Original author: Matt Hougan, Chief Investment Officer of Bitwise
Original translation: Luffy, Foresight News
There is an interesting dichotomy currently existing between institutional and retail investors in the cryptocurrency space.
On the one hand, institutional investors are very optimistic about the prospects of cryptocurrencies. Today, when investment professionals look at cryptocurrencies, they see that institutional money is pouring into the crypto market at an unprecedented scale through exchange-traded open-end index funds (ETFs), and Washington has transformed from one of the biggest threats to cryptocurrencies to one of the strongest supporters.
Things we could only dream of just a year ago, such as countries adopting Bitcoin as a strategic reserve, now seem somewhere between possible and imminent. And the biggest risks facing cryptocurrencies, such as government bans or legal threats against software developers, have become distant nightmares.
From a risk-adjusted perspective, it can be said that now is the best time in history to invest in cryptocurrencies.
However.
Retail investors are in despair right now. They seem to be living in a parallel reality. We at Bitwise have a proprietary cryptocurrency market sentiment score that measures crypto investor sentiment by analyzing on-chain data, fund flows, and derivatives, and it’s currently at one of the lowest levels ever.
Cryptoasset sentiment index. Data sources: Bloomberg, CoinMarketCap, Glassnode, NilssonHedge, Alternative.me and Bitwise Europe.
This is consistent with the vibe I’m feeling from Crypto Twitter and other sentiment indicators in the market.
Retail investors are frustrated because crypto assets other than Bitcoin (often referred to as altcoins) have underperformed. The heat map below from TradingView shows the year-to-date returns of all crypto assets. While there are a few bright spots, most notably Bitcoin, Solana, and XRP, its mostly red overall. So, overall, crypto assets are getting hammered.
Crypto asset year-to-date returns, source: TradingView. Data as of February 11, 2025
If we extend the analysis period to the past 12 months, the situation has not improved much. Bitcoin has risen 95% in the past year; Ethereum has risen only 2%. Retail investors are keen to hype altcoins, and the absence of an altcoin bull run has made them depressed.
So here comes the key question: Who is right?
Answer: The agency is right
My intuition tells me that the answer is institutional investors.
Indeed, it’s easy to be optimistic about Bitcoin right now. So far this year, ETFs have bought about 47,000 Bitcoins, and corporations have bought about 57,000 Bitcoins, while the Bitcoin network has only mined about 18,000 new Bitcoins. It’s not hard to imagine that this supply and demand dynamic will drive Bitcoin prices to new all-time highs over time.
I also agree that the situation in altcoins is more complicated. There are no major new applications that are driving huge interest in crypto as during the 2020-2021 bull run (DeFi bull run) or the 2017-2018 bull run (ICO bull run). The closest thing to a bull run in the altcoin space today is the Memecoin craze, but most investors understand what that is: a short-term gamble. Its hard to convince yourself that a new and better world can be built based on Fartcoin or Hawk Tuah token.
But in the long run, I think the altcoin landscape is more solid than at any time in history. Over the past four years, altcoins have largely been in a regulatory gray area, with the U.S. Securities and Exchange Commission (SEC) claiming that most altcoins are illegal securities offerings. This has hindered their real-world adoption, keeping big companies and talented developers away from the space.
Things are getting better. The United States has now made the development of stablecoins a national priority, which will support the growth of Ethereum and Solana. The world’s largest institutions are now starting to build in the crypto space, bringing DeFi applications to the masses.
If you look closely, you can see signs of this shift in things like stablecoin assets under management hitting all-time highs recently, or Ondo Finance’s recent tokenization of US stocks and ETFs. Under past administrations, projects like these would have been impossible to get off the ground.
My guess is that within a year or two, you’ll see a shift in the altcoin landscape; the impact will be palpable and devastating.
It’s difficult to point to a specific catalyst that could spark an altcoin rally in the coming months; but it’s even harder to imagine a market that doesn’t expand significantly in size over the next few years.
Retail sentiment in the cryptocurrency space is low right now, and in my opinion, that signals opportunity.
