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 solid, still posting a modest gain despite declines across most other major assets, except for crude oil. While we believe current prices are still an attractive entry point for long-term investors, the valuation rebound still depends on some easing of geopolitical uncertainty.

• In mid-month, the U.S. Securities and Exchange Commission (SEC) clarified how several long-pending U.S. securities laws apply to crypto assets. At the same time, the outlook for the CLARITY Act remains unclear, with parties still debating issues related to stablecoin yield.

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

The Iran conflict nearly overshadowed all other market developments in March. For the global economy, its most important impact is a significant oil-price shock: spot oil prices are currently up by about $46 per barrel (a 63% increase), and forward futures prices are also rising in tandem as traders expect supply disruptions to persist longer. Inflation concerns sparked by this raise rate expectations for major economies. Broad-based equity indexes, U.S. Treasuries, and precious metals all fell across the board.

Despite market turbulence, crypto assets still managed to record a modest gain (see Figure 1). We believe the resilience displayed by the crypto market, to some extent, stems from the fact that market risks have already been significantly repriced in recent months. Even as overall market volatility increased in March, crypto spot ETPs still saw modest net inflows of capital, and open interest in perpetual contracts also rose slightly. Bitcoin in particular received support from Strategy: the company bought about 44,400 BTC (worth roughly $3.1 billion) thanks to strong demand for its STRC preferred stock product.

Figure 1: Crypto currencies posted a modest gain in March

Crypto markets may also benefit from improved regulatory clarity, including the SEC’s latest interpretive guidance on how federal securities laws apply to crypto assets. This statement, developed jointly with the U.S. Commodity Futures Trading Commission (CFTC), addresses a range of long-standing questions that have plagued crypto industry founders (and their legal advisers). The guidance mainly includes three specific points:

• Crypto asset classification framework. The SEC divides crypto assets into five categories (see Figure 2).

• Digital securities are securities (as should be obvious).

• Stablecoins may be deemed securities (if they do not meet the requirements of the GENIUS Act and have characteristics similar to securities).

• All other crypto assets are not securities.

• Token characterization and distinction. Most tokens are not securities, but even non-security tokens may constitute an “investment contract,” and thus require registration with the SEC. Here, the SEC follows the classic Howey Test standard: if investors can reasonably expect profits based on the issuer’s business activities, the relevant issuance could be treated as a securities offering.

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

So what does this mean in practice? Blockchain provides a new avenue for fundraising, but potential issuers want to ensure they are fully compliant with current laws. This entirely new joint guidance reduces uncertainty and may therefore stimulate new investment activity. For crypto asset investors, the direct implications are:

Lower tail regulatory risk;

A potential increase in new token issuance, which may make on-chain activity more active.

In the end, this rise in activity could provide value support for underlying Layer-1 chains and their native assets (such as ETH, SOL, SUI, BNB, AVAX).

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

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

On March 20, senators announced that they had reached a principle-based agreement to move the bill forward for passage in the Senate Banking Committee. On March 24, a new framework was released: prohibiting yield payments on purely passive holdings of stablecoins, but allowing limited activity-based rewards that are linked to payments or platform use. The proposal aims to ease banks’ concerns about deposit outflows while leaving room for innovation.

In response, industry participants have begun submitting counterproposals jointly, seeking a more flexible regulatory approach to yield incentives. Negotiations are still ongoing, with the goal of completing committee clause revisions in April and, at the earliest, passing the bill in May.

Figure 3: The CLARITY Act may affect competition in payment revenue

Hyperliquid and Bittensor outperform

In March, the best-performing segment in crypto was the financial sector, led by Hyperliquid. The platform’s growth is mainly driven by HIP-3 (see Figure 4), which supports all-day trading for 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 the integration with traditional financial markets.

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

Figure 4: March—Hyperliquid’s HIP-3 open interest in highly liquid contracts hits a new all-time high

At the same time, AI-related narratives have continued to gain traction. Bittensor has become a notable beneficiary of this theme’s upside: in March, the TAO token rose 71%, as investors increasingly focused on the convergence of blockchain and AI technologies.

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

That same month, during an interview with NVIDIA CEO Jensen Huang on the All-In podcast, Bittensor was mentioned, drawing widespread market attention.

These developments together highlight Bittensor’s unique positioning at the intersection of the two major structural trends of 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, global economic performance was strong—indeed, it was even on track for accelerated growth—and central banks in various countries have tended to lean toward cutting interest rates. If this round of conflict ends quickly and oil prices pull back, the market may reprice toward a more favorable macro environment. Conversely, sustained high oil prices could drag on economic growth and delay a market recovery. At present, we believe that before geopolitical risks become clear, many investors will still choose to wait and watch.

Despite many uncertainties, we believe this is still a good opportunity for long-term crypto investors to build positions. Since the outbreak of the conflict, asset valuations have held up solidly, suggesting the market may have already formed a more stable bottom. In addition, the core long-term trend driving blockchain application adoption—especially the continually increasing penetration of stablecoins and tokenized assets—has not changed. A sharp rebound in token prices may require further fading of macro uncertainty. But looking back, these kinds of phases are often later confirmed to have been extremely attractive entry opportunities.