The crypto market has truly matured since its early days a decade ago, evolving from a niche community into one with increasing 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 crypto market participants across the globe continue to cling to one metric – market capitalization. It remains the primary way people assess and rank cryptocurrencies by multiplying the total supply by the current price per coin, giving a snapshot of each asset’s value in the market.
Institutions, too, did the same for years, viewing the entire crypto market primarily through a bitcoin lens. However, they have since moved to more sophisticated and reliable investment analysis methods, according to Hunter Horsley, CEO of Bitwise Investments, which manages over $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 during the Token2049 conference in Singapore last week.
“This realization is fostering a shift from a size-based approach to a more nuanced, stock-like strategy of asset selection,” he added.
A stock-picking strategy is an investment approach where funds select individual stocks with strong potential for growth or value. Unlike passive investing, where funds track a broad market index, stock picking 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, faced difficulties 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 seen as digital gold, is easier for investors to understand and has attracted billions of dollars. In contrast, institutions often struggle to grasp Ethereum, Solana, and other smart contract blockchains, along with the complexities of staking, yield generation, and related dynamics, including regulatory aspects.
The growing willingness to explore cryptocurrencies beyond bitcoin is evident from the number of new ETFs launched this year targeting alternative digital assets, including joke cryptocurrency DOGE.
Recently, Bitwise filed an S-1 with the U.S. Securities and Exchange Commission (SEC) to launch a spot exchange-traded fund focused on Avalanche’s AVAX token.
Shift in strategy
The stock-like investing strategy aligns well with today’s macroeconomic environment, which differs significantly from that of 2020.
Back then, interest rates were near zero across the developed world, including the U.S., and inflation was practically nonexistent. This rare combination sparked an “everything rally,” where even the most obscure altcoins and memecoins soared in value.
Today, however, U.S. interest rates sit 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, much like analysts picking individual stocks based on fundamentals.
Several experts, including Economist Mohamed El-Erian and stock market historian and global equity strategist Russel Napier, have suggested using the strategy for stock market investing.
According to them, the current era of financial repression, inflation and fiscal dominance warrants clever structuring and dynamic asset allocation, in short, stock picking.
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 as a payment network. This debate matters because on-chain activity has significantly slowed, prompting one observer to note, “bitcoin is at an all-time high, yet the blocks are completely empty.”
This situation is especially concerning for miners, who face periodic halving of block rewards about every four years. They may prefer bitcoin to evolve as a payments network to sustain transaction fees, rather than solely as a store of value.
Horsley believes both roles are possible for bitcoin, but likely one at a time, rather than simultaneously.
“Currently, bitcoin is being widely recognized and accepted as a store of value. Once it gains acceptance among governments, corporations, and institutions, and they hold it as a valuable asset, the next logical step is for it to be used for transactions,” he said. “However, for bitcoin to be used as a payment method, it first needs to be acknowledged and adopted as a legitimate store of value.”
“Why would someone want to pay with it if they haven’t yet agreed on its value?” he asked.
When asked about bitcoin DeFi and other developmental efforts, Horsley said that he is “encouraged by the work done in the payments space, including initiatives like Lightning and David Marcus’s Lightspark.”
Bitcoin Lightning is a second-layer scaling solution that enables faster, lower-cost, and higher-volume transactions by processing payments off-chain through payment channels.
A different cycle
Lastly, Horsley commented on the widely discussed four-year Bitcoin cycle tied to the quadrennial halving event. Historically, the bull market has tended to peak around 16 to 18 months after each halving.
Given that the last halving occurred in April 2024, this timeline suggests the possibility of a bear market emerging in the coming months. Previous bear markets following halving cycles have seen bitcoin prices decline by 80% or more from their bull market highs.
The 2022 bear market was marked by the collapses of major players like the stablecoin project Terra, the Three Arrows Capital hedge fund, and the FTX exchange, each causing massive wealth destruction across the crypto ecosystem.
Similarly, the 2018 bear market saw the bursting of the ICO bubble and regulatory crackdowns on crypto trading in China and South Korea—two countries that accounted for a significant share of global trading volume at the time.
Do we have similar catalysts this time? It’s a good thought exercise, Horsley said.
“The four-year cycle in Bitcoin has traditionally been characterized by a bear market, often triggered by an unexpected and significant counterparty event. Whether history will repeat itself and lead to a downtrend next year largely depends on whether such a counterparty blowup can occur again. The potential candidates for such a shock are now fewer, as the ecosystem has matured and diversified,” he noted.
Horsley added that if the bear arrives at all, the downside volatility could be much milder than in the past, when prices collapsed by over 80% from peaks.
The cryptocurrency market has matured, with BTC volatility trending lower throughout the ongoing bull market, exhibiting Wall Street-like dynamics.
