Bitcoin Breaks $100K: State Reserves & Institutional Inflows Fuel Greed Zone | Frontier Lab Weekly
Market Overview
General Market Conditions
This week, the cryptocurrency market experienced an overall upward trend. Most altcoins followed the broader market rally. The market sentiment index rose from 78% to 80%, remaining within the bullish zone but now approaching the greed territory. The total market capitalization of stablecoins continued its upward trajectory, sustaining last week’s positive momentum. USDT rose to $149.7 billion and USDC to $60.9 billion, with respective changes of +0.67% and -0.81%. This indicates a notable increase in institutional capital inflows. Notably, USDT — primarily used by non-U.S. participants — contributed the most to this growth.
In contrast, USDC, largely backed by U.S.-based capital, has seen two consecutive weeks of decline. This drop may be attributed to Coinbase restricting eligibility for users to participate in USDC yield farming, impacting its market cap. However, U.S.-based spot Bitcoin ETFs continued to see significant net inflows this week, suggesting the impact on USDC remains to be fully assessed.
The broader market rally was largely driven by developments in the United States: several state-level governments passed Bitcoin strategic reserve legislation, signaling increased mainstream acceptance of BTC and boosting market sentiment. Additionally, trade tensions between China and the U.S. eased slightly, with the first round of negotiations expected to begin this Saturday in Switzerland. A new tariff agreement was also signed between the U.S. and the U.K. on Thursday, and former President Trump hinted at more such deals to come, further reducing global trade uncertainty.
Although Fed Chair Jerome Powell maintained a slightly hawkish tone during the recent policy press conference, he also confirmed the possibility of interest rate cuts later this year. Markets currently anticipate a rate cut by July. Meanwhile, other major economies — including China and the U.K. — have already begun easing rates, increasing liquidity and lifting market confidence.
Despite the recent rebound in market sentiment, significant uncertainty remains. U.S.-China tariff talks have yet to officially begin, and the U.S. economy still faces recessionary pressures. Investors are therefore advised to remain cautious and avoid FOMO-driven decisions.
Weekly Bullish Pick: AAVE
AAVE: A New Paradigm for DeFi Ecosystem Through Cross-Protocol Collaboration and Collateral Diversification
Proposal for Collaboration with Uniswap V4
Aave Labs has submitted a proposal to the Uniswap DAO to integrate a Uniswap V4 LP Position Manager Module — an important milestone in cross-protocol cooperation within DeFi. This proposal marks a new phase of interoperability and synergy in the decentralized finance ecosystem. Utilizing Uniswap V4’s Hooks mechanism, users can use their LP positions as collateral to borrow GHO, Aave’s native stablecoin. The proposal also establishes a 50:50 revenue-sharing model between the Aave DAO and the Uniswap DAO, splitting all interest income generated from GHO loans equally.
The LP Position Manager will be responsible for collateral verification, loan cap enforcement, and lending activation. Initially, the system will support GHO, with plans to expand to additional assets following the release of Aave V4 — offering users enhanced capital efficiency and new liquidity channels.
Aave’s request includes a $3.3 million UNI grant to fund development, auditing, and promotion. Of this, 2.4 million UNI will be distributed based on performance-linked incentives. This goal-driven funding structure ensures optimal resource allocation and high project execution standards.
This model of cross-protocol collaboration could define the new paradigm for DeFi 2.0, breaking away from isolated protocol silos to build an interconnected financial ecosystem. By combining Uniswap’s strength in liquidity provision with Aave’s expertise in lending, the partnership offers users more efficient and flexible capital management, while also generating sustainable income and improving user retention for both protocols.
Dual Enhancement of Capital Efficiency and User Yield
The core value of Aave’s current proposal lies in significantly improving users’ capital utilization efficiency and return on investment, creating a “kill multiple birds with one stone” asset optimization strategy. Uniswap V4 users can now enjoy over 10% mining APY while using LP positions as collateral to borrow GHO, thereby achieving secondary utilization of their funds. Considering that lending rates on Aave are far lower than 10%, this mechanism creates a clear arbitrage opportunity for users — allowing them to borrow GHO for additional investment or liquidity needs, while still maintaining their existing liquidity mining rewards.
This “mining + lending” hybrid model not only optimizes users’ asset allocation strategies but also greatly enhances capital efficiency. Traditionally, when users participate in liquidity mining, their funds are locked in LP positions and cannot be used elsewhere. With this innovative mechanism, users can unlock a portion of their liquidity for other investment or consumption purposes without exiting the mining process, thus achieving maximum utilization of capital.
From an ecosystem perspective, this mechanism is expected to attract more liquidity into both protocols. For Uniswap, the new function of using LP positions as collateral for loans increases the attractiveness of providing liquidity, which may bring in more LPs and improve trading depth. For Aave, it opens a new lending market and user segment, potentially leading to a significant increase in loan volume.
The performance-linked UNI incentive release mechanism further strengthens user motivation to participate. It adopts a tiered, goal-oriented incentive distribution system, ensuring that incentive resources align with actual business growth. This well-designed incentive mechanism not only encourages broad and active participation from Uniswap users in Aave’s collateralization activities, but also ensures the project’s sustainability and long-term value creation.
Collateral Expansion Strategy
Aave has recently been advancing a strategy to broaden the range of accepted collateral, notably by including Pendle PT (Principal Token) as collateral assets. This move demonstrates Aave’s forward-looking positioning in the DeFi space and strategic emphasis on fixed income products. It not only enriches Aave’s collateral pool but also opens the door to deeper collaborations with fixed income protocols, offering users a more diversified range of collateral options.
Pendle, currently the largest principal-yield separation project on-chain, holds a total value locked (TVL) of $3.355 billion and represents a rapidly growing fixed-income segment in DeFi. Aave has approved Pendle PT for eUSDe expiring in May as a collateral asset, and plans to soon add sUSDe PT expiring in July. This series of moves indicates Aave’s systematic expansion into the fixed-income collateral sector. This strategic layout enables Aave to tap into user groups traditionally more inclined toward stable returns, thus providing new user growth points and market opportunities for the protocol.
From a risk management standpoint, PTs, which have a fixed maturity and value, offer a relatively stable collateral base that helps Aave optimize its risk model and capital efficiency. Compared to highly volatile crypto assets, fixed-income products used as collateral may allow for higher loan-to-value (LTV) ratios and lower liquidation thresholds — offering users better borrowing terms while maintaining overall protocol security.
This strategic expansion also reflects Aave’s accurate grasp of the trend toward segmentation in the DeFi market. As the DeFi space matures, different protocols are beginning to specialize in specific financial functions and product types. By integrating products from these specialized protocols as collateral, Aave achieves value interconnectivity and functional complementarity within the ecosystem. This “leveraging others’ strengths” strategy allows Aave to benefit from the growth of the fixed-income market without having to develop such products directly.
Bearish Targets: CYBER, ACE
CYBER: Layer 2 Social Project Faces Unlocking of 4.23 Million Tokens, Increasing Downward Price Pressure Amid Sector Weakness
Cyber is an Ethereum-dedicated Layer 2 project designed specifically for social applications and optimized for mass adoption. In practice, it serves as the social layer for Web3 applications, primarily functioning as a social graph protocol. Cyber’s main narratives revolve around Ethereum Layer 2 and the SocialFi sector. However, due to the decline of the Ethereum ecosystem over the past year, Layer 2 projects have received limited market attention. The SocialFi narrative has been almost entirely neglected, with few users and little capital entering the space.
On May 15, CYBER will undergo a token unlock of 4.23 million tokens, accounting for 4.23% of the total locked supply. Currently, only 39.75% of CYBER tokens are in circulation, so this unlock represents over 10% of the existing circulating supply. According to the linear unlock chart published in the project’s whitepaper, the primary recipients of this unlock are institutional investors and the project team. Given the currently low enthusiasm and participation in both the Layer 2 and SocialFi sectors, this substantial unlock may trigger significant selling pressure, potentially impacting CYBER’s token price.
ACE: GameFi Project Faces Unlocking of 3.05 Million Tokens; Low Liquidity Market May See Price Volatility
Fusionist is a GameFi project that integrates NFT and SocialFi elements into its gameplay, combining aspects of GameFi, NFTs, and SocialFi. The GameFi sector has underperformed in the current market cycle, lacking wealth-creation narratives and, as a result, losing attention and new user inflows. Consequently, GameFi projects have seen consistently poor performance in recent years.
On May 18, ACE will undergo a token unlock of 3.05 million tokens, accounting for 2.08% of the total locked supply. According to the linear unlock chart published in its whitepaper, the main beneficiaries of this unlock are institutional investors and the project team. ACE’s current market cap is relatively low, at only $34.56 million, with low trading volume and poor liquidity across exchanges — 24-hour trading volume is just over $5 million. As such, this large unlock could lead to significant sell-offs, thereby exerting downward pressure on the ACE token price.
Market Sentiment Index Analysis
The market sentiment index has risen from 78% last week to 80%. While it remains in the bullish zone overall, it is now approaching greedy territory.
Bitcoin Ecosystem Sees Triple Breakthrough: State-Level Reserves, Institutional Inflows, and Technological Innovation
BTC showed strong performance this week, breaking through the upper edge of its wide consolidation range ($93,000–$98,000) and reaching a high of over $104,000. Its performance has significantly outpaced altcoins, and BTC has drawn widespread market attention — particularly following the core team’s decision to remove the 80-byte limit on OP_RETURN outputs in the next upgrade, which has sparked interest in a 100x token, “op_return,” and renewed focus on the upcoming protocol change.
A New Chapter in State-Level Bitcoin Reserves
On May 6, New Hampshire passed a bill named HB 302, marking the first official state-level Bitcoin strategic reserve legislation in the United States. The bill explicitly authorizes the New Hampshire Treasury to invest in Bitcoin and other digital assets with a market cap exceeding $500 billion. Under the bill, the state could purchase up to $181 million worth of BTC. While the amount is not massive, this move sets a precedent for state governments to adopt BTC as a strategic reserve asset, carrying greater symbolic value than financial impact.
Although Arizona’s earlier Senate Bill 1025 (SB 1025) was rejected, on May 7, Governor Katie Hobbs signed HB 2749, officially establishing the state’s first cryptocurrency reserve. This reserve is designated for managing unclaimed crypto assets, airdrops, and staking rewards — but does not permit investment operations. Despite lacking investment provisions, this indicates Arizona’s acceptance of BTC.
The passage of the New Hampshire and Arizona bills represents growing governmental recognition of BTC as a strategic reserve asset. Over time, more BTC could exit trading markets and be reclassified as a store-of-value held by public entities.
Public Companies Continue Expanding Bitcoin Reserves
Following Strategy’s announcement this week of an additional 1,895 BTC purchase worth $180.3 million, many other publicly listed companies and institutions have also disclosed BTC accumulation plans — highlighting the growing corporate interest in BTC as a reserve asset. Most of these purchases are intended for treasury holdings, thereby removing BTC from market circulation and reducing overall supply.
- May 4: Eric Semler, CEO of Semler Scientific, announced a $15.7 million purchase of 165 BTC, bringing the company’s total holdings to 3,467 BTC.
- May 4: Strategy added 1,895 BTC worth ~$180.3 million. The firm now holds 555,450 BTC at an average cost of ~$68,550, totaling ~$38.08 billion in value.
- May 5: Semler tweeted that the company spent an additional $16.2 million to acquire 167 BTC, bringing its total to 3,634 BTC.
- May 6: Michael Mo, co-founder of KULR, announced the firm purchased 42 BTC for $4 million at an average price of $94,403, bringing holdings to 716.2 BTC.
- May 7: Nasdaq-listed Thumzup Media Corp submitted a capital increase filing with the SEC, raising its max securities offering from $200M to $500M to purchase more BTC. The board has authorized allocating up to 90% of its liquid assets to BTC. As of May 5, 2025, Thumzup held 19.106 BTC.
- May 7: Metaplanet announced the purchase of 555 BTC at an average price of ~$89,000, raising total holdings to 5,555 BTC with $465 million in total investment. This is part of its “Bitcoin Treasury Strategy,” funded through stock issuances and bond sales since 2024.
These purchases reflect a continuing trend of public companies adopting BTC as a strategic reserve asset. Corporate demand is expected to grow, which could further reduce BTC’s liquid supply and bolster both price and market sentiment.
Continued Net Inflows Into Spot Bitcoin ETFs
Spot Bitcoin ETFs maintained strong capital inflows this week. As a major channel for public market BTC purchases, last week saw $1.81 billion in net inflows, marking the third consecutive week of positive capital movement. As of Thursday, though inflows slightly tapered, they still surpassed $900 million for the week. The total spot ETF holdings have now reached 1.18 million BTC.
This persistent inflow highlights institutional investors’ steady demand for Bitcoin. Notably, even amid uncertainties surrounding U.S. macroeconomic and trade policies, Bitcoin ETFs have demonstrated significant market resilience and investment appeal — underscoring investors’ confidence in the long-term value of digital assets.
Bitcoin Core to Remove OP_RETURN Limitation
The Bitcoin Core development team recently announced that the next network upgrade will remove the byte limit on OP_RETURN, following a proposal by Peter Todd that sparked widespread community discussion. OP_RETURN essentially serves as a “note” function on the Bitcoin blockchain, allowing users to attach extra data to a transaction without impacting the UTXO set. Previously, this was limited to one per transaction with a maximum of 80 bytes.
In practice, developers have long circumvented this limit through various means to store larger data on-chain — such as with Taproot Wizz NFTs and Ordinals. This change acknowledges that reality and embraces Bitcoin’s growing role as a data storage platform, potentially paving the way for more on-chain applications.
Although Bitcoin Core has not yet formally approved the expansion, the first token leveraging the change — “op_return” (2.1 million tokens, issued in 2,100 NFTs) — has already been minted. With an initial cost of $5–6 per token, over-the-counter prices have surged to $400, delivering nearly 100x returns. The protocol is similar to BRC-20 but includes an address field in the JSON structure, pushing it beyond the byte limit. Trading is currently limited to escrow-based OTC due to the lack of official indexers and transfer tools and depends on mining pools (e.g., MARA and F2Pool) that have lifted the byte cap. The community believes this approach avoids both block bloating and UTXO pollution.
Outlook
With state-level governments pioneering BTC reserves, public companies continue to build strategic holdings, spot ETF inflows reflecting strong institutional confidence, and the removal of the OP_RETURN limit opening new technical possibilities, Bitcoin is entering an unprecedented phase of growth.
These developments are reshaping BTC’s market structure by:
- Reducing liquid supply, leading to a structural imbalance in supply and demand;
- Expanding Bitcoin’s functional capabilities, creating new application scenarios.
Together, these forces are expected to accelerate Bitcoin’s transition from a speculative asset to a mainstream store of value and functional network — offering stronger long-term momentum and broader developmental prospects.
Overall Market Sector Performance
According to Weekly Return Rates, the NFT Sector Outperformed, While the GameFi Sector Lagged Behind
- NFT Sector: The NFT sector included relatively few projects — PENGU, APE, NFT, SUPER, and BLUR — with weekly returns of 27.41%, 0.12%, 1.95%, 1.63%, and -6.95%, respectively. PENGU’s strong performance was the primary driver of the sector’s index gain. Most projects in the NFT sector saw upward trends this week, making it the best-performing sector.
- GameFi Sector: The GameFi sector was dominated by IMX, GALA, SAND, MANA, and BEAM, which together accounted for 75.52% of the sector. Their weekly returns were -0.79%, -1.83%, -0.28%, -0.17%, and -7.82%, respectively. With major projects posting declines, the GameFi sector ranked as the worst-performing.
Upcoming Major Events in Crypto Next Week
- Monday (May 12): U.S. Securities and Exchange Commission Chair Paul Atkins to deliver a keynote speech on tokenization at the SEC Crypto Roundtable.
- Tuesday (May 13): Release of U.S. April YoY Core CPI (seasonally adjusted).
- Thursday (May 15): U.S. April Retail Sales MoM data.
- Friday (May 16): Galaxy Digital Holdings (TSX: GLXY) to be listed on Nasdaq.
Summary
The overall crypto market trended upward this week, with the market sentiment index climbing to 80%, entering the “Greed” zone. As the market leader, Bitcoin broke through the upper range of its previous wide consolidation zone and surpassed $104,000 at its peak, significantly outperforming most altcoins.
The core drivers behind this rally included:
- U.S. state governments successively passing Bitcoin reserve legislation;
- Continued institutional capital inflows via ETFs;
- Public companies accelerate their Bitcoin acquisitions as reserve assets.
Meanwhile, major economies outside the U.S. have recently begun interest rate cuts, injecting more liquidity into the market and boosting sentiment. Despite Fed Chair Jerome Powell maintaining a hawkish stance, the market expects a potential rate cut cycle starting in July. In addition, the imminent launch of U.S.-China tariff negotiations provides a relatively favorable macro environment for risk assets.
However, current market sentiment is clearly overheated, and the tariff issue remains unresolved. Investors should maintain a degree of caution to guard against pullback risks triggered by overheated sentiment.
The most critical market event next week will be the release of the U.S. April YoY Core CPI. Fed Chair Powell has explicitly stated that the decision to cut rates will depend on the data, so investors are advised to pay close attention to any indicators that could influence the Fed’s rate cut decision.
Additionally, Saturday marks only the beginning of the U.S.-China tariff negotiations, which are expected to be a prolonged process. Investors are advised to monitor the developments closely, as the outcome may significantly impact market price trends, overall sentiment, and even future Fed rate decisions.
