ALTERNATIVE MARKETS UPDATE – OUTLOOK 2025

​US inflation has fallen significantly since 2023. At the end of 2023 and the beginning of 2024, US inflation hovered just above 3%, before falling to just below 3% for the remainder of 2024. In September 2024, inflation was on a promising trajectory before picking up in the remaining months. Under "normal" circumstances, inflation is expected to remain between 2% and 3% throughout 2025, with a tendency to fall to 2% by the end of the year. Although inflation has become a frequent topic of discussion, it is still important that it stays below 2% in order to stabilise the economy. Its importance has diminished, especially for the Federal Reserve, which has based most of its recent interest rate decisions on the US labour market. The Fed hiked rates aggressively in 2022 and 2023. Its rate rose to 5.25% - 5.5% by the end of 2023. Initially, markets expected rate cuts in early 2024 to gradually counteract the potential recession. The Fed did not cut rates until autumn 2024, citing the solid state of the economy due to a strong labour market. As soon as this market showed signs of weakness, the Fed began to cut rates aggressively, surprising market participants. However, in its latest cut to 4.25% - 4.5% in December 2024, Powell stated that the Fed would stop cutting aggressively in 2025. He outlined only two 25bp cuts in 2025, which would bring the federal funds rate to between 3.75% and 4% by the end of 2025. Prior to the meeting, expectations were for at least 1% cuts in 2025. Figure 1 shows these developments in more detail.

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RESEARCH PERSPECTIVE VOL. 242 December 2024 Alternative Markets Outlook US inflation has fallen significantly since 2023. At the end of 2023 and the beginning of 2024, US inflation hovered just above 3%, before falling to just below 3% for the remainder of 2024. In September 2024, inflation was on a promising trajectory before picking up in the remaining months. Under "normal" circumstances, inflation is expected to remain between 2% and 3% throughout 2025, with a tendency to fall to 2% by the end of the year. Although inflation has become a frequent topic of discussion, it is still important that it stays below 2% in order to stabilise the economy. Its importance has diminished, especially for the Federal Reserve, which has based most of its recent interest rate decisions on the US labour market. The Fed hiked rates aggressively in 2022 and 2023. Its rate rose to 5.25% - 5.5% by the end of 2023. Initially, markets expected rate cuts in early 2024 to gradually counteract the potential recession. The Fed did not cut rates until autumn 2024, citing the solid state of the economy due to a strong labour market. As soon as this market showed signs of weakness, the Fed began to cut rates aggressively, surprising market participants. However, in its latest cut to 4.25% - 4.5% in December 2024, Powell stated that the Fed would stop cutting aggressively in 2025. He outlined only two 25bp cuts in 2025, which would bring the federal funds rate to between 3.75% and 4% by the end of 2025. Prior to the meeting, expectations were for at least 1% cuts in 2025. Figure 1 shows these developments in more detail. Figure 1: US Inflation and Interest Rates from January 2024 to December 2024 and Expectations for 2025, Sources: U.S. Bureau of Labor Statistics, Federal Reserve, Trading Economics & Various Forecasts, December 2024 In Europe it took a little longer to bring inflation down to still high but manageable levels. In contrast to the US, European inflation continued to fall below 3%, while US inflation remained above 3% for about a year. In 2024, inflation in Europe was about 1% lower than in the US. Currently, inflation in Europe is slightly above 2% and has briefly dipped below 2% in recent months. In 2025, inflation is expected to remain between 2% and 2.5%. Interest rates in Europe peaked at 4% for the deposit facility rate. Since the summer of 2024, the ECB has gradually cut rates by 1% until December 2024. With a more promising inflation outlook and a stronger incentive to stabilise the struggling economy compared to the US, interest rates are expected to be cut more than in the US. The ECB's target for the end of 2025 is a 2% interest rate in the EU. This may be necessary to maintain the competitiveness of the European market, as the two biggest forces in the EU, Germany and France, are facing significant problems. In both countries, their majority political coalitions have failed. In Germany, the re-election of the Chancellor is confirmed for the beginning of 2025, while France is considering a re-election of the Prime Minister in the summer of 2025. Figure 2 shows the promising development of inflation and interest rates. However, these forecasts are subject to greater uncertainty given the difficult political ecosystem on the continent. Figure 2: Euro Area Inflation and Interest Rates from January 2024 to December 2024 and Expectations for 2025, Sources: European Central Bank, Eurostat, Trading Economics & Various Forecasts, December 2024 The UK struggled most with rampant inflation in 2022 and 2023. Inflation remained above 10% for almost a full year. Fortunately for the country, inflation fell faster than in most other economies. In 2024, only a few economies had inflation rates at or below 2%, and the UK was one of them. More recently, the economy has seen a slight rebound to almost 3%. Inflation expectations for 2025 remain higher than in the EU and the US. The UK interest rate remains very high at 4.75%, with only two 25bp rate cuts in 2024. The UK economy has been hit particularly hard since Brexit. In addition to global challenges, the country is still dealing with the fallout from Brexit, political instability - an issue that was resolved this year - and serious problems in the labour market. Unlike the Fed and the ECB, the BoE has not revealed its plans for interest rate policy in 2025. The most likely target is for rates to fall to around 3.5% - 3.75% by the end of 2025. However, forecasts vary widely and could range from 4.25% to 2.75%. Figure 3 shows the development of inflation and interest rates in the UK in more detail. Figure 3: UK Inflation and Interest Rates from January 2024 to December 2024 and Expectations for 2025, Sources: Bank of England, Office for National Statistics, Trading Economics & Various Forecasts, December 2024 With these different interest rate outlooks, bonds are surrounded by uncertainty. Interest rates are still relatively high compared with previous decades. These developments in recent years have also led to a change in thinking about bonds. Bond yields have been at historically low levels for the past two decades, with central bank interest rates close to 0%. It now appears that the low interest rate environment of the past two decades will be delayed and that interest rates will remain elevated in the coming years. Combined with current high interest rates, the asset class has become attractive again. However, interest rate cuts next year are leading to increased caution. Outstanding (fixed-rate) bonds are well positioned to appreciate, while newly issued bonds will become less attractive. Unlike most other asset classes, the high level of geopolitical uncertainty could create new opportunities. With a more stable outlook for 2025, the asset class could remain attractive for longer, as no recession means no increased pressure on central banks to cut interest rates. This would prolong the current high yield bond ecosystem. 2024 also marks the first time in a long time that the yield curve has returned to its normal state, after being significantly inverted over the past two years. US Treasury yields at the end of 2024 are 4.3% - 4.5% for maturities of less than 10 years and 4.75% for longer maturities. By the end of 2025, yields are expected to decline by almost 1% at the short end and by around 0.5% at the long end. Figure 4 shows a comparison of the US Treasury yield curve in recent years. Figure 4: US Treasury Yield Curve at the End of 2022, 2023, 2024 and Expectations for 2025, Sources: Federal Reserve, US Treasury Yield Curve & Various Forecasts, December 2024 It is no secret that equities have performed brilliantly in 2024. At the time of writing, the S&P 500 remains above the 6k mark with a performance of 27% in 2024. This is particularly evident when comparing the outlook for 2024 with that of 2023. While the S&P 500 peaked at nearly 6.1k in 2024, even the most optimistic outlooks only saw the S&P 500 reach 5,400, while the average of the forecasts saw the S&P 500 reach levels around 5,100. Although recession fears certainly influenced these outlooks and added a downward bias, the consensus at the end of 2023 was also that the Fed would begin to cut rates aggressively in the spring of 2024. Despite the Fed's lack of intervention compared with expectations last year, equities exploded. The main contributor to these gains was artificial intelligence, especially in early 2024. After a moderate summer, the long-awaited rate cuts and Trump's victory acted as a further catalyst for the great performance in 2024. Although several strong years historically imply an increased risk of a bad year, expectations for 2025 are broadly positive. Markets expect further interest rate cuts and a stabilising geopolitical world, which should reduce volatility. On the other hand, there is the impact of tariffs, valuations that are sometimes exorbitant and an escalation that is rather unlikely at the moment. The general consensus points to a positive resolution of most issues. Although forecasts in recent years have predicted upward movements, they have always been surrounded by serious crisis risks, which are much less pronounced this year. This leads to a promising outlook for the S&P 500. Overall, the S&P 500 is expected to end 2025 at around 6,800. More pessimistic forecasts put it at around 6,400. Some of the more optimistic forecasts see the S&P 500 surpassing 7,000 by the end of 2025 and even rising above 7,500. Figure 5 provides more details on the development of the S&P 500. Figure 5: S&P 500 Level from January 2023 to December 2024 and Expectations for 2025, Sources: Standard & Poor’s, Investing & Various Forecasts, December 2024 Global equities did not deliver the same impressive bull run as in the US. In Europe, markets faced significant headwinds. The performance of German equities is somewhat surprising given the country's struggling economy and political crisis. The DAX rose by 20% in 2024, supported by a large number of global conglomerates headquartered in Germany that were able to benefit from revenues generated outside Europe. The UK and Switzerland posted moderate performances of around 5% in 2024, already significantly lower than German equities. The UK economy remains fragile, although the situation has improved in 2024. UK equities have been somewhat attractive recently due to the sharp depreciation of the British Pound in recent years. The relatively poor performance of the Swiss SMI can be attributed to the dominance of a few global conglomerates, which performed poorly in 2024. France's CAC 40 was the only equity index to post a negative performance in 2024, due to specific sectors being hit hard and political instability. Europe is also concerned about possible tariffs under Trump's administration. For 2025, the outlook for equities is slightly positive, but expectations are lower than in the US or Asia. In Asia, Japan and China ended the year with strong gains of over 15%. Japan had a very volatile year, with gains of over 20% through March 2024. In August, the Japanese Yen crashed on the unwinding of carry trades, after which equities recovered relatively steadily. China faced significant problems following its property crisis, which is still unfolding. By the end of the summer, Chinese equities were down almost 10% when the government stepped in and provided massive support to the struggling economy and market. This led to the strong gains in the remainder of 2024. Both Japanese and Chinese equities are expected to post significant gains in 2025, with growth even slightly higher than in the US. Figure 6 shows a comparison of US, European and Asian equities. Figure 6: Global Indexed Performance of Equities (US: S&P 500; Germany: DAX; UK: FTSE 100; France: CAC40; Switzerland: SMI, Japan: Nikkei 225; China: Shanghai Composite) in 2024 and Expectations for 2025, Sources: Investing, Standard & Poor’s, Deutsche Börse, Financial Times, Euronext, SIX, Nikkei, Shanghai Stock Exchange & Various Forecasts, December 2024 Few assets could beat gold's performance of 28% in 2024. The gold price rises from $2,000 to more than $2.,700 at its peak and $2,600 by the end of December 2024, as shown in Figure 7. The strong rise in gold can be attributed to the asset's stability properties. Rising geopolitical tensions and earlier inflation concerns have helped put the asset back on everyone's radar. With falling interest rates, bonds - as an alternative safe haven - lose their appeal in favour of gold. The steady rate cuts in 2024 and those to come in 2025 and beyond only add to gold's appeal. This year, the price has continued to rise on the back of steady central bank demand and a significant increase in retail demand. Although less geopolitical uncertainty and lower but steady inflation are expected in 2025, gold is still well positioned given the macroeconomic environment around the world. Most forecasts for 2025 set the target price for gold at $3,000 by the end of 2025, with almost no forecasts showing losses for the asset class. In the event of an unexpected escalation, gold could instead rise to around $3,200. Figure 7: Gold Price per Ounce in USD from January 2023 to December 2024 and Expectations for 2025, Source: Investing & Various Forecasts, December 2024 Hedge Funds Hedge funds had a good year in 2024. Global uncertainty and prior recession fears led to increased investor interest in mitigating drawdowns in a potentially turbulent year. While the year was profitable, it was not without volatility. Surveys suggest that 2025 will be another promising year for the industry, as investor interest is not waning. On the contrary, hedge fund investors are looking to increase their allocations. More than half of investors plan to increase allocations in 2025, compared to just over a quarter in 2024, as shown in Figure 8. Positive interest rate developments, healthier financial markets and market dislocations were among the main reasons for increasing hedge fund allocations. In particular, market dislocations were cited as the key reason. In 2025, there will be significant opportunities to profit from these dislocations, such as US vs. European equity valuations or the dominance of large vs. small caps. Investors are also showing more interest in hedge fund strategies and funds with idiosyncratic sources of return to optimise their diversification. Quantitative/ Systematic and Digital Asset strategies attracted significant interest (over 70%). Around half of investors want to increase their allocation to Fixed Income and Global Macro, while only around a third of investors are interested in Equity strategies. Figure 8: Hedge Fund Investor Survey of Capital Commitments for 2024 (Right) and 2025 (Left) and Interest in Specific Strategies (Bottom), Source: Hedgeweek 2025 Investor Survey, December 2024 Flows into the hedge fund industry were surprisingly weak in 2024. Overall strong returns for the hedge fund industry compensated for this and led to new highs in AuM. In Q3 2024, the hedge fund industry reached a new record AuM of $5.6tn according to BarclayHedge (see Figure 9). It should be noted that BarclayHedge typically reports the highest figures. Other providers, such as HFR, report a new record AuM of $4.5tn. With an overall promising outlook for 2025, and the variety of opportunities that hedge funds are well placed to capture, the industry is poised for another great year. Coupled with favourable signs of positive net flows in the industry in 2025, AuM is likely to grow significantly. This year's AuM growth was driven primarily by Equity, Fixed Income and Emerging Markets strategies. Figure 9: Hedge Fund AuM in Billion USD from January 2020 to September 2024, Source: BarclayHedge, December 2024 Equity strategies performed well in 2024, averaging between 8% and 16% across a range of platforms. The strong US equity market is undoubtedly the main driver of this strong performance. With the promising signs surrounding the global equity market in 2025, equity strategies are in a prime position to benefit from these developments, especially due to the strong segregation of global markets. Despite relatively low investor interest, equity strategies are well positioned to grow AuM substantially. The situation is not quite as favourable for Fixed Income strategies. While interest rates are still high compared to previous decades, the prospect of steadily falling rates is not appealing. This dampens optimism for fixed income in 2025. Nevertheless, experienced managers are able to take advantage of the significant dislocations in financial markets. Despite the overall good health of companies, individual security selection can lead to significant outperformance, which should lead to strong returns in 2025, albeit at the cost of further consolidation in the sector. Global Macro strategies performed similarly to Fixed Income strategies in 2024. Global macro strategies are also well positioned for 2025, particularly due to the many opportunities arising from highly segregated markets. 2025 should be a solid year for the strategy with significant return potential and increased investor attention due to its diversification characteristics and ability to capitalise on the many opportunities across different industries and asset classes. Hedge funds focused on digital assets are best placed for 2025. With their stellar returns in 2024 and Bitcoin news alongside a strong focus from the Trump administration, the strategy is seeing a lot of interest from potential investors. Especially as regulatory questions around Bitcoin and cryptocurrencies will likely be answered in the coming years. More on cryptocurrencies is outlined in the following chapter. Blockchain & Cryptocurrencies It is undeniable that cryptocurrencies and blockchain technology have had a phenomenal year. Overall, the performance of cryptocurrencies occurred during two bull markets. One started in the early spring of 2024, following the approval of the first bitcoin ETFs and the subsequent approval of Ethereum ETFs a little later. This led to gains of around 50-100% by spring 2024. Until Trump's victory, cryptocurrencies were trending slightly lower, but maintaining a solid portion of their previous gains. When it became clear that Trump would win the presidential election, cryptocurrencies entered their second major surge. This is largely based on Trump's focus on making the US a crypto hub. This includes appointing pro-crypto figures to key positions in his administration, and pushing for clearer regulation and wider adoption. Coupled with a potential 1m Bitcoin reserve for the US, this has led to a surge in cryptocurrencies. This is particularly true of Ripple (XRP), which has been under heavy siege from the SEC in recent years. Promising results in the process and the new crypto-friendly administration led to Ripple's steep growth (see Figure 10), overtaking Solana (SOL) as the third largest (non-stablecoin) cryptocurrency. The recent rally also pushed the total market capitalisation of cryptocurrencies close to $4tn, a new record high. Figure 10: Cryptocurrency Market Capitalization Since January 2023 and Performance of Largest Cryptocurrencies Since January 2024, Sources: CoinGecko & CoinMarketCap, December 2024 While cryptocurrency forecasts are always a bit of a gamble due to the rapidly changing nature of the space, cryptocurrency forecasts for 2025 are relatively consistent. Unlike previous years, when forecasts ranged from $0 to $1 million, this year's forecast range is narrower. In fact, almost no forecast sees Bitcoin ending 2025 below its current level of $95,000. Most estimates place the price of Bitcoin at around $175k by the end of 2025, with more optimistic outlooks seeing the price of Bitcoin soar to as high as $260k, as shown in Figure 11. Figure 11: Bitcoin Price Development from January 2023 to December 2024 and Expectations for 2025, Sources: CoinMarketCap & Various Forecasts, December 2024 Under the current ecosystem, a Bitcoin price of $150k-$200k for 2025 seems quite reasonable. Most importantly, it takes into account the plans for Bitcoin under the new Trump administration. For Bitcoin, two main factors will determine the price development in 2025. First, the price will be sensitive to the potential realisation of the US Bitcoin reserve plan (up to 1 million BTC). While this will be beneficial for the entire cryptocurrency market, it will benefit Bitcoin in particular and will lead to a strengthening of Bitcoin’s current dominance in the cryptocurrency market. Second, Bitcoin and the global cryptocurrency market’s development will be highly dependent on the ability and speed  of the US government to properly and clearly regulate cryptocurrencies. The latter change would significantly boost the support of all cryptocurrencies and likely lead to another altcoin rally. Based on historical phenomena, within a four-year Halving cycle, the Bitcoin rally phase is followed by an altcoin rally phase. In the latter, altcoins substantially outperform Bitcoin, while they underperform Bitcoin in the first rally. Although an altcoin rally is likely, the underlying fundamental factors (e.g., regulation and reserves) are likely to play a more important role than in previous historical phenomena. A more detailed outlook for cryptocurrencies in 2025 is provided by Paul Veradittakit at the end of the Outlook 2025. Private Equity & Venture Capital After a very challenging macroeconomic ecosystem in 2023, the headwinds for the private equity industry have decreased. While the ecosystem is far from ideal, the situation has improved significantly in 2024. Most notably, inflation came down to manageable levels in 2024. Interest rates, and thereby the financial burden on companies, remain elevated, but with a downward trend for 2025 and onward. The macroeconomic ecosystem is widely considered promising for 2025, especially as the conditions have significantly improved compared to the previous years. The subdued private equity market of the last few years seems to be over, as 2024 showed significant improvement and the outlook for 2025 is anticipated to continue this positive trend. The industry also suffered from its overheated market back in 2021 and 2022. As a consequence, private equity markets moved sluggishly in 2023 and throughout most of 2024. Key problems arose from low deal activity in the entire space. Due to soaring valuations in 2021/22, nearly every company raised money at very attractive valuations. This eventually led to a liquidity crisis in the private equity space. As valuations soared, companies raised capital and were in no further need of capital, which reduced the opportunities for private equity funds to deploy capital. Coming from such high valuations, if companies were interested in raising capital, they mostly disagreed with investors about the new valuations, which were frequently lower or flat compared to their rounds during the bull market in 2021/22. Consequently, if additional capital was not absolutely necessary, deals rarely succeeded. This harsh ecosystem led to few deals and correspondingly few exits. Many indicators now suggest increased activity in 2025. The macroeconomic ecosystem is improving and supporting higher valuations again, which leads to an increased likelihood of completing deals from the seller side. The buy side is also likely to accept higher valuations due to significant pressure to deploy capital. With the low deal activity in the past, capital commitments were difficult to facilitate at the planned rate. With increased activity in the entire space, this situation should loosen and lead to solid opportunities. Valuations in private markets have currently also become interesting after the last two slow years. In comparison to public equities, private companies are trading at a significant discount. As shown in Figure 12, private companies trade at nearly 4x lower in EV/EBITDA multiples than public equities. Relatively steady public equity markets in 2025 at high valuations also provide promising opportunities for companies to go public after two years with few IPOs. This further indicates a strong bounce back of private equity in 2025. Figure 12: Global Private Equity Discount of EV/EBITDA Multiples vs. Public Equities, Source: BlackRock, December 2024 The relatively quiet years of 2023 and 2024 had a significant impact on private equity as a whole and led to several problems. The limited liquidity in the past two years led to a significant delay in the repayment of capital. In a period of increased volatility, this liquidity crunch becomes an even larger issue. Similarly, the industry is sitting on a record amount of dry powder that needs to be committed relatively soon to avoid unhappy investors who pay fees on capital that is just sitting around. Especially in 2024, secondary transactions became more and more frequent as an alternative for repaying capital or for individual investors requiring capital urgently. While this amount of capital is beneficial in the upcoming bull run – it nearly has to become one given the capital involved – it has had a negative impact on the strong growth of private equity in the past decades. The problems caused are easily observed in private equity fundraising, which has slowed significantly and is likely to fall further in 2025. One contributor is certainly the time delay until capital is committed, but also the significant amount of time it will require for investors to be paid back. This decline is especially pronounced in the only 300 funds that closed in 2024 compared to 1,000 in 2022, as shown in Figure 13. Figure 13: US Private Equity Fundraising from January 2010 to November 2024, Source: PitchBook, December 2024 While the developments in private equity also apply to the venture capital (VC) industry, VC has shown substantial differences in certain market dynamics. Most notably, the heavy focus on technology in the VC space draws a lot of attention and capital. In the past few years, this has been especially true for artificial intelligence (AI). Demand for AI investments has also led to soaring valuations for start-ups, while the broader VC and PE markets struggled to find deals. With the strong focus of VC on AI, fundraising remained at reasonable levels compared to pre-Covid, albeit significantly down from its peak years in 2021 and 2022, as shown in Figure 14. With an overall healthier financial ecosystem, fundraising for VC is expected to grow again and become the third most successful fundraising year for the industry in 2025. Figure 14: US Venture Capital Fundraising from January 2014 to November 2024 and Expectations for 2025, Source: PitchBook, December 2024 As for private equity, liquidity in VC is a key topic for 2025, after relatively little activity in 2023 and 2024 (aside from AI). While there are still factors pointing to a potentially rocky 2025, most indicators show a promising outlook for 2025. All factors outlined for PE, such as the need to repay investors and the deployment of capital, also apply to VC. The shortage in deal activity in the past years has resulted in low performance for follow-up rounds, which provide attractive entry points. Figure 15 highlights the median increase from round to round and how attractive the current period is relative to the past decade. The recent uptick in the overall health of the VC space is also evident when looking at the premia and discounts of secondary shares. For example, at the beginning of 2022, secondary averages traded at nearly 20% premia, before they fell to a nearly 40% discount at the beginning of 2023. Throughout 2023, levels remained relatively steady, before picking up again in 2024 and moving close to par value for secondary shares. This emphasizes investor confidence in a strong exit market for VC investments, especially through the public market, with the probability of many high-profile unicorns becoming listed in 2025. With relative economic stability and technology enthusiasm, VCs are well-positioned to benefit from a soaring IPO market. This is further supported by the low number of exits in the past three years (see Figure 15) and the pressure to find exit opportunities. Figure 15: US VC Exit Value in Billion USD & US Median RV VC by Series from 2014 to November 2024, Source: PitchBook, December 2024 Fintech The fintech industry overall had a moderately good year. Publicly traded fintech companies experienced a good year, with performance in line with the growth of the S&P 500 this year. Private fintech companies, which make up the majority of companies in the space, did not see as good a year as publicly traded fintechs, due to the general issues associated with private markets in 2023/24. Notably, Nubank and Revolut defied sluggish private markets by posting excellent growth with 167% and 95%, respectively, making them the fastest-growing fintech companies with a value beyond $40bn. With the economy stabilizing and a steady equity market ahead for 2025, anticipations for more listings and exit activity are rising, as elaborated in more detail under Venture Capital. Although fintech has been a highly attractive industry in the past years, it has been overshadowed by AI recently. However, nearly no other industry has as many well-known unicorns ready for a potential listing. With the anticipation that 2025 will become another promising year for public listings, interest in fintechs will certainly grow. Currently, interest in the fintech industry is limited, as the space faces issues with reaching similar numbers compared to pre-Covid levels. As shown in Figure 16, the industry is steadily raising more than $1bn quarterly but pales in comparison to the quarterly fundraises of $5bn and more. Even compared to pre-Covid levels, fundraising hovered steadily between $1bn and $2bn. However, with the anticipated blockbuster listings, interest in the space will re-emerge and likely attract more capital again. Figure 16: Capital Raised in Billion USD for Fintech and Number of Deals per Quarter from Q1 2018 to Q3 2024, Source: Carta, December 2024 In terms of specific trends within the fintech industry, it is unsurprising that most focus will go into AI applications within fintech products and solutions. Fintech companies will try to embed AI into their services as much as possible, such as improving customer service interaction, risk assessment analytics, fraud detection, and assistance in compliance and investment research. With AI at a pivotal point for the future, it will be the dominant theme in fintech in 2025. Robotic process automation (RPA) will also help in applying AI more broadly. RPA focuses on the development of AI-bots pursuing more complex processes, such as credit assessments or data extraction from unstructured data. AI will also have to be closely monitored in the cybersecurity space and used pre-emptively to be most effective. With the strong growth anticipated for cryptocurrencies and blockchain technology in 2024 and 2025, staying on top of innovation in blockchain technology is vital. This is particularly the case in payments, where blockchain technology acts much nimbler than the traditional banking system. It is also crucial for fintech companies to be involved in CBDC (central bank digital currency) developments. Decentralized Finance (DeFi) is another area of blockchain technology that will be of significant interest due to its variety of capabilities that directly rival the current banking and financial system. Private Debt The macroeconomic ecosystem has been more beneficial to the private debt industry than other alternative industries. Relatively low inflation – at least compared to the past two years – and high interest rates make every debt-based instrument more appealing. With inflation moving closer to the target level of 2% and interest rates at high levels, especially compared to the last decades, private debt is well positioned to increase its appeal to investors in 2025 and beyond. The most stable outlook for global economies for 2025 in comparison to any other year since Covid also strengthens the position of private debt, as default rates are likely to remain low. Additionally, 2025 also marks the first year in a while without significant recession fears, which usually result in spiking default rates and add significant risk to private debt. Although 2025 is not without risk, private debt had a phenomenal period after the steep interest rate hikes and subsiding inflation. As a consequence, the asset class has grown substantially. Just a few years ago, the asset class reached the $1tn mark and has already grown to $1.6tn by September 2024, accounting for 10% of the capital in the alternative investment universe. Unlike other alternative asset classes, private debt is thriving under the current ecosystem. While others suffer from liquidity bottlenecks, most evident in fundraising, private debt is flourishing. Fundraising is a measure of investor interest, and especially with liquidity under pressure and capital stuck in rigid asset classes, fundraising falls significantly. For private debt, 2024 is on track to be on par with its strongest fundraising year from 2021 when the asset class raised more than $150bn, as shown in Figure 17. Fundraising has dipped occasionally since Covid but has significantly outperformed each year compared to before Covid, emphasizing the strong growth of the asset class more recently. In terms of specific strategies, the vast majority of capital (77%) was secured by direct lending. Special situations attracted the second most capital with only 12.5%. Figure 17: Private Debt Fundraising and Fund Count from 2015 to 2024, Source: Preqin Pro, December 2024 Despite the already impressive growth of private debt recently, signals point to another strong year in 2025. Private debt is still very focused on the US, with more than 60% of the asset class’s total AuM stemming from North America. The US is the most developed market for private debt due to the variety of opportunities in which private debt and its sub-strategies are used. In other markets, such as Europe and Asia-Pacific, markets have not yet adjusted to the possibilities enabled by private debt and remain mostly focused on bank financing. Nonetheless, private debt has shown significant growth in Europe and Asia-Pacific, allowing the asset class to maintain its strong growth of the past few years. Due to the reliance on the US, deal activity, especially M&A, offers another growth contributor to private debt, as these transactions are increasingly financed with private debt. In areas where banks have retreated from their dominant position, private debt has taken over as the most common source of financing. Investors are also enjoying the flexibility of private debt and individual covenants, as opposed to highly regulated and standardized alternative debt financing channels. Real Estate The economic ecosystem for real estate has looked better in 2024 and for 2025 for the first time since Covid. The real estate market was hit hard by the direct impact as well as the behavioral shifts. Inflation has come down and reached manageable levels, which has hit the real estate industry especially hard. Real estate developers struggled with high energy and commodity price inflation. 2024 is the first year in a while when levels returned to normal. One headwind for the industry remains interest rates. At current high levels, and likely high levels for the foreseeable future, financing costs of real estate will remain elevated. Valuations remain a concern for the real estate industry. For most properties, prices have skyrocketed since Covid. While it needs to be noted that the development of the past years in the real estate market has been highly segregated, the overall trends suggest strong price increases. Single-family homes in the US, for example, have risen by 50% since the beginning of 2020. In Europe, the same properties have increased by 20% over this time period, as shown in Figure 18. This places a huge burden on citizens, especially considering that they also had to manage rampant inflation in the past years. While valuations are a concern, the real estate market is significantly better positioned than in prior crises. Not only are loan-to-value ratios better, but the average property nowadays is also financed with less leverage. 2024 also showed promising developments in the real estate market. Across various real estate sectors, there has been a general downtrend in prices since the end of 2022 when the real estate market was under the most pressure. While the interest rate easing cycle will not have an immediate impact, sentiments for real estate investments have risen again and valuations have bottomed. From a fundamental point of view, the real estate market (except office) is reasonably priced with a tight labor market in developed markets and income growth in many sectors. Figure 18: US & European Union House Price Increases from January 2020 to September 2024, Sources: Federal Reserve Bank of St. Louis, Eurostat, Trading Economics, December 2024 Office real estate – the big problem of the real estate market in the past years – is also positioned better than in many prior years. With a more stable outlook for the global economy and slim chances for a significant recession, companies are more confident in multi-year commitments and the associated costs of an office at a prime location. While the sector is still at a critical point, for the first time since Covid, investors see an expansion in the sector as more likely than a contraction. Yet, the office sector will still be highly segregated, with only prime locations performing strongly. Retail real estate has also entered a difficult situation with the general trend of more shopping being done through ordering. Retail real estate is estimated to remain flat overall, despite a limited supply. Prime position locations will likely yield significant income, but despite the shortage, larger investments are unlikely to be profitable. Due to changing customer behavior, stores will close and push prices for retail real estate down. For 2025 specifically, the impact of this future trend will be small. Industrial and logistic real estate has been relatively quiet in the past years, despite doing well. This is another sector that was majorly turned around by Covid-19. It highlighted the importance of robust supply chains and the value of exceptional logistics. While the logistics sector could never reclaim interest levels seen in 2021, in each subsequent year, activity in the space was slightly below its peak from 2021 and significantly above any year before Covid. Current trends in automation and AI are other key drivers that will strengthen interest further in industrial and logistic real estate in 2025. Data centres will likely take the crown as the most successful strategy in real estate in 2025. Data centres are in enormous demand due to the vast amounts of data necessary for AI. The growth of this once niche strategy is tremendous. Since 2020, the energy and data usage from data centres has increased by 10x. Construction in the space is also still strong, with nearly no vacancies and data centres operating at close to capacity. There is very little evidence that this space will not grow further in 2025. 8 Predictions for 2025 by Paul Veradittakit I wanted to publish here the full version, including an overview of this year, a review of my 2024 predictions, and my predictions for 2025. Every year, bulls and bears use short-term case studies to forecast crypto armageddon or exponential growth. And every year, neither group is right. Some notable events this year: Ethereum’s Dencun Upgrade, the U.S. election, crypto ETFs, Wyoming's DUNA, the wBTC controversy, Robinhood’s Well’s notice, Hyperliquid’s near $2 billion airdrop, Bitcoin hitting $100,000, and SEC Chair Gary Gensler’s January resignation announcement. 2024 was a year with no major market shocks. And, though it didn’t bring in an explosion of new capital, it proved that a grow number of companies in the crypto ecosystem are sustainable. Bitcoin is worth $1.9 trillion and all other cryptos are worth $1.6 trillion. The market cap of all crypto has doubled since the start of 2024. The diversification of crypto has strengthened its ability to react to shocks. Payments, DeFi, gaming, ZK, infrastructure, consumer, and more, are all growing sub-sections. Each of these now have their own funding ecosystems, their own markets, their own incentives, and their own bottlenecks. This year, at Pantera, we’ve invested in companies that target these ecosystem-specific problems. Crypto gaming companies face issues adopting Web3 data analysis tools, so we invested in Helika, a gaming analysis platform. Web3 AI products often face adoption challenges because of the fragmentation of the AI stack, so Sahara AI aims to create an all-in-one platform to allow permissionless contribution while keeping a seamless Web2-like user experience. Intent infrastructure is messy and orderflow is fragmented, so Everclear standardizes the process by connecting all stakeholders. zkVM’s are complicated to integrate, so Nexus uses modularity in order to cater to customers who want only parts of their hyper-scalable layer. Building consumer apps faces the issue of attracting users, so we made our largest ever investment in TON, the blockchain that directly plugs into Telegram’s 950 million monthly active users. We enter 2025 on tailwinds of possible regulatory clarity, continued mainstream interest, and rising crypto prices. Even after a bit of a summer slump this year, crypto users are entering the new year with strong optimism (or “greed”). Figure 19: CoinMarketCap’s Crypto Fear and Greed Index, Source: Veradi Verdict, December 2024 CoinMarketCap’s Fear and Greed Index Before we dive into 2025 predictions, let’s take a look back at how I did predicting 2024. Review of 2024 Predictions: Last year, I made predictions about this year here. I’ll score myself with 1 being the least accurate and 5 being the most accurate. The resurgence of Bitcoin and “DeFi Summer 2.0” Accuracy: 4/5 In 2023, Bitcoin went from a low of 16k in January to a high of 40k in December. Bitcoin is now >90k. Bitcoin dominance peaked at over 60% this year. There was a Bitcoin DeFi Summer, but defining success comes down to metrics. Less than 1% of Bitcoin is wrapped and used in DeFi, with menial growth from last year. Bitcoin ecosystems like Mezo, Stacks, and Merlin have built communities, but struggle with continued user growth. Last year I predicted that Ordinals, inscriptions, and staking might push up to 1% of Bitcoin users to try DeFi. This arguably did not happen. However, Babylon, which simply makes users lock their Bitcoin without having to wrap them, launched this year and single handedly attracted ~$2b worth of Bitcoin. Prices also doubled this year, helping to pump TVL to an impressive $3.549b. This is 10x the $300M TVL it was last year, but remains far from the 1% or ~200k Bitcoins (with a current value of $19b) I predicted. Tokenized social experiences for new consumer use cases Accuracy: 2/5 If I don’t include memecoins, prediction markets, or gambling as social experiences, then this prediction largely falls flat. The definition of a “tokenized social experience” also evolved this year, with the rise and success of on-chain gaming. Games on TON (Telegram), Arbitrum, and others did very well while integrating tokenization in their games. Farcaster growth (and frames) has plateaued. DePin projects like Helium, grass, and Blackbird are still in their early stages. But in terms of new consumer use cases? Very few. We invested in Morph, the “global consumer layer” and hope it becomes just that. An increase in TradFi-DeFi “bridges” such as stablecoins and mirrored assets Accuracy: 5/5 ETF purchases continue to grow, reaching record highs of over $119 billion worth of Ethereum and Bitcoin ETFs. Figure 20: ETF Holdings per AUM (ETH & BTC), Source: Veradi Verdict, December 2024 ETH and Bitcoin ETF Flows The number of RWA’s has increased more than 60% since the start of this year to over $13 billion and stablecoins have reached an all time high of $192b. Figure 21: Total Value in RWAs (Real World Assets), Source: Veradi Verdict, December 2024 RWA data Mirrored assets are all the rage, with Ethena, Ondo, and M^0 leading the way. Assets like sUSDe have near 30% APY. Protocols like Morpho and Pendle allow these assets to be leveraged, yield farmed, looped, and more. Protocols like Superstate allow a more direct connection between TradFi and DeFi. The cross-pollination of modular blockchains and Zero Knowledge Proofs Accuracy: 4/5 ZK proofs are efficient ways to verify or create proofs. They have been successfully integrated into various chains and protocols as a piece of infrastructure. Polygon, ​​Conduit, and OP Stack are now integrated with SP1 from Succinct. Nexus has partnered with protocols like QED and Caldera, but hasn’t seen explosive growth. It has happened, but not exponentially. More computationally intensive applications moving on-chain, such as AI and DePIN Accuracy: 2/5 Prices may have pumped, but few people have actually moved computationally intensive apps on-chain. Few AI projects have gained widespread, permissionless traction outside of their token value. Helium is one of the only companies in the space building a product that legitimately beats web2 alternatives. Grass is arguable, but overall, the DePin wave never really came. Consolidation of public blockchain ecosystems and a “Hub-and-Spoke” model for appchains Accuracy: 2/5 Some appchains did choose hub-and-spoke models, but we saw an interesting trend of apps creating their own chains with rollup as a service provider or by choosing an ecosystem, like an Arbitrum Orbit or OP Stack. Unichain, for example, uses the OP stack. Appchains have found that subscribing to a platform that has built-in interop protocol and other features is easier and performs better than creating their own hub-and-spoke chain. Under the hood, many of these chains may use a hub-and-spoke technology for parts of the stack, like messaging, propagation, and liquidity aggregation, but they do not place the hub-and-spoke model as the central design of the chain. 2025 Predictions: The opinions expressed are those of the author as of the date of publication and are subject to change. Predictions are not guarantees of future outcomes. This year, I enlisted the help of investors on the Pantera team. I’ve split my predictions into two categories: rising trends and new ideas. Rising Trends: RWAs (excluding stablecoins) will account for 30% of on chain TVL (15% today) RWA’s on-chain has increased over 60% this year, to $13.7 billion. Around 70% of RWAs are private credit and the majority of the rest are in T-Bills and Commodities. Inflows from these categories are accelerating, and 2025 may see the introduction of more complex RWA’s. Firstly, private credit is accelerating because of improving infrastructure. Figure accounts for almost all of this, increasing by almost $4 billion worth of assets in 2024. As more companies enter this space, there is increasing ease to use private credit as a means to move money into crypto. Secondly, there are trillions of dollars worth of T-Bills and commodities off-chain. There is only $2.67 billion worth of T-Bills on-chain, and their ability to generate yield (as opposed to stablecoins, which allow the ones who mint the coin to capture the interest), makes it a more attractive alternative to stablecoins. Blackrock’s BUIDL T-Bill fund only has $500 million on-chain, as opposed to the tens of billions of government bills it owns off-chain. Now that DeFi infrastructure has thoroughly embraced stablecoins and T-Bill RWA’s (integrating them into DeFi pools, lending markets, and perps), the friction to adopt them has drastically decreased. The same goes for commodities. Finally, the current extent of RWAs is limited to these basic products. The infrastructure to mint and maintain the RWA protocols has drastically simplified and operators have a much better understanding of the risks and appropriate mitigations that come with on-chain operations. There are specialized companies that manage wallets, minting mechanisms, sybil sensing, crypto neo-banks, and more, meaning it may finally be possible and feasible to introduce stocks, ETFs, bonds, and other more complex financial products on-chain. These trends will only accelerate the use of RWA’s heading into 2025.   1% of Bitcoins will participate in Bitcoin-Fi Last year, my prediction of Bitcoin finance was strong but didn’t reach the 1-2% of all Bitcoins TVL mark. This year, pushed by Bitcoin-native finance protocols that do not require bridging (like Babylon), high returns, high Bitcoin prices, and increased appetite for more BTC assets (runes, Ordinals, BRC20), 1% of Bitcoins will participate in Bitcoin-Fi. Fintechs become crypto gateways TON, Venmo, Paypal, Whatsapp have seen crypto growth because of their neutrality. They are gateways where users can interact with crypto, but do not push specific apps or protocols; in effect, they can act as simplified entryways into crypto. They attract different users; TON for its existing 950 million Telegram users, Venmo and Paypal for their respective 500 million payments users, and Whatsapp for its 2.95 billion monthly active users. Felix, which operates on Whatsapp, allows instant money transfers via a message, to be either digitally transferred or can be picked up in cash at partner locations (like 7-Eleven). Under the hood, they use stablecoins and Bitso on Stellar. Users can now buy crypto on Metamask using Venmo, Stripe acquired Bridge (a stablecoin company), and Robinhood acquired Bitstamp (a crypto exchange). Whether intentionally or because of their ability to support third-party apps, every fintech will become a crypto gateway. Fintechs will grow in prevalence and may perhaps rival smaller centralized exchanges in crypto holdings. Unichain becomes the leading L2 by transaction volume Uniswap has a TVL of almost $6.5b, 50-80k transactions per day, and volume of $1-4 billion daily. Arbitrum has ~$1.4 billion of transaction volume a day (a third of which is Uniswap) and Base has ~$1.5 billion of volume a day (a fourth of which is Uniswap). If Unichain captures just half of Uniswap’s volume, it would easily surpass the largest L2s to become the leading L2 by transaction volume. NFT resurgence but in a application specific way NFT’s were meant as a tool in crypto - not a means to an end. NFT’s are being used as a utility in on-chain gaming, AI (to trade ownership of models), identity, and consumer apps. Blackbird is a restaurant rewards app that integrates NFT’s into customer identification in their platform of connecting Web3 into dining. By integrating the open, liquid, and identifiable blockchain with restaurants, they can provide consumer behavior data to restaurants, and easily create/mint subscriptions, memberships, and discounts for customers. Sofamon creates web3 bitmoji’s (which are NFT’s), called wearables, unlocking the financial layer of the emoji market. They recognize the increasing relevance of IP on chain and embrace collaboration with top KOL’s and K-pop stars, for example, to fight digital counterfeiting. Story Protocol, which recently raised $80 million at a $2.25 billion valuation, has the broader goal of tokenizing the world’s IP, putting originality back as the centerpiece of creative exploration and creators. IWC (the Swiss luxury watch brand) has a membership NFT that buys access to an exclusive community and events. NFTs can be integrated to ID transactions, transfers, ownership, memberships, but can also be used to represent and value assets, leading to monetary, possibly speculative growth. This flexibility is what brings NFTs power. Its use cases will only increase. Restaking launches In 2025, restaking protocols like Eigenlayer, Symbiotic, and Karak will finally launch their mainnets which would pay operators from AVS’ and slashing. It seems that through this year, restaking lost relevance. Restaking draws power as more networks use it. If protocols use infra that is powered by a particular restaking protocol, it derives value from that connection, even if it is not direct. It is by this power that protocols can lose relevance but still hold huge valuations. We believe restaking is still a multi billion dollar market and as more apps become appchains, they harness restaking protocols, or other protocols that are built on restaking protocols. New Ideas: zkTLS bringing offchain data on-chain zkTLS uses zero knowledge proofs to prove the validity of data from the Web2 world. This new technology has yet to be fully implemented, but when it (hopefully) does this year, it will bring in new types of data. For example, zkTLS can be used to prove that data came from a certain website to others. Currently, there is no way to do this. This tech takes advantage of advancements made in TEE’s and MPC’s, and may be further improved to allow some of the data to be private. This is a new idea, but we predict that companies will step up to begin building this and integrating it into on-chain services, like verifiable oracles for nonfinancial data or cryptographically secured data oracles. Regulatory support For the first time, the U.S. regulatory environment seems crypto-positive. 278 pro-crypto house candidates were elected versus 122 anti-crypto candidates. Gary Gensler, an anti-crypto SEC chair, announced that he will be resigning in January. Reportedly, Trump is set to nominate Paul Atkins to lead the SEC. He was previously an SEC Commissioner from 2002-2008 and is outspokenly supportive of the crypto industry and an advisor to the Chamber of Digital Commerce, an institution focused on promoting the acceptance of crypto. Trump also named David Sacks, a tech investor and former CEO of Yammer and COO of PayPal, to head the new role of “AI & crypto czar.”. Notably, in Trump’s announcement, he said that “[David Sacks] will work on a legal framework so the Crypto industry has the clarity it has been asking for.” We hope for a winding down of SEC lawsuits, clear definitions of crypto as a particular asset class, and tax considerations. Paul Veradittakit | Managing Partner E : [email protected] M : +1 415 494 9001 Paul is a Managing Partner at Pantera Capital, where he works since almost ten years. He is an allrounder with several different activities and is highly interested in the blockchain technology. Furthermore, he is a board member at Blockfolio and at Staked. 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