A senior Coinbase executive has cautioned that US efforts to limit interest or rewards on dollar-backed stablecoins could unintentionally strengthen foreign competitors, particularly as China advances policies to promote its digital yuan. The comments come amid ongoing debate over the implementation of the GENIUS Act, which bars US payment stablecoin issuers from paying yield directly to holders.

Faryar Shirzad, Coinbase’s chief policy officer, said that prohibiting incentives on US-issued stablecoins risks undermining their appeal relative to overseas alternatives. His remarks followed an announcement by the People’s Bank of China that commercial banks will be permitted to pay interest on holdings of the digital yuan under a framework set to take effect in early 2026.

China’s Digital Yuan Shift

China’s decision marks a notable evolution in its central bank digital currency strategy. The e-CNY has so far seen limited consumer adoption despite extensive pilot programs, functioning largely as a cash-like instrument without yield. Under the new policy, the digital yuan will transition toward a deposit-style instrument, allowing banks to offer interest and potentially making it more attractive to households and businesses.

From a macro perspective, the move reflects Beijing’s broader effort to modernize its payments infrastructure and reduce reliance on private platforms. Allowing interest payments could accelerate adoption while positioning the digital yuan as a competitive settlement tool in cross-border trade and regional payment systems. For global policymakers, it highlights how incentives remain a critical lever in driving digital currency usage.

US Policy Debate and Market Structure

In contrast, the GENIUS Act, enacted in July, was designed to keep US dollar stablecoins focused on payments rather than savings or investment products. While the law clearly prohibits issuers from paying interest, disagreement has emerged over whether certain rewards or incentive structures fall within that ban.

Crypto industry groups argue that a strict interpretation could put US-based stablecoins at a disadvantage compared with foreign-issued tokens and central bank digital currencies. In a recent letter to lawmakers, industry participants contended that there is little evidence that stablecoin rewards pose a systemic threat to community banks or financial stability.

Banking trade groups have taken the opposite view, urging regulators to enforce a broad prohibition on any yield-like incentives. They argue that allowing rewards could blur the line between stablecoins and deposits, potentially diverting funds from the traditional banking system and complicating supervision.

Competitive and Institutional Implications

The dispute underscores a broader tension between financial innovation and incumbent protection. Stablecoins have become a key part of the digital asset market’s infrastructure, increasingly used for payments, settlement, and onchain liquidity. How the US regulates incentives will shape whether dollar-backed stablecoins remain competitive as other jurisdictions experiment with yield-bearing digital money.

For institutional investors and policymakers, the issue goes beyond crypto markets. It touches on currency competitiveness, payment system leadership, and the future role of the US dollar in an increasingly tokenized financial system. As China and other countries refine their digital currency strategies, US regulatory choices could have lasting implications for global financial influence.

Japan’s government has outlined plans to significantly reduce cryptocurrency taxes as part of its 2026 tax reform blueprint, lowering the levy on eligible crypto gains to a flat 20%. The proposal would align crypto taxation with equities and investment trusts, a sharp departure from the current framework that can push effective tax rates on digital asset profits as high as 55%. Policymakers see the change as a step toward restoring domestic competitiveness in crypto trading and investment.

The reform reflects growing concern that Japan’s punitive tax regime has driven retail traders, startups, and liquidity offshore over the past several years. By shifting crypto into a separate tax category under revised financial regulations, officials aim to normalize digital assets within the broader investment landscape. Industry participants argue that the move could encourage long-term participation and reduce speculative distortions caused by high marginal tax rates.

Limited Scope under “Specified” Asset Rules

Despite the headline cut, the lower tax rate will apply only to so-called specified crypto assets. These are digital assets handled by firms registered under Japan’s Financial Instruments Business Operator framework, effectively tying tax relief to regulatory compliance. Major cryptocurrencies such as Bitcoin and Ether are widely expected to qualify, though final criteria and operational requirements have yet to be clarified.

The selective approach signals a regulatory balancing act between fostering innovation and maintaining investor protection. By limiting eligibility, authorities retain leverage over market structure while discouraging activity in less transparent or lightly regulated tokens. The framework also introduces a three-year loss carryforward mechanism starting in 2026, allowing investors to offset future gains with prior losses, a feature long requested by domestic market participants.

Institutional Context and Market Implications

The tax shift coincides with broader efforts to integrate crypto into Japan’s regulated financial system. Revised rules would permit the creation of crypto-linked investment trusts, expanding access for institutional and retirement-oriented capital. Japan has already launched its first XRP-linked exchange-traded product, with additional crypto-focused ETFs under consideration.

Regionally, the move positions Japan more competitively against markets such as Hong Kong and Singapore, which have pursued clearer regulatory and tax frameworks to attract digital asset firms. While the narrow scope may temper near-term inflows, analysts view the reform as a structural signal rather than a short-term stimulus. The effectiveness of the tax cut will ultimately depend on how broadly assets are classified as specified and how consistently the rules are enforced across the market.

California’s proposed 2026 Billionaire Tax Act is drawing sharp criticism from crypto industry participants, who argue the measure could push wealth and innovation out of the state while creating limited benefits for public services. Introduced by the Service Employees International Union United Healthcare Workers West, the proposal would impose a 5% annual tax on net wealth above $1 billion to help address a projected $30 billion shortfall in the state’s Medi-Cal healthcare program.

The tax would apply broadly across assets, including public equities, private businesses, real estate, art, and digital assets such as cryptocurrencies. Under a mark-to-market framework, the levy would be assessed on unrealized gains, with payments required either upfront or over five years with an added deferral charge. Critics say the structure could force founders and investors to liquidate illiquid holdings, potentially reducing control over companies or triggering cascading tax liabilities.

Capital Mobility and Institutional Concerns

Crypto executives and venture investors have been among the most vocal opponents, citing heightened capital mobility within the digital asset sector. Many argue that taxing unrealized gains amounts to a de facto confiscation of wealth that has often already been subject to prior taxation, particularly when assets must be sold to meet tax obligations. Concerns around double taxation and liquidity strain have been amplified, given the concentration of crypto wealth in volatile and non-cash assets.

From an institutional perspective, opponents warn that the proposal could weaken California’s competitive position relative to other states courting technology and crypto firms with more favorable tax regimes. Several market participants likened the policy signal to a sovereign-style wealth grab, suggesting it could alter long-term investment decisions and discourage founders from building companies in the state.

Policy Debate and Global Comparisons

Supporters of the proposal argue that the tax could help address inequality and stabilize funding for essential services such as healthcare, housing, and education. Proponents frame the measure as a response to rising wealth concentration, particularly in technology hubs, and as a mechanism to align public finances with the scale of private fortunes generated in the state.

Critics, however, point to international precedents, including Norway’s wealth tax experience, where significant portions of high-net-worth capital reportedly relocated abroad. Industry observers argue that such outcomes can ultimately reduce the tax base and dampen economic activity. As a ballot initiative, the measure must still gather sufficient signatures and is likely to face legal scrutiny, leaving its ultimate impact uncertain amid an increasingly competitive landscape for global capital.

Bitcoin was largely absent from the traditional year-end Santa rally, even as US equities and precious metals pushed to fresh record highs. The largest cryptocurrency traded near $87,200 on December 26, down roughly 6.5% from its 2025 opening level and well below its October peak above $126,000. Price action remained muted through the holiday week, reflecting reduced risk appetite and thinning liquidity across crypto markets.

Near-term trading has been dominated by derivatives positioning, with market participants focused on a record $28 billion crypto options expiry. Analysts said large expiries can magnify price swings in low-volume conditions, reinforcing a defensive tone. US spot Bitcoin ETFs mirrored this caution, recording roughly $500 million in net outflows over the week and extending a two-month stretch that has seen more than $4 billion withdrawn.

Precious Metals Capture Defensive Flows

While Bitcoin struggled, traditional safe havens outperformed sharply. Gold climbed above $4,580 per troy ounce, while silver surged past $75, setting new all-time highs. Analysts attributed the rally to a weaker US dollar, ongoing geopolitical tensions, and year-end liquidity effects that amplified moves in futures and physical markets.

Institutional demand has also played a role, with central-bank purchases and ETF inflows supporting prices. Expectations for Federal Reserve rate cuts in 2026 have further boosted non-yielding assets, reinforcing gold and silver’s appeal as portfolio hedges. Silver’s gains were compounded by speculative inflows and lingering supply tightness following an October short squeeze.

Equities Maintain Momentum into Year-End

US equities remained resilient into the final trading days of the year. The S&P 500 and Dow Jones Industrial Average closed the shortened Christmas Eve session at record highs, extending a rally that has lifted major indexes throughout December. The S&P 500 is up about 18% year-to-date, while the Nasdaq has gained more than 20%.

The divergence highlights a broader allocation shift as investors favor assets with clearer earnings visibility and macro tailwinds. For Bitcoin, the lack of a Santa rally underscores its growing sensitivity to derivatives flows and institutional positioning, even as traditional markets continue to benefit from supportive liquidity conditions and year-end portfolio adjustments.

Crypto-related stocks delivered widely divergent returns in 2025, reflecting a year in which equity markets advanced while digital asset prices lagged. The S&P 500 rose roughly 17% year to date, while Bitcoin fell about 4% and Ether declined nearly 8%, creating a challenging backdrop for companies closely tied to token prices.

Despite that divergence, several crypto-adjacent firms significantly outperformed, driven by shifts toward infrastructure, artificial intelligence, and diversified revenue models. Others, particularly companies emphasizing balance sheet exposure to crypto assets, struggled as volatility weighed on valuations and investor sentiment.

Infrastructure and Platforms Lead Gains

The strongest performers were largely companies that repositioned beyond pure crypto exposure. BitMine Immersion rose more than 300% after pivoting from bitcoin mining to an Ether-focused treasury and staking strategy, becoming the largest known corporate holder of Ethereum. Investors rewarded the shift toward yield generation and scale, despite broader weakness in crypto prices.

Mining firms with exposure to artificial intelligence and high-performance computing also posted strong gains. IREN, Cipher Mining, Hut 8, and Terawulf all advanced more than 100%, supported by long-term data center leases, cloud infrastructure deals, and partnerships with major technology firms. These moves helped reframe miners as infrastructure providers rather than cyclical crypto proxies.

Trading platforms also benefited from expanding product offerings. Robinhood more than tripled its crypto revenue in recent quarters, pushing its shares higher as the firm moved into derivatives, tokenization, and prediction markets. The gains underscored investor preference for diversified platforms with recurring fee income and regulatory progress.

Treasury Strategies Face Renewed Scrutiny

On the other end of the spectrum, companies built around crypto treasury strategies faced steep declines. Sol Strategies, Fold Holdings, and Strategy Inc each fell more than 40%, highlighting the risks of tying equity valuations closely to volatile digital assets.

Strategy Inc, the largest corporate holder of bitcoin, continued to expand its holdings but saw shares slide as investors weighed dilution risks tied to ongoing capital raises. Similar pressure affected other firms that accumulated tokens aggressively during earlier market cycles, as declining prices eroded balance sheet values.

The underperformance reflects a broader institutional reassessment of crypto-as-treasury models. While such strategies attracted attention during bull markets, 2025 highlighted their sensitivity to macro conditions, interest rates, and risk appetite.

Market Context and Institutional Implications

The dispersion in returns points to a maturing market where equity investors increasingly differentiate between business models rather than treating crypto stocks as a single trade. Companies with exposure to AI infrastructure, regulated trading, and diversified services attracted capital, while those reliant on asset appreciation faced skepticism.

From an institutional perspective, the trend aligns with a broader shift toward cash-flow visibility and regulatory clarity. As digital assets integrate more closely with traditional finance, equity markets appear to be favoring firms that can operate across cycles rather than those dependent on directional token prices.

The results of 2025 suggest crypto-related equities are entering a more selective phase. Performance is increasingly tied to execution, balance sheet discipline, and competitive positioning, rather than broad optimism about digital assets alone.

The crypto sector recorded a sharp acceleration in mergers and acquisitions in 2025, with total deal value reaching a record $8.6 billion, according to data cited by the Financial Times. A total of 267 transactions were completed during the year, marking an 18% increase from 2024 and reflecting renewed strategic activity across exchanges, brokers, and infrastructure providers.

The surge represents a nearly 300% increase in deal value compared with the prior year, when crypto mergers totaled roughly $2.2 billion. Market participants attribute the rebound to a combination of regulatory clarity, institutional reengagement, and a wave of consolidation among mature crypto businesses seeking scale, licenses, and diversified revenue streams.

Large Exchange Deals Reshape Competitive Landscape

Coinbase led the year’s dealmaking with its $2.9 billion acquisition of crypto options platform Deribit, the largest transaction ever recorded in the sector. The purchase significantly expanded Coinbase’s derivatives footprint and underscored the growing importance of options and futures trading in global crypto markets.

Other notable transactions included Kraken’s $1.5 billion acquisition of futures trading platform NinjaTrader and Ripple’s $1.25 billion purchase of prime broker Hidden Road. These deals reflect a broader trend of exchanges and infrastructure providers moving deeper into regulated derivatives and institutional services as competition intensifies.

From a competitive standpoint, consolidation has become a tool for accelerating product expansion and geographic reach. Rather than building capabilities organically, established players are increasingly using acquisitions to secure licenses, technology, and client bases, particularly in jurisdictions with well-defined regulatory regimes.

Regulatory Clarity Draws Institutional Capital

The rebound in dealmaking has coincided with a more favorable policy environment in the United States, where the Trump administration rolled back several enforcement actions and signaled a more permissive stance toward crypto markets. That shift has encouraged traditional financial institutions to revisit acquisition opportunities after years of regulatory uncertainty.

Legal advisers noted rising interest in firms holding licenses aligned with Europe’s Markets in Crypto-Assets (MiCA) framework, as well as growing demand for stablecoin-related businesses. As new regulatory regimes take shape in the US and UK, compliance considerations are increasingly shaping M&A strategy.

At a macro level, the pickup in transactions has occurred even as digital asset prices cooled in the second half of the year. Bitcoin fell more than 30% from its October peak, suggesting that strategic dealmaking is being driven more by long-term positioning than short-term market sentiment.

IPO Activity Complements the Consolidation Trend

Alongside mergers, 2025 was also a standout year for crypto initial public offerings. 11 crypto companies raised a combined $14.6 billion through public listings, a sharp increase from the prior year’s limited activity.

High-profile offerings included Bullish, Circle Internet Group, and Gemini, signaling that public markets are again open to established crypto firms with institutional-grade governance. Together with record M&A activity, the IPO resurgence points to a maturing industry increasingly shaped by traditional capital markets dynamics rather than speculative cycles.

Hong Kong regulators are moving forward with a more comprehensive licensing framework for crypto trading and custody, reinforcing the city’s push to integrate digital assets into its regulated financial system. On December 24, the Financial Services and the Treasury Bureau and the Securities and Futures Commission released a consultation summary outlining the next phase of oversight for virtual asset service providers.

The framework is designed to strengthen market integrity, investor protection, and operational resilience while supporting the long-term development of Hong Kong’s digital asset market. Officials emphasized continuity with existing financial regulations rather than a shift in policy direction, signaling higher compliance expectations for firms operating in the sector.

Licensing Structure for Trading and Custody Providers

Under the finalized proposals, virtual asset trading platforms will be subject to a licensing regime closely aligned with Type 1 securities dealing under Hong Kong’s Securities and Futures Ordinance. The approach mirrors traditional market oversight, applying familiar standards around conduct, governance, and risk management to crypto trading activities.

Custody service providers will face a more targeted but stricter framework, reflecting the risks associated with holding client assets. Regulators are placing particular emphasis on the control and safekeeping of private keys, an area that has been central to several high-profile failures globally. The goal is to reduce custody-related risks and strengthen safeguards for client assets across the market.

Authorities said industry feedback largely supported the expansion of regulation to include both trading and custody services. The move builds on the virtual asset trading platform licensing regime launched in June 2023, which marked Hong Kong’s first formal step toward comprehensive crypto oversight.

Market Feedback and Regulatory Refinement

The initial consultation period, which closed in August 2025, drew more than 190 submissions from market participants, industry associations, chambers of commerce, and professional bodies. While respondents broadly endorsed the regulatory direction, many called for clearer definitions and more tailored requirements reflecting the diversity of virtual asset business models.

In response, regulators refined the framework to draw sharper distinctions between trading, custody, management, and advisory activities. This separation is intended to reduce regulatory ambiguity and ensure firms are subject to obligations that align with their actual operations, a concern frequently raised by institutional participants assessing compliance risk.

From an institutional perspective, the clearer structure may lower barriers to entry by reducing uncertainty around licensing scope and supervisory expectations. It also aligns with broader global trends, as regulators seek to map crypto activities onto existing financial market frameworks.

Advisory Services, Legislation, and Global Positioning

Alongside the consultation summary, Hong Kong launched a new one-month public consultation focused on virtual asset advisory services and asset management providers. Instead of folding these activities into the trading framework, regulators now plan to oversee them under regimes similar to those governing traditional securities advisory and fund management. The consultation runs until January 23, 2026.

Officials said the overall approach aims to balance innovation with risk control while reinforcing Hong Kong’s status as an international financial center. Following the consultation, the government plans to finalize legislative proposals and submit a draft ordinance to the Legislative Council in 2026.

If enacted, the framework would further align crypto oversight with established financial market rules, raising compliance standards across the sector. For market participants, the message is clear: regulation is expanding in scope and depth, and firms operating in Hong Kong will need robust governance and compliance strategies as the digital asset regime becomes more structured.

HashKey Capital has secured $250 million in commitments for the first close of its fourth crypto-focused fund, signaling continued institutional appetite for digital asset exposure despite uneven market conditions. The firm said the fund attracted significant interest from long-term investors even as short-term liquidity in crypto markets has tightened.

The fund, named HashKey Fintech Multi-Strategy Fund IV, exceeded internal expectations at its initial close and is targeting a final size of $500 million. HashKey Capital did not disclose specific investors but said commitments came from a mix of global institutions, family offices, and high-net-worth individuals.

The raise comes at a time when many trading-focused participants have reduced activity following periods of heightened volatility. Against that backdrop, HashKey said institutional capital is increasingly being deployed through longer-duration investment vehicles rather than short-term trading strategies.

Institutional Conviction amid Liquidity Pullback

HashKey Capital said Fund IV will pursue a multi-strategy approach focused on infrastructure, scalable platforms, and use cases aimed at mass adoption. The strategy reflects a broader shift among institutional investors toward foundational blockchain investments rather than speculative trading opportunities.

“With $250 million in new capital, we are uniquely positioned to capture the massive growth occurring in emerging markets,” said Deng Chao, chief executive officer of HashKey Capital. He added that those regions are increasingly serving as proving grounds for real-world blockchain applications.

Market data supports the firm’s assessment of a changing investor mix. Recent reports from research firms have shown that many market makers and short-term traders have stepped back following large liquidation events, contributing to thinner liquidity across major crypto assets. At the same time, ETF flow data suggests some institutions are reducing tactical exposure while maintaining strategic allocations.

From a macro perspective, elevated interest rates and tighter financial conditions have encouraged investors to be more selective. For crypto-focused funds, that environment has favored managers with longer track records, regional expertise, and clearer regulatory positioning.

Track Record and Regional Positioning

Fund IV builds on HashKey Capital’s history as one of Asia’s most active institutional crypto investors. Since launching in 2018, the firm has grown to manage more than $1 billion in assets and has invested in over 400 projects globally. Its first fund achieved a distributed-to-paid-in ratio exceeding 10x, according to the company.

HashKey Capital is headquartered in Singapore, with operations in Hong Kong and Japan, and serves as the investment arm of Hong Kong-based HashKey Group. The broader group has played a prominent role in Hong Kong’s regulated crypto ecosystem, including participation in the launch of the city’s first spot Bitcoin and Ether exchange-traded funds.

The fundraising also follows HashKey Group’s recent public listing in Hong Kong after completing a $206 million initial public offering. The IPO has reinforced the firm’s profile with institutional investors seeking regulated exposure to the digital asset sector in Asia.

As global crypto markets adjust to lower leverage and more cautious capital deployment, HashKey’s latest fundraise suggests that institutional investors continue to view the sector’s long-term growth prospects as intact, particularly in regions where regulatory frameworks are becoming more defined.

Coinbase has agreed to acquire The Clearing Company, an on-chain prediction markets startup, as the crypto exchange continues to broaden its product scope beyond digital asset trading. The transaction, which is expected to close in January, was announced shortly after Coinbase revealed its entry into prediction markets as part of its broader strategy to become what it calls an “Everything Exchange.” Financial terms of the deal were not disclosed.

Founded earlier this year, The Clearing Company represents a rapid consolidation move in a sector that has drawn increased attention from both crypto-native firms and traditional financial players. The startup raised $15 million in a funding round that included Coinbase Ventures, Union Square Ventures, and Haun Ventures. Its founding team brings experience from prediction market platforms Polymarket and Kalshi, as well as crypto infrastructure firms such as 0x and Dune.

Prediction Markets Move Toward the Financial Mainstream

The acquisition underscores a wider shift in how event-based markets are being positioned within regulated financial frameworks. Prediction markets, which allow users to trade on real-world outcomes across politics, sports, and culture, are increasingly viewed as adjacent to derivatives markets rather than speculative gambling products. Coinbase executives have framed these markets as a natural extension of modern financial infrastructure, particularly when supported by blockchain-based settlement.

Regulatory considerations remain central to this expansion. Last month, The Clearing Company applied to the US Commodity Futures Trading Commission to register as a Derivatives Clearing Organization, a step that could integrate its platform more closely with established market structures. This comes as US regulators continue to clarify how prediction markets should be supervised, following heightened activity during the 2024 US presidential election cycle.

Competitive Landscape and Strategic Implications

Coinbase’s move places it more directly in competition with a small group of established players. Polymarket has emerged as the leading decentralized prediction market platform, while Kalshi operates under US regulatory oversight as a centralized alternative. Traditional betting firms are also testing the space, with DraftKings signaling interest in offering prediction-style contracts, potentially including crypto-linked products.

At the macro level, Coinbase’s strategy reflects a broader effort by large crypto firms to diversify revenue streams amid fluctuating trading volumes. The company has also announced plans to offer stock trading, aligning its platform more closely with multi-asset brokers. At the same time, potential changes to US tax policy affecting gambling losses have raised questions about the relative tax treatment of prediction markets versus sportsbooks, a factor Coinbase has highlighted in recent market commentary.

Taken together, the acquisition of The Clearing Company signals Coinbase’s intent to position itself at the intersection of crypto infrastructure, regulated markets, and emerging financial products. As prediction markets evolve, their integration into established platforms could shape how retail and institutional participants access event-driven risk and information markets.

A bipartisan group of 18 US House lawmakers is urging the Internal Revenue Service to review its approach to taxing crypto staking rewards, arguing that current interpretations impose unnecessary burdens on investors. In a letter sent on December 18 to acting IRS Commissioner Scott Bessent, the group asked the agency to update guidance ahead of 2026. The lawmakers said the existing framework risks slowing participation in blockchain networks and undermining US competitiveness in digital assets.

Under current interpretations, staking rewards are generally treated as taxable income when received, based on their market value at that time. Lawmakers argue this results in effective double taxation when the assets are later sold, and capital gains taxes apply. They contend that taxing rewards only at the point of sale would better reflect actual economic gains, particularly given the volatility of crypto markets.

Market Impact and Blockchain Security Concerns

The letter frames staking as a core component of proof-of-stake networks, which rely on user participation to maintain security and operational integrity. According to the lawmakers, the administrative complexity and potential over-taxation associated with current rules discourage everyday users from staking their assets. This, they argue, could weaken network security and reduce US influence in the development of blockchain infrastructure.

Representative Mike Carey, who led the effort, described the request as an appeal for consistent tax treatment rather than a push for preferential treatment. The lawmakers emphasized that their proposal would not reduce tax compliance but instead align staking with established capital gains principles used across other asset classes. The request also reflects broader concerns among policymakers that unclear or restrictive tax rules could push innovation and participation offshore.

Broader Tax Reform Efforts in Digital Assets

The staking tax debate comes amid wider discussions in Congress over how digital assets should be treated under US tax law. Earlier proposals from Representatives Max Miller and Steven Horsford outlined potential exemptions for small stablecoin transactions and offered options to defer income recognition on staking and mining rewards for up to five years. Supporters argue such measures could provide interim relief while regulators and lawmakers work toward longer-term clarity.

Those proposals also seek to extend certain securities tax rules to crypto, including wash sale restrictions and updated treatment of crypto lending arrangements. While narrower in scope, the lawmakers’ letter to the IRS highlights growing pressure on federal agencies to adapt existing frameworks to evolving crypto market structures. The IRS has not yet indicated whether it plans to revise its guidance, but the request underscores increasing institutional scrutiny of how digital asset activity is taxed in the United States.