Author: Matt Hougan, Chief Investment Officer of Bitwise

Translated by: Saoirse, Foresight News

There are indeed many exciting developments in the current cryptocurrency space: regulatory and legislative conditions are improving, stablecoins are gaining momentum, corporate purchases of cryptocurrencies are surging, institutions are steadily incorporating cryptocurrencies into their portfolios through ETFs, and Ethereum has regained vitality, injecting much-needed altcoin momentum into the entire cryptocurrency market.

However, these situations have long been open secrets. I always feel that the market underestimates the scale of each development, but that does not mean they are happening without attention. Media coverage of the cryptocurrency bull market has already flooded the landscape.

Nevertheless, I believe that by the end of this year, the market will still welcome a series of significant upward surprises, strong enough to drive prices significantly higher. The following four major dynamics, in my view, have yet to be reflected in the current market pricing.

More Governments Will Buy Bitcoin This Year

By early 2025, the market generally believes that the three main sources of demand for Bitcoin this year are ETFs, corporations, and governments, which we refer to as the "three horses of Bitcoin demand."

So far, two of the horses have already gained momentum: ETFs have purchased 183,126 Bitcoins, and publicly traded companies have bought 354,744 Bitcoins. Given that the Bitcoin network only produces 100,697 Bitcoins, this has driven its price up by 27.1%.

However, the third horse has yet to truly gain traction. Admittedly, the U.S. has established a "strategic Bitcoin reserve," but it only contains Bitcoins obtained through criminal seizures; Pakistan has announced the establishment of its own Bitcoin reserve, and Abu Dhabi has invested in a Bitcoin ETF, but compared to the large-scale purchases by ETFs and corporations, these are merely sporadic actions.

The market generally believes that the process of countries adopting Bitcoin as a reserve asset has been shelved, but I have my doubts. While the actions of governments and central banks are slow, based on discussions we have had at Bitwise, they are indeed making progress.

It is important to clarify: I do not believe there will be a concentrated announcement from various countries before the end of the year, but it is certain that more countries will join in, and the number will be enough to make this trend a significant potential driver in 2026. Just this alone could significantly push up prices.

Dollar Depreciation + Interest Rate Decrease = Bitcoin Price Increase

One unique aspect of the current situation is that Bitcoin prices are approaching historical highs while interest rates hover near the peak levels since Bitcoin's inception in 2009. This should not be the case. For non-yielding assets like Bitcoin (and gold), high interest rates are undoubtedly a major challenge, significantly raising the opportunity cost of holding such assets.

The market has been digesting expectations of multiple interest rate cuts before the end of the year, which should support Bitcoin. However, I believe the market has overlooked a key trend with more far-reaching implications.

The Trump administration is strongly advocating for dollar depreciation while hoping for a more accommodative policy from the Federal Reserve. From directly criticizing Federal Reserve Chairman Jerome Powell to appointing Stephen Moore, who advocates for dollar depreciation, to the Federal Reserve Board, this series of actions sends a strong signal: the government wants significant interest rate cuts and substantial dollar depreciation.

It may not be three rate cuts, but possibly six or even eight.

Particularly noteworthy is the appointment of Moore. He has gained attention for his research paper, which argues that the dollar's status as the global reserve currency imposes a heavy burden on the U.S. He calls for a new "Mar-a-Lago Agreement" to lower the dollar's exchange rate against other major international currencies and suggests that the Federal Reserve could achieve this through massive money printing.

If money printing leads to a significant decrease in interest rates and a substantial depreciation of the dollar, Bitcoin prices could rise significantly.

Decreased Volatility Means Increased Allocation Ratios

One of the most underestimated trends in the cryptocurrency space is the significant decrease in Bitcoin's volatility. Since the launch of the spot Bitcoin ETF in January 2024, not only has Bitcoin's own volatility significantly decreased, but the rate of change in its volatility has also slowed considerably.

30-Day Rolling Volatility of Bitcoin

Note: The green shaded area represents the period after the launch of the spot Bitcoin ETF.

The reasons for the decrease in volatility are not hard to understand: the development of ETFs and corporate purchasing behaviors have introduced new types of buyers into the cryptocurrency market, while progress in regulation and legislation has significantly reduced market risks. I believe this has become Bitcoin's "new normal," with its volatility currently roughly comparable to that of high-volatility tech stocks like Nvidia.

Comparison of Volatility Between Bitcoin, Tesla, Nvidia, and Meta

In discussions with institutional investors, this decrease in volatility is prompting them to reconsider the allocation ratio of cryptocurrencies in their portfolios, showing a significant increase compared to before. Prior to the launch of the spot Bitcoin ETF, the initial allocation ratio for such discussions typically started at 1%, whereas now, I frequently hear discussions starting at 5% or even higher.

This is also one of the important reasons for the accelerated inflow of funds into Bitcoin ETFs. Since July 1, the net inflow of funds has reached $5.6 billion, which, if this trend continues, could approach $50 billion for the year. Notably, summer is traditionally a slow season for ETF fund inflows, which leads me to believe that this trend may further accelerate in the fall.

ICO 2.0: The Rebirth of Cryptocurrency Financing

Initial Coin Offerings (ICOs) have gained a notorious reputation. In 2018, fraudulent ICOs ran rampant, with these empty projects raising billions of dollars from investors before disappearing, and the promised products were never delivered. This was also a significant reason for the abrupt end of the cryptocurrency bull market in 2017. The U.S. SEC subsequently launched a crackdown, and investors became thoroughly weary of such fraudulent activities.

I believe most investors and observers have regarded ICOs as "defective products," but SEC Chairman Paul Atkins recently outlined a blueprint for the rebirth of ICOs in his "Cryptocurrency Initiative" speech:

"I have asked the team to develop disclosure rules, exemptions, and safe harbor provisions that align with the characteristics of so-called 'initial coin offerings,' 'airdrops,' and 'network rewards'… In my view, if we can stick to this path, the innovation sector may witness a 'Cambrian explosion.'"

If this concept is realized, it could become an important catalyst for driving the market upward. Looking back at history, whether during the ICO boom or after its decline, cryptocurrency investors' enthusiasm for investing in crypto projects has remained undiminished. Once the new ICO market 2.0 is launched, it is expected to attract a large influx of new funds into the cryptocurrency market.

Conclusion

The market does not rise due to known positive news; it only rises due to positive news that has yet to be reflected in prices.

I believe that, overall, the market has underestimated the scale of the current bull market in the cryptocurrency space and has overlooked some specific driving factors, which will gradually reveal their influence in the coming months and even years.

Be wary of subsequent significant price surges.

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