Bitwise CIO: Bitcoin risk is significantly reduced, and now is the best time to buy in history

Original title: "The Great Derisking of Bitcoin"

Author:Matt Hougan , Chief Investment Officer, Bitwise

Compiled by: TechFlow

I first heard of Bitcoin in February 2011.

At that time, I worked at ETF.com, managing a team of young financial analysts who run the world's first ETF data and analytics service. We hold meetings every week to discuss market trends. In February 2011, Bitcoin broke through $1 for the first time, and one of my analysts announced this historic "dollar threshold". He then led everyone to a wonderful conversation about what Bitcoin is, how it works, and what it will become in the future.

If I invested $1,000 in Bitcoin after that meeting, it would be worth $88 million today. Instead, I left the office for coffee.

I share this story because everyone – everyone – feels that way. We all hope to buy bitcoin early.

But what we forget in these stories is that Bitcoin was facing huge risks at the time.

For example, on the day I held my $1 meeting, the world's largest cryptocurrency exchange was New Liberty Financial. Here are their terms of service.

In hindsight, it's easy for me to say that I should buy $1,000 in Bitcoin. But at the time, that meant sending $1,000 to a random PayPal address. Adding to custody, regulation, technology and government risks… Putting $1,000 into Bitcoin in 2011 was a huge gamble.

I'm sharing this story now for two reasons:

1. Get rid of the dilemma of losing Bitcoin for the first time;

2. Make you believe that the situation is different now.

In fact, I believe today – now – is the best time in history to buy Bitcoin at risk-adjusted prices.

We just eliminated the last survival risk

Every investment involves weighing risks and returns. A lottery ticket can turn $1 into $1 billion, but your expected return is zero.

In the early days, Bitcoin was a bit like a lottery: huge upside, but equally huge risks.

For example, when Bitcoin was first launched, no one could guarantee that it would succeed. Yes, the white paper is wonderful. Yes, logic shows that it will succeed. But before Bitcoin was launched, there were many efforts to build electronic cash, but all failed. (For example, check out this paper, How to Mine Coins: Cryptography of Anonymous Electronic Cash , written by the National Security Agency in 1997.)

But in addition to the technology itself, early Bitcoin also faced other major risks. Trading has been risky for years – early exchanges were either unreliable, low in transaction volume and poorly operated. Later, Coinbase was established at the end of 2011 and the rules of the game changed.

For a time, custody was also a risk—until well-known blue-chip companies such as Fidelity began to offer self-custody and institutional custody.

In the early days of Bitcoin, people also had reasonable concerns about money laundering, criminal activities, regulatory standards, mining concentration and other issues.

What makes Bitcoin incredible is that it slowly but steadily eliminates every survival risk over time.

The spot Bitcoin ETF launched in January 2024 provides regulatory clarity for US institutional investors looking to enter the field, helping us overcome another major hurdle.

But even after the launch of the ETF, there was an existential risk in my mind: What if the government banned it?

US Strategy Bitcoin Reserves

I always mention this when someone asks me at a meeting “What keeps you awake at night?”.

I have been thinking that the United States confiscated its private gold reserves in 1933 to enrich the treasury. Why would it allow Bitcoin to grow to a level that threatens the dollar?

To be honest, I don't know the answer.

When asked on the stage, I always remind people that the U.S. government bought gold from its citizens in 1933: If Bitcoin became large enough to challenge the dollar, I would say that your investment could be quite good returns.

This is the best thing I can do.

But earlier this month, President Trump signed an executive order to build a strategic U.S. Bitcoin reserve . In this way, the last survival risk faced by Bitcoin disappeared before my eyes.

Many people want to know why the United States does this. "If cryptocurrencies are long-term competitors of the dollar, why should we promote such direct competitors against our position as the world's reserve currency," Cliff Asness, founder of hedge fund AQR Capital, wrote immediately after Trump signed the executive order?

The answer is of course that Bitcoin is better than other options.

The best situation for the United States is that the US dollar remains the world's reserve currency. But if we get to the point where we are at risk, we'd better turn to Bitcoin, rather than the currencies of other competing countries.

This is what I didn't expect at first: The United States will certainly accept Bitcoin. This is the best backup solution on the market.

What does this mean for investors

It is rumored that at Bitwise, we are beginning to see the impact of this de-risk. Two years ago, Bitwise customers would normally allocate about 1% of their portfolio to Bitcoin and other crypto assets, a loss they could easily bear.

This makes sense considering that Bitcoin is banned or faces other failures is not zero. In today's environment, the situation is different. We see more often the distribution of 3%. As more and more people realize the massive de-riskization we see in Bitcoin, I think you'll see that number rise to 5% or even higher.

Risks and important information

No investment advice is provided; risk of loss: Before making any investment decision, each investor must conduct his own independent review and investigation, including the advantages and risks of the investment, and must make investment decisions based on such review and investigation (including determining whether the investment is suitable for investors).

Crypto assets are digital representations of value that can act as a medium of exchange, unit of account, or store of value, but they do not have fiat currency status. Crypto assets are sometimes exchanged for US dollars or other currencies worldwide, but they are currently not supported by any government or central bank. Their value is entirely determined by the market supply and demand forces and is more volatile than traditional currencies, stocks or bonds.

Crypto asset trading presents significant risks, including violent fluctuations in market prices or flash crashes, market manipulation, cybersecurity risks, and the risk of losing principal or full investment. In addition, regulatory controls or customer protection measures in crypto asset markets and exchanges are different from stocks, options, futures or foreign exchange investments.

Crypto asset trading requires understanding of the crypto asset market. When trying to make money through crypto asset trading, you have to compete with traders around the world. You should have the proper knowledge and experience before trading large amounts of crypto assets. Crypto asset trading can lead to huge and immediate financial losses. In some market conditions, you may find it difficult or impossible to quickly clear your position at a reasonable price.

The views expressed represent an assessment of the market environment at a specific time, are not predictions of future events or guarantees of future results, and are subject to further discussion, improvement and revision. The information in this article is not intended to provide accounting, legal or tax advice or investment advice and should not be relied on. You should consult your accounting, legal, tax, or other consultant regarding the matters discussed in this article.