The crypto market has truly matured since its beginnings a decade ago, growing from a niche community to one with growing adoption on both Wall Street and Main Street, marked by exchange-traded funds (ETFs) and even sovereign adoption.
Yet despite this growth and sophistication, most cryptocurrency market participants around the world continue to cling to a single metric: market capitalization. This remains the primary way people evaluate and rank cryptocurrencies by multiplying the total supply by the current price per coin, thus providing insight into the value of each asset in the market.
Institutions have also done the same for years, viewing the entire crypto market primarily through the prism of bitcoin. However, they have since evolved into more sophisticated and reliable investment analysis methods, according to Hunter Horsley, CEO of Bitwise Investments, which manages more than $15 billion in assets.
“Historically, institutions viewed the entire crypto market as similar to bitcoin, essentially digital gold, and made broader decisions based on market cap. However, they are gradually recognizing that the crypto space is more diverse, much like the stock market, with each project offering unique use cases and value propositions,” Horsley told CoinDesk at the conference Token2049 in Singapore last week.
“This awareness supports a shift from a size-based approach to a more nuanced, stock-like asset selection strategy,” he added.
A stock selection strategy is an investment approach in which funds select individual stocks with strong growth or value potential. Unlike passive investing, in which funds track a broad market index, stock selection involves detailed analysis of companies’ financial health, industry position and other factors to identify opportunities for higher returns.
According to Horsley, institutions are increasingly doing the same in the crypto market, choosing to invest in coins based on their fundamentals.
Beyond bitcoin
Horsley’s response came after he was asked whether Bitwise, as an asset manager, was having difficulty convincing institutions to invest in assets beyond bitcoin.
The question arose because, at the Dubai conference, a prominent Bitcoin DeFi investor told CoinDesk that BTC, often thought of as digital gold, is easier for investors to understand and has attracted billions of dollars. In contrast, institutions often struggle to understand Ethereum, Solana and other smart contract blockchains, as well as the complexities of staking, yield generation and associated dynamics, including regulatory aspects.
The growing desire to explore cryptocurrencies beyond bitcoin is evident from the number of new ETFs launched this year targeting alternative digital assets, including the joke cryptocurrency DOGE.
Recently, Bitwise filed an S-1 with the United States Securities and Exchange Commission (SEC) to launch a spot exchange-traded fund focused on Avalanche’s AVAX token.
Change of strategy
The stock-style investment strategy aligns well with the current macroeconomic environment, which differs significantly from that of 2020.
At the time, interest rates were near zero in the developed world, including the United States, and inflation was virtually nonexistent. This rare combination sparked an “everything rally,” where even the most obscure altcoins and memecoins rose in value.
Today, however, U.S. interest rates are around 4%, with bond yields roughly matching that level, and inflation remains stubbornly high. In this climate, only crypto assets with strong fundamentals and proven quality are likely to thrive, just as analysts select individual stocks based on their fundamentals.
Several experts, including economist Mohamed El-Erian and stock market historian and global equity strategist Russel Napier, have suggested using this strategy to invest in the stock market.
In their view, the current era of financial repression, inflation and fiscal domination warrants intelligent structuring and dynamic asset allocation, in short, stock selection.
Is bitcoin still a store of value?
One of the most heated debates since institutions and corporate treasuries began accumulating Bitcoin is whether it serves better as a store of value or a payment network. This debate is important because on-chain activity has slowed significantly, prompting one observer to note: “bitcoin is at an all-time high, but the blocks are completely empty.”
This situation is particularly concerning for miners, who face a periodic halving of block rewards approximately every four years. They may prefer that Bitcoin evolves as a payment network to support transaction fees, rather than solely as a store of value.
Horsley believes both roles are possible for Bitcoin, but probably one at a time rather than simultaneously.
“Currently, bitcoin is widely recognized and accepted as a store of value. Once it is accepted by governments, businesses and institutions, and they view it as a valuable asset, the next logical step will be to use it for transactions,” he said. “However, for bitcoin to be used as a means of payment, it must first be recognized and adopted as a legitimate store of value.”
“Why would anyone want to pay with it if they don’t already agree on its value?” he asked.
When asked about Bitcoin DeFi and other development efforts, Horsley said he is “encouraged by the work being done in the payments space, including initiatives like David Marcus’ Lightning and Lightspark.”
Bitcoin Lightning is a second-layer scaling solution that enables faster, cheaper, and larger transactions by processing payments off-chain through payment channels.
A different cycle
Finally, Horsley commented on the widely discussed four-year Bitcoin cycle linked to the quadrennial halving event. Historically, the bull market tends to peak around 16 to 18 months after each halving.
Given that the last halving took place in April 2024, this timeline suggests the possibility of a bear market in the coming months. Previous bear markets that followed halving cycles saw Bitcoin prices fall 80% or more from bull market highs.
The 2022 bear market was marked by the collapse of major players like stablecoin project Terra, hedge fund Three Arrows Capital, and exchange FTX, each causing massive wealth destruction in the crypto ecosystem.
Similarly, the 2018 bear market saw the bursting of the ICO bubble and regulatory crackdown on cryptocurrency trading in China and South Korea, two countries that accounted for a significant portion of global trading volume at the time.
Do we have similar catalysts this time? It’s a good thought exercise, Horsley said.
“Bitcoin’s four-year cycle has traditionally been characterized by a bear market, often triggered by an unexpected and significant counterparty event. Whether history repeats itself and leads to a downtrend next year will largely depend on whether such a counterparty explosion can occur again. Potential candidates for such a shock are now fewer, as the ecosystem has matured and matured. diverse,” he noted.
Horsley added that if the decline occurs, downward volatility could be much more subdued than in the past, when prices collapsed more than 80% from highs.
The cryptocurrency market has matured, with BTC volatility tending to decrease throughout the ongoing bull market, exhibiting Wall Street-like dynamics.
