democratizing access to investment opportunities and sparking fresh innovation in capital markets. Businesses that are facilitating this movement become the next potential Coinbase in terms of the magnitude of the opportunity.

The rapid rise of autonomous AI agents calls for a paradigm shift in how these systems interact with digital ecosystems. Current browser-based interfaces, designed for human use, are ill-suited for agents. Instead, we’ll see the emergence of agent-specific interfaces akin to developer APIs, enabling seamless, natural interaction between agents and systems. Crypto is the payment rails for this evolution.

AI agents face a significant limitation: they cannot independently access traditional financial services like bank accounts. This makes cryptocurrencies the logical choice for enabling financial autonomy. By using crypto, humans can empower agents with the ability to manage funds, execute transactions, and perform services on their behalf. We saw this with the wide range of agents on X, like the aforementioned Truth Terminal. Put to more tactical and practical use, it will create an exciting experimental space to pay attention to.

One of the most innovative possibilities in this space is crowd-controlled AI agents. These agents would operate under the governance of token holders, who could collectively set rules, strategies, and limits. For example, an AI agent tasked with trading in financial markets could have its decisions shaped by the collective votes of its token holders, ensuring transparency and accountability. The new corporation might be simply an AI and the governing body, the holders of the tokens that oversee its incentive set and guardrails.

As AI agents become more autonomous, verifying human identity will be critical to prevent malicious agents from exerting undue influence. Proof-of-personhood systems with a crypto native ID (think Clear for everything) will ensure that only trusted humans control agents, maintaining the integrity of these systems.

Trust will be a cornerstone of AI-agent ecosystems. Unlike today, where users implicitly trust human-governed services, there will be skepticism toward AI counterparts. Decentralized governance mechanisms, enabled by crypto, can provide the necessary transparency and accountability. Governance tokens will likely play a role in this ecosystem, allowing stakeholders to enforce rules and align incentives.

As we turn the page on 2024 and look ahead to 2025, I anticipate the next 12 months will bring about some seismic changes in how we interact with technology in our everyday lives. Robotaxis are taking over cities like SF and LA, and soon many more cities. The capabilities of AI are accelerating and broadening at a breathtaking pace. A huge cultural shift is clearly occurring with the new administration coming into power in the US, with the Silicon Valley elite playing a central role in our federal government and policy agenda. All of this sets the stage for a volatile and exciting year.