The crypto market’s ongoing rally has taken a fascinating turn with the concept of the “flywheel effect” taking center stage. On this August day in 2025, industry insiders are buzzing as the flywheel metaphor, originally coined by business author Jim Collins, finds fresh relevance in the digital asset sphere. But what’s driving this phenomenon, and how is it shaping the market?
The Flywheel Unleashed
In the crypto realm, the flywheel effect isn’t just a theoretical concept—it’s a dynamic force. Alex Tapscott from Ninepoint Capital Digital Asset Group explains that the flywheel effect is about momentum. It starts with small, consistent pushes that eventually build into unstoppable momentum. This is reflected in how digital asset treasury companies (DATs) like MicroStrategy are leveraging investor demand to issue shares at a premium, driving up their net asset value, and subsequently, the value of bitcoin itself. This follows a pattern of institutional adoption, which we detailed in our analysis of corporate treasury investments.
It’s a self-reinforcing loop, says Tapscott. “You see, as more people buy shares, the underlying asset appreciates, prompting even more investors to jump on board,” he notes. This synergy is not just theoretical—it’s already in motion, as evidenced by ether ETFs, which have seen inflows surpassing $6 billion this year alone. ETH managed to climb by as much as 50% in July, closing the month around $3,800.
ETF Surge and Stablecoin Dynamics
The ripple effects extend into the ETF markets as well, where ether-focused digital asset companies have turbocharged flows into these investment vehicles. Meanwhile, stablecoin issuers like Tether are playing their role in this complex ballet. By reinvesting profits back into bitcoin, Tether not only boosts the price of bitcoin but also stokes demand for stablecoins, creating a compelling cycle of growth. As explored in our recent coverage of BlackRock Bitcoin ETF, the ETF market is poised for significant growth, further amplifying these dynamics.
“Stablecoins are the unsung heroes,” remarks Natalie Hirsch from Polymath. “Their role in providing liquidity and stability can’t be overstated, especially as they underpin much of the market’s current structure.”
IPOs: The New Frontier
The initial public offering (IPO) market is another arena where the flywheel is spinning with vigor. Circle’s successful IPO has paved the way for other crypto companies, including Grayscale and BitGo, to consider going public. This wave of IPOs is broadening the investment landscape, attracting both traditional and new investors to the crypto space.
However, every coin has two sides. If these companies fail to meet market expectations, the sector could face a backlash akin to the dot-com bust. “The flywheel effect can reverse,” warns Tapscott. “If the underlying assets falter, companies might be forced to sell off assets, which could trigger a broader market downturn.”
The Road Ahead
As we gaze toward the horizon, questions linger about the longevity of this rally. Markets are, by nature, cyclical. As ETH prices rise, some investors are already lining up to sell staked ETH, which could apply the brakes to the current momentum.
The flywheel effect, robust as it is, isn’t immune to the natural ebbs and flows of market forces. For now, though, the wheels keep spinning, fueled by a confluence of investor optimism, regulatory clarity, and institutional interest. Whether this momentum continues unchecked or faces inevitable slowdowns remains to be seen. Yet, one thing is clear: the crypto market’s intricate dance of forces ensures it’s never short on intrigue—or opportunity.
Source
This article is based on: Crypto for Advisors: The Hidden Mechanics Behind This Crypto Rally
Further Reading
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Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
