May 2026 Market Commentary

This commentary was written by Jianing Wu, with contributions from Su Lee.

Equities Hit ATH While Crypto Tumbles

Unlike April's broad-based risk-asset recovery, in May, U.S. equities extended their advance to successive all-time highs while the crypto market declined materially. The defining tension was one of competing narratives. An AI and semiconductor investment thesis with visible earnings support sustained stocks’ momentum despite the persistent geopolitical uncertainty of the unresolved U.S.-Iran standoff, elevated energy prices, and the most challenging inflation print since mid-2023. Meanwhile, the simultaneous pullback of the two largest structural BTC demand sources weighed on crypto prices.

Equity markets entered May with five consecutive weeks of gains and extended that run through month-end, absorbing Iran headline volatility and a materially hawkish rate outlook. April’s consumer price and producer price indices came in above consensus estimates: CPI at 3.8% YoY and PPI at 6.0%. Meanwhile the personal consumption expenditures (PCE) deflator, the Fed's preferred measure, also printed 3.8% YoY, its highest reading since May 2023. The market's expectation of multiple Fed rate cuts by end-2027 effectively evaporated, with some corners beginning to price a hike as the more likely next move. Jerome Powell's tenure as Fed Chair expired on May 15, with Kevin Warsh formally assuming leadership; his preference for less scripted guidance and a more hawkish reading of the pandemic-era balance sheet adds a layer of policy uncertainty heading into the second half of 2026.

BTC entered May around $76,000 carrying what appeared to be a constructive technical setup: 67 consecutive days of negative perpetual futures funding rates had built an historically unusual structural short base, and a short squeeze against the 200-day moving average near $82,500-$83,000 appeared compelling to many observers. However, BTC failed to close above the 200-day moving average on multiple attempts in May and began retreating, spending the back half of May in the $76,000-$77,000 range before breaking below $62,000 in the beginning of June. ETH underperformed even within the crypto complex, weighed in part by a deepening identity crisis at the Ethereum Foundation and growing investor confusion over ETH's value accrual thesis. As broader risk assets rallied on Iran de-escalation and AI momentum, the weakness in crypto was plainly idiosyncratic rather than macro-driven.

The price decline found structural confirmation in the simultaneous retreat of the two largest BTC demand sources of the prior 18 months. Approximately $4.3 billion was pulled from U.S. spot BTC ETFs between May 15 and June 4 (the time of writing), culminating in a record 13-day outflow streak that flipped cumulative 2026 flows negative. Concurrently, Strategy disclosed at its May 5 earnings call that it may sell bitcoin in certain circumstances and confirmed by month-end a sale of 32 BTC from May 26-31, the firm's first disposition since December 2022. Trivial in size against an 843,000 BTC treasury, the sale nonetheless chipped at the psychological cornerstone of the corporate accumulation thesis. With ETF flows and the Strategy bid in retreat simultaneously, AI-adjacent tokens and perpetual swap DEXes absorbed much of the residual risk-on appetite within crypto.

On the regulatory front, May delivered a meaningful result that failed to lift prices. The Senate Banking Committee advanced the CLARITY Act out of committee on a bipartisan 15-9 vote on May 14, paving the road for its passage. Separately, President Trump signed an executive order directing the Federal Reserve to evaluate whether non-bank financial institutions, including digital asset firms, should be permitted access to Reserve Bank payment accounts, a development with meaningful longer-term implications for crypto-native financial infrastructure.

001 It’s HYPE Szn

21Shares launched the first U.S. spot Hyperliquid ETF on May 12 under the ticker THYP, followed three days later by Bitwise's BHYP. Completing the trifecta, Grayscale's GHYP launched on June 3 at a 0.29% management fee, undercutting THYP (0.30%) and BHYP (0.34%).

From launch through end of May, THYP and BHYP together attracted $139 million in net inflows, making HYPE the top performer in the ETF flow race among newly launched crypto ETFs. During this period, BTC and ETH ETFs suffered outflows as the broader crypto market sold off amid institutional disengagement and long-dormant whale wallets moving coins. Comparing the first 11 trading days of each token's respective spot ETF debut in the U.S., XRP's $756 million in absolute inflows dwarfs HYPE's. But XRP launched with seven ETFs simultaneously into a $127 billion market cap. Adjusted for market cap, HYPE's inflows absorb a larger percentage of available float ($16 billion), giving HYPE the edge on a relative basis.

This ETF momentum comes against the backdrop of HYPE's roughly 183% year-to-date gain through end of May, while BTC and ETH remain down on the year. That decoupling reflects a market pricing Hyperliquid on three dimensions: a protocol generating high fee revenue, a platform expanding its capacity across new business lines, and tokenomics that route revenue back to holders.

The top perpetuals DEX by volume, Hyperliquid captures over 40% of the perpetuals DEX market. The platform runs on its own purpose-built, Layer-1 blockchain, HyperCore, engineered specifically for high-frequency financial trading. HyperCore is capable of processing approximately 200,000 transactions per second with an onchain order book that matches the speed and depth institutional traders expect from centralized exchanges. In 2026, Hyperliquid has regularly outpaced Ethereum and Solana in monthly fee generation, averaging $47 million.

Recently, Hyperliquid’s expansion into TradFi-adjacent products has been the growth story. HIP-3, launched in October 2025, allows anyone who stakes 500,000 HYPE tokens to deploy their own permissionless perpetual markets on HyperCore, enabling 24/7 trading of commodities, equities, and pre-IPO names. When crude oil surged past $110/barrel amid disruption around the Strait of Hormuz chokepoint in March, Hyperliquid saw well over $1.9 billion in trading volume for its WTI crude oil perpetual contract. In the bigger picture, Hyperliquid gave the world 24-7, real-time market signals about oil while TradFi venues were closed for the weekend. HIP-3 markets have also attracted traders speculating on companies such as Cerebras, Anthropic, and SpaceX ahead of public listings. Again, these markets have produced positive informational externalities: Hyperliquid priced the pre-IPO names far more accurately than gated legacy “private markets.”

Then on May 2, Hyperliquid launched HIP-4: event outcome contracts that bring prediction market-style YES/NO binary settlements natively into HyperCore, competing directly with Polymarket and Kalshi, but embedded into the same infrastructure as HYPE's perpetuals and spot markets.

On top of Hyperliquid’s market expansion, it has a buyback mechanism. The Assistance Fund directs over 97% of Hyperliquid's protocol fees into continuous, automated market purchases of HYPE, removing tokens from circulation. Up till now, the Fund had spent over $1.1 billion buying back HYPE at an annualized rate of roughly 7% of market cap. In addition, the purchases are funded entirely by real trading fees, not token issuance or treasury depletion.

For institutional investors, Hyperliquid operates a self-funding share repurchase program while expanding its serviceable markets. As the great convergence of TradFi and crypto play out, Hyperliquid’s capacity to support non-crypto trading and prediction markets may be a consideration for institutional capital seeking exposure to a new financial market infrastructure.

002 CLARITY Update

This story by Alex Thorn originally appeared in Galaxy Research’s weekly newsletter.

Shortly after CLARITY Act’s newly updated text was released, a markup session was scheduled on May 14 and ultimately the Senate Banking Committee voted 15-9 to advance the bill out of committee, paving the way for an eventual floor vote on the landmark digital assets market structure legislation.

This was a big win for the CLARITY Act and its ultimate prospects in the Senate. Although only two of the five “pro-crypto” Democrats voted yes, many in the crypto policy ecosystem had resigned themselves to a purely partisan outcome in the 24 hours leading into the committee markup.

One remaining issue to resolve and secure Democratic votes is “ethics.” Democrats are seeking provisions barring senior government officials, elected officials, and perhaps their family members from some combination of holding financial interests in, profiting from, endorsing, or promoting digital assets.

Other issues that may see further bipartisan movement include handling of DeFi (Title III) and the Blockchain Regulatory Certainty Act (BRCA, Sec. 604), both of which are concerns for law enforcement hawks. (We wrote at length about these issues in our April 22 report).

Currently, the Senate Banking text is being reconciled and combined with the Senate Agriculture version that advanced through that committee in January. After that, Majority Leader Sen. John Thune (R-SD) needs to schedule floor time for full Senate debate on the bill. Debating CLARITY will likely take a full week of Senate floor time, and Thune probably needs to put it on the floor by July 13 to allow enough time to pass, reconcile with the House version, and send to the President’s desk for signature.

More work needs to be done, but the bipartisan advancement through committee was a major milestone that raised the odds of final passage.

003 The Ethereum Exodus

This story by Lucas Tcheyan originally appeared in Galaxy Research’s weekly newsletter .

The Ethereum Foundation is facing new scrutiny after another round of senior exits. There were eight high-profile exits in five months, five of them in May alone [1]. Adding fuel to the fire, Bankless podcast co-founder David Hoffman, who once described himself as holding 99% of his net worth in ETH, disclosed he had sold his entire position.

The departures followed the EF's March Mandate, a 38-page document codifying a principle called CROPS (Censorship-Resistant, Open-source, Private, Secure) and framing the Foundation as one steward among many rather than the driver of Ethereum's adoption. But no singular reason has been given for the exodus, with growing concern and demand for clarity from prominent community members. Prysm contributor Potuz called the cluster of exits a "textbook case of how to capture an organization." Researcher Dankrad Feist, who left EF for Stripe-backed L1 Tempo last year, posted a prescription for a separately funded $1 billion organization accountable to ETH holders.

The exodus reflected exhaustion across the Ethereum community. The timeline is tired of roadmap resets, unclear value accrual, and being told every awkward transition is decentralization working as intended.

Some of that frustration is a result of ETH’s underwhelming performance. For most of crypto’s short history, owning the native token of the most credible general-purpose L1s was a safe trade. That trade is now broken. The Fat Protocol thesis has given way to the Fat App thesis. A $300b+ network value is harder to defend when the apps running on top capture most of the economics.

Regulatory clarity and easier access made the problem worse. The marginal buyer of ETH used to be a crypto native willing to underwrite neutrality as a terminal value. Increasingly the marginal buyer is an allocator comparing ETH against a Bitcoin ETF as the reserve asset trade, HYPE as the onchain exchange trade, ZEC as the privacy trade, and VVV as the AI usage and burn trade.

This is why the communication gap around the EF departures matters much more than in the past. The exits may have benign individual explanations. But without a clear public account of what is driving them, every camp gets to project its own story – burnout, compensation, politics, ideology, loss of conviction, or forced restructuring – at the same time as alternatives are beginning to shine. Ethereum increasingly looks like an ecosystem in drift.

Part of the tension is that the market increasingly wants the EF to behave like a competitive corporate steward for ETH, while the EF Mandate makes clear the organization does not see that as its role. The document is explicit. The EF exists to preserve Ethereum’s neutrality and uphold CROPS principles at the base layer, not maximize ETH price, optimize tokenholder returns, or aggressively coordinate commercial expansion across the ecosystem. That may frustrate parts of the market, but the Foundation appears directionally aligned around that vision. The problem is that large parts of the ecosystem no longer are.

To restore its value, Ethereum must tackle the following.

First, address the constraints that pushed users and developers elsewhere while getting in front of the narratives most likely to matter next cycle: L1 scaling, onchain privacy, post-quantum security, and AI-native economic infrastructure. The Strawmap published in February outlines much of this work directly (see Galaxy Research's Mapping the Strawmap for an in-depth overview).

The harder task is the institutional and commercial one. Pick the verticals where Ethereum has a defensible moat (high-value DeFi, asset issuance, tokenized RWAs, stablecoin settlement, privacy-preserving financial infrastructure, and eventually autonomous economic agents) and concentrate resources there. Ethereum can win the markets where credible neutrality is a feature that users are willing to pay for. Then commit to a single, legible thesis for ETH as an asset and stick to it.

The current pitch is too diffuse. ETH cannot simultaneously be sold as ultrasound money, a tech-index proxy, L2 settlement collateral, institutional reserve asset, AI-agent money, privacy infrastructure, and generic "world computer" exposure without the market eventually discounting all of it.

004 Tokenization: The Quiet Surge

While crypto markets faced turbulence in May with bitcoin ETF outflows picking up and prices softening, tokenization activity showed no sign of slowing down.

A slew of announcements last month involved settlement infrastructure, product issuance, and liquidity plumbing. What distinguishes this moment is less about single announcement, but the fact that infrastructure builders, product issuers, and ancillary enablers are all moving at the same time and filling different layers of the onchain finance stack.

• Infrastructure builder: The most structurally significant and visible activity came from firms at the center of how securities are cleared and settled today. DTCC announced its upcoming tokenization service is targeting an October launch, and it will also connect to the Stellar public blockchain, in addition to Canton. Boerse Stuttgart announced that Seturion, its settlement platform, will work with Societe Generale’s SG-FORGE on tokenized structured securities and settle transactions using stablecoins while allowing Nasdaq’s European venues to trade and settle these tokenized securities. While Seturion has not disclosed which blockchain it will connect to, the settlement layer is clearer: SG-FORGE's CoinVertible stablecoins run on Ethereum, meaning Ethereum is in the mix.

• Tokenized products: Tokenized money market funds have emerged as an attractive option in the early adoption of tokenization because it brings risk-free USD rates to onchain finance. Fidelity International launched its first tokenized USD liquidity fund on Ethereum, built by Sygnum Bank’s tokenization platform and sporting an Aaa-mf rating from Moody’s. State Street Investment Managers and Galaxy launched SWEEP on Solana, the first tMMF launched by a global systematically important bank on the blockchain. Blackrock is preparing an onchain share class of BlackRock Select Treasury Based Liquidity Fund on Ethereum, as well as a new fund, the Daily Reinvestment Stablecoin Reserve Vehicle, explicitly designed for stablecoin reserve managers. The tMMF market has grown from under $1 billion in 2024 to over $15 billion today, and these new entrants are reinforcing how fierce the competition is. What is notable about this growth is not just the pace and size, but where it is happening too. These funds are built predominantly on public blockchains, with issuers layering compliance controls on top rather than opting for private chain infrastructure.

• Liquidity products: While the previous two products are the main driver of the tokenization movements, the third layer of product in tokenization is less visible but shows the most important sign of market maturity. This layer tries to fix the frictions of TradFi rails and bring greater efficiency to tokenized products. Grove launched Basin, a credit facility providing up to $1 billion in daily stablecoin liquidity for instant redemption for tMMFs. It solves the issue of liquidity and cycle mismatch between tokenized funds’ 24/7 model and the underlying instruments’ settlement mechanism on TradFi rails. Basin provides immediate stablecoins supply and is repaid when settlement is completed.

These three categories are routinely collapsed into a single term, but they differ meaningfully in what they aim to change, who builds them, and what they mean for the digital asset ecosystem. What ties them together is a shared directional shift: institutional involvement is deepening from pilots into production, converting years of experimentation into operational infrastructure. This is the necessary groundwork for a tokenized asset market that is widely projected to reach $5 trillion by 2030.

Conclusion

We enter June with a more cautious bias than the month prior. Equities have continued to grind higher on the back of AI-driven earnings momentum, but the macro backdrop has grown more complex beneath the surface. Global government bond yields rising as bonds continue to price in higher inflation and persistent rate risk, even as equity indices extend their gains. Consumer sentiment has deteriorated markedly, shaken by the Iran conflict and its knock-on impact on the cost of living. The AI trade continues to anchor equity market performance, a concentration that warrants attention as we move deeper into the year. Iran remains the dominant geopolitical headline, and while equities have largely looked through it, any further escalation risks ending the AI party as rising yields approach the point where they have historically begun weighing on risk assets.

In crypto, the constructive setup that characterized April and early May has given way to sustained institutional selling. BTC entered June under pressure, with record heavy spot ETF outflows. For now, the path of least resistance in crypto appears lower, with capital rotation toward AI equities the dominant institutional narrative heading into the summer. The key technical level to watch is the $60,000 support level for BTC; a decisive break there could intensify downside pressure before confidence returns.

Key Events to Watch:

• June 12: SpaceX IPO

• June 17: FOMC meeting

Key Macroeconomic Data Releases:

• June 10: CPI

• June 11: PPI

• June 25: PCE

• June 30: JOLTS

To learn more about the topics covered in this month's newsletter, contact our team or reach out to your Galaxy representative.

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