The cryptocurrency market has truly matured since its inception a decade ago, evolving from a niche community to one with increasing adoption on both Wall Street and Main Street, marked by exchange-traded funds (ETFs) and even sovereign adoption.
However, despite this growth and sophistication, most crypto market participants around the world continue to cling to one metric: market capitalization. It remains the primary way people evaluate and rank cryptocurrencies by multiplying the total supply by the current price per coin, providing a snapshot of the value of each asset on the market.
Institutions also did the same for years, viewing the entire cryptocurrency market primarily through the lens of bitcoin. However, they have since moved on to 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 during the Token2049 conference in Singapore last week.
“This understanding is encouraging a shift from a size-based approach to a more nuanced asset selection strategy, similar to stocks,” he added.
A stock picking strategy is an investment approach in which funds select individual stocks with high growth potential 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 cryptocurrency market, choosing to invest in coins based on their fundamentals.
Beyond bitcoin
Horsley’s response came after he was asked if Bitwise, as an asset manager, was facing 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 understand 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 by 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 US Securities and Exchange Commission (SEC) to launch a spot exchange-traded fund focused on Avalanche’s AVAX token.
Strategy change
The equity-like investment strategy aligns well with the current macroeconomic environment, which differs significantly from 2020.
Back then, interest rates were near zero throughout 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 skyrocketed in value.
Today, however, U.S. interest rates hover around 4%, bond yields roughly match that level, and inflation remains stubbornly high. In this climate, only crypto assets with strong fundamentals and proven quality are likely to thrive, as will analysts who pick 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.
According to them, the current era of financial repression, inflation and fiscal dominance justifies intelligent structuring and dynamic asset allocation; In short, a selection of actions.
Is Bitcoin still a store of value?
One of the most heated debates since institutions and corporate treasuries began hoarding 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, leading one observer to note that “bitcoin is at an all-time high, but the blocks are completely empty.”
This situation is especially worrying for miners, who face a periodic halving of block rewards every four years. They may prefer Bitcoin to evolve as a payments network to sustain transaction fees, rather than solely a store of value.
Horsley believes both roles are possible for bitcoin, but probably 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 consider it 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 must first be recognized and adopted as a legitimate store of value.”
“Why would anyone want to pay with it if they haven’t yet agreed on its value?” 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 Lightning and David Marcus’ 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 between 16 and 18 months after each halving.
Since the last halving occurred in April 2024, this timeline suggests the possibility of a bear market emerging in the coming months. Previous bear markets that followed halving cycles saw bitcoin prices fall 80% or more from their bull market highs.
The 2022 bear market was marked by the collapse of major players such as the Terra stablecoin project, the Three Arrows Capital hedge fund, and the FTX exchange, each of which caused massive wealth destruction across the crypto ecosystem.
Similarly, the 2018 bear market saw the bursting of the ICO bubble and regulatory crackdowns 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 depends largely on whether such a counterparty blowout can occur again. Potential candidates for such a shock are now fewer, as the ecosystem has matured and diversified,” he pointed out.
Horsley added that if the bearish moment comes, downward volatility could be much milder than in the past, when prices collapsed more than 80% from their highs.
The cryptocurrency market has matured, with BTC volatility trending lower during the ongoing bull market, showing similar dynamics to Wall Street.
