Original author: Matt Hougan, Chief Investment Officer of Bitwise
Original translation: Luffy, Foresight News
Last July, I wrote an investment memo titled Short-term pain, long-term gain . At the time, the cryptocurrency market was in a bad state. Bitcoin rose to over $73,000 in March 2024, but by July it had fallen to about $55,000, a 24% correction. Ethereum fell 27% during the same period.
I wrote at the time that the cryptocurrency market was in a weird state. All short-term news was bad, and all long-term news was good.
On the positive side, I see long-term catalysts like ETF inflows, the Bitcoin halving, and a shift in attitude in Washington. On the negative side, I see short-term challenges like the Mt. Gox payout and government sales of Bitcoin.
I have concluded that this contradiction between short-term negatives and long-term positives creates an excellent potential opportunity for long-term investors.
That call proved to be prescient: shortly after I wrote that memo, Bitcoin hit bottom and then soared to $100,000.
The current market situation is very similar to that time, with short-term negative factors competing with long-term positive factors. For investors with a long enough investment horizon, I think this is also a rare opportunity.
Bad News: The End of the Memecoin Craze
First, lets get the bad news out of the way.
As I write this memo on the morning of February 25, the cryptocurrency markets are in a major selloff. Bitcoin is down 8%, with the price dropping below $90,000, Ethereum is down 10%, and Solana is down 12%.
The immediate cause was the aftermath of last weekend’s hack of Singapore-based cryptocurrency exchange Bybit, which used a classic phishing scam to steal $1.5 billion worth of Ethereum from the exchange. Although Bybit was able to use its own funds to cover all of its customers’ losses, the hack hit the crypto market hard, triggering a cascade of forced liquidations.
However, the Bybit hack is not an isolated incident. In the past few weeks, there have been a number of Memecoin-related scams, including:
Libra incident: Argentine President and cryptocurrency enthusiast Javier Millais once supported a Memecoin called Libra, which turned out to be a multi-billion dollar scam.
Melania-related token incident: Memecoin, which is associated with US First Lady Melania Trump, also had problems, causing investors to lose billions of dollars.
Trump-related token incident: To some extent, a similar situation occurred with Memecoin related to President Trump.
News reports suggest that Bybit’s hackers are linked to the North Korean government and that they attempted to launder stolen Ethereum through the Memecoin platform. The Bybit scam also has Memecoin elements and is likely to face regulatory investigations in the future.
Taken together, these events may well spell the end of the recent Memecoin craze.
While this may be comforting to “serious” crypto investors, Memecoin has been the hottest sector in the crypto space outside of Bitcoin over the past year. Removing Memecoin activity from the crypto ecosystem will have an impact, and that’s exactly what you’re seeing today.
The good news: Favorable regulations, institutional investors, stablecoin boom, and more
The impact of short-term news will eventually end. With a few exceptions, Memecoin will no longer matter, that’s just how it is.
Fortunately, the long-term prospects of cryptocurrency do not depend on Memecoin.
On the other hand, there are a number of long-term trends that I believe will continue for several years, including:
Favorable Crypto Regulation: We are in the early stages of a major shift in attitudes toward cryptocurrencies in Washington, D.C. In the past few weeks alone, we have seen the SEC drop high-profile lawsuits against companies like Coinbase, and lawmakers have reached consensus around pro-cryptocurrency bills related to stablecoins and market structure. These developments will enable cryptocurrencies to enter the mainstream and reshape the financial landscape in the coming years.
Institutional Adoption: Institutions, governments, and corporations are buying Bitcoin in droves. So far this year, investors have poured $4.3 billion into Bitcoin ETFs. We expect this number to reach $50 billion by the end of the year, with hundreds of billions more to come in the coming years.
Stablecoins: Stablecoin assets under management have reached an all-time high of $220 billion, up nearly 50% over the past year. But we think this is just the beginning. As stablecoin legislation advances in Congress, the stablecoin market could surge to $1 trillion by 2027.
The rebirth of decentralized finance and the rise of tokenization: Decentralized financial applications are gaining renewed attention, with growing activity in areas such as lending, trading, prediction markets, and derivatives. At the same time, the scale of assets under management for tokenized real-world assets is setting new historical highs every day.
Where will the market go?
I find this analytical framework helpful because it makes investment decisions simple and clear in a way. On one hand, we have the downside of Memecoin’s fall and Bybit’s hack, and on the other hand, we have favorable regulation for cryptocurrencies, mass institutional adoption, the trillion-dollar stablecoin boom, the rebirth of decentralized finance, and the rise of tokenization.
That’s what I call a no-brainer decision.
I would caution, however, that this market pullback is more severe than the one I mentioned in July 2024. That pullback was short-lived and driven by one-off asset sales that were meant to be over as soon as they began.
The Memecoin craze is huge, and the negative impact it brings may also be greater. It may take days, weeks or even months to digest these effects.
But our overall thesis is the same: short-term news is bad, long-term news is good. When this happens, I prefer long-term investment opportunities.
