Bitwise Chief Investment Officer: Saying goodbye to 1% allocation, Bitcoin is experiencing its "IPO moment"

Original Title: The Days of 1% Bitcoin Allocations Are Over

Original author: Matt Hougan

Source of the original text:

Reprinted: Mars Finance

The sideways fluctuations of Bitcoin precisely indicate that its “IPO moment” has arrived. Why does this mean a higher proportion of asset allocation? The answer is as follows.

In Jordi Visser's latest article, a key issue is discussed: despite the constant stream of positive news—strong inflows into ETFs, significant regulatory progress, and ongoing institutional demand—Bitcoin's trading remains frustratingly stagnant.

Visser believes that Bitcoin is undergoing a “silent IPO,” transforming from a “whimsical concept” into a “mainstream success story.” He points out that typically, stocks undergoing this transformation often experience sideways consolidation for 6 to 18 months before entering an upward trend.

Take Facebook (now Meta) as an example. On May 12, 2012, Facebook went public at a price of $38 per share. For more than a year afterward, its stock price hovered between sideways and downward, failing to break through the IPO issuance price of $38 for a full 15 months. Google and other highly watched tech startups showed similar trends in their initial public offerings.

Visser stated that sideways fluctuations do not necessarily indicate issues with the underlying asset itself. This situation often arises because founders and early employees choose to “cash out”. Investors who boldly bet when the risk was extremely high in startups have now reaped hundredfold returns and naturally wish to secure their profits. The process of insiders selling and institutional investors taking over takes time—only when this transfer of equity (or assets) reaches a certain balance will the price of the underlying asset reopen the upward channel.

Visser points out that the current situation of Bitcoin is very similar to the aforementioned scenario. Those early believers who acquired Bitcoin when the price was $1, $10, $100, or even $1000 now hold wealth that can span generations. Today, Bitcoin has “entered the mainstream”—with ETFs trading on the New York Stock Exchange, large companies incorporating it into their reserve assets, and sovereign wealth funds entering the market—these early investors finally have the opportunity to realize their gains.

This is worth celebrating! Their patience has finally paid off. Five years ago, if someone had sold 1 billion dollars worth of Bitcoin, it would likely have thrown the entire market into chaos; but now, the market has a sufficiently diverse buyer base and ample trading volume to digest such large-scale transactions more smoothly.

It should be noted that the interpretation of on-chain data regarding “who is selling” is not uniform, so Visser's analysis is just one of the factors currently influencing market trends. However, this factor is crucial, and considering its implications for the future market undoubtedly holds significant value.

Here are the two core conclusions I extracted from this article.

Conclusion 1: Long-term outlook is extremely optimistic

Many cryptocurrency investors felt frustrated after reading Visser's article: “The early big shots are selling Bitcoin to institutions! Do they know something we don't?”

This interpretation is completely incorrect.

The early investors' sell-off does not mean the “lifespan of an asset has ended”; it merely signifies that the asset has entered a new phase.

Take Facebook as an example again. Indeed, its stock price hovered below the $38 level for a year after the IPO, but today its stock price has reached $637, an increase of 1576% compared to the issue price. If I could go back to 2012, I would be willing to buy all Facebook shares at the price of $38 per share.

Of course, if you had invested during Facebook's Series A funding round, the returns might have been higher—but the risks you would have had to take on were much greater than after the IPO.

The same is true for Bitcoin today. In the future, while the possibility of Bitcoin achieving a hundredfold return in a single year will decrease, once the “asset allocation phase” is over, it still has enormous upside potential. As Bitwise pointed out in their report “Bitcoin Long-Term Capital Market Assumptions,” we believe that Bitcoin will reach $1.3 million per coin by 2035, and I personally think this prediction is still conservative.

In addition, I would like to add one point: there is a key difference between the market after early big players sold their Bitcoin and the market after a company IPO. After a company completes its IPO, it still needs to sustain its stock price through continuous development—Facebook could not soar directly from $38 to $637 because it did not have sufficient revenue and profits at that time to support such an increase. It had to gradually achieve growth by expanding revenue, exploring new businesses, and focusing on mobile, among other strategies, and there are still risks during this process.

But Bitcoin is not like that. Once the early big players finish selling off, Bitcoin doesn’t need to “do anything”—the only condition required to grow from the current $2.5 trillion market cap to gold's $25 trillion market cap is to “gain widespread recognition.”

I'm not saying that this process will happen overnight, but it is likely to be faster than the rise cycle of Facebook's stock price.

From a long-term perspective, Bitcoin's sideways consolidation is actually a “blessing in disguise.” In my view, this is a good opportunity to accumulate positions before Bitcoin restarts its upward trend.

Conclusion II: The era of a 1% allocation to Bitcoin has come to an end.

As Visser mentioned in the article, companies that complete an IPO have risks that are much lower than those in the startup stage. Their equity distribution is more widespread, they are subject to stricter regulatory scrutiny, and they have more opportunities for business diversification. Investing in Facebook after its IPO is far less risky than investing in a startup founded by college dropouts operating out of a party house in Palo Alto (the core area of Silicon Valley).

The current situation of Bitcoin is similar. As Bitcoin holders shift from “early enthusiasts” to “institutional investors,” coupled with the continuous maturation of its technology, Bitcoin today no longer faces the “existential risks” it did a decade ago; it has become a mature asset class. This can be clearly seen from the volatility of Bitcoin—since the Bitcoin ETF began trading in January 2024, its volatility has significantly decreased.

Historical Volatility of Bitcoin

This change brings an important insight for investors: in the future, the returns on Bitcoin may slightly decline, but its volatility will significantly decrease. As an asset allocator, in the face of this change, my choice will not be to “sell”—after all, we predict that over the next decade, Bitcoin will be one of the best-performing major asset classes globally—instead, I will choose to “increase my holdings.”

In other words, a decrease in volatility means that “holding more of that asset carries a lower risk.”

Visser's article also corroborates a phenomenon we have long observed: over the past few months, Bitwise has held hundreds of meetings with financial advisors, institutions, and other professional investors, revealing a clear trend—the era of 1% Bitcoin allocations is over. More and more investors are beginning to believe that a 5% allocation should be the “starting point.”

Bitcoin is experiencing its own “IPO moment.” If history is any guide, we should embrace this new era by “increasing our holdings.”