Author: Matt Hougan, Chief Investment Officer, Bitwise
Compiled by: Chopper, Foresight News
Last week, I mentioned that many crypto applications today are already generating stable revenue and returning profits to token holders. I emphasized this trend because the vast majority of investors overlook it. Investor cognition often takes time to catch up with changes in reality.
This week, I want to discuss three other common investment misunderstandings, also due to cognitive lag; and talk about how you can profit if you can see the truth that others deliberately ignore.
Error One: Crypto Apps Target Not Just Crypto Assets, But All Asset Classes
The most serious mistake I observe among investors is a significant underestimation of the market size crypto applications aim to capture.
Take Uniswap as an example. This trading application was initially used to help users swap crypto assets: Bitcoin for Ethereum, Ethereum for Solana, and so on.
The total market capitalization of the crypto market is roughly around $2 trillion, with high trading activity, but the ceiling is only $2 trillion. Globally, there are five publicly listed companies, each with a market cap exceeding the entire crypto market. If you think Uniswap is just a trading tool serving the crypto market, it means you predict it can only capture a portion of the trading volume within $2 trillion in assets.
However, as assets like stocks, bonds, and real estate are gradually tokenized, Uniswap's target market will expand indefinitely. The global stock market is about $150 trillion, and the bond market is $350 trillion. Once Uniswap can enter these arenas, the market space will far exceed the crypto market itself, potentially by 100 times.
This logic also applies to other crypto applications, such as Hyperliquid, Aave, and Chainlink with its different positioning. People still see them as "crypto-native products," much like how everyone once thought Amazon was just an online bookstore.
There is already a consensus in the industry that tokenization will eventually permeate all asset classes. But investors have not yet applied this logic to valuing the platforms that facilitate the trading of these assets.
Error Two: Underestimating the Competitiveness of Crypto-Native Projects vs. Traditional Financial Institutions
Since I entered the crypto industry, a prevailing view has been that traditional financial giants will eventually enter and easily crush crypto startups.
The most typical example is PayPal launching its stablecoin in 2023. PayPal is a globally recognized brand and a top payment company. Many believed that while relatively unknown entities like Circle and Tether dominated the stablecoin market, PayPal's entry with its traditional financial trust would inevitably attract capital.
However, that's not what happened. To this day, Tether and Circle together hold about 88% of the stablecoin market share, while PayPal's stablecoin has only about 1%.
Similarly, when Fidelity launched its crypto custody business in 2019, many predicted it would monopolize the field. Fidelity is one of the world's most trusted financial institutions. Its crypto custody business has developed decently, but the largest crypto custodian in the U.S. remains the crypto-native company Coinbase.
There are many similar cases. The Chicago Mercantile Exchange was once favored to dominate crypto derivatives, but its trading volume pales in comparison to offshore perpetual contract markets; Bakkt, built by the Intercontinental Exchange, was seen as a mainstream entry point for crypto, but ultimately underperformed expectations.
Why do crypto-native projects keep winning? They iterate faster and focus all resources on the crypto track; most importantly, they have already accumulated user and community trust. Simply put, within the crypto world, more people know and trust Tether than PayPal.
Of course, there are counterexamples, such as BlackRock having the largest Bitcoin ETF (I have firsthand experience with this). The general pattern is that traditional financial platforms excel in traditional financial products, while crypto-native applications show strong user stickiness in crypto-native scenarios. I believe this trend will continue.
The corresponding investment opportunity is to not blindly follow the market's optimistic consensus the next time a traditional financial giant loudly announces its entry into a crypto-native arena. As the industry enters its next development cycle, more confidence should be placed in mature crypto-native leaders.
Error Three: Severely Underestimating Future On-Chain Transaction Volume; Actual Trading Volume Could Expand 10–100x
The profit models of most blockchains rely on transaction fees. When investors evaluate the value of a public blockchain, they habitually reference present-day data: current stock trading volume, current payment transaction counts.
This valuation approach has a huge flaw.
Take stock trading as an example: Currently, U.S. stock trading hours are Monday to Friday, 9:30 AM–4:00 PM EST, only 33 hours per week. In the era of asset tokenization, stocks could trade 24/7/365, reaching 168 trading hours per week—a 5x increase in duration. I'm not saying the trading volume will necessarily increase 5x, but liquidity expansion is almost certain.
This doesn't even account for the changes brought by artificial intelligence. With round-the-clock trading combined with technological iteration, people will likely use AI agents to monitor portfolios and execute trades automatically. Will AI trade 2x, 10x, or 100x more frequently than humans?
Combining the two variables of 24/7 trading and intelligent agents, a 10x increase in stock transaction counts is entirely reasonable, with potential for 50x or even 100x. This means that the blockchains and applications facilitating these trades will see significantly increased revenue. Although an increase in trading volume might lead to a decrease in fees per transaction, a surge of this magnitude in transaction volume is enough to offset the impact of lower fee rates. The same logic applies to the payment sector; the scale of payments driven by intelligent agents could far exceed current levels in the future.
Summary
The three types of errors mentioned above are not inherently simple mistakes. Estimating market size based on existing scale, trusting well-known big brands, and linearly projecting the future based on current data are natural ways of thinking for ordinary people. However, the pace of change in the crypto industry has far outpaced the update speed of this traditional mindset.
The gap between the speed of industry evolution and the speed at which public cognition catches up is precisely where enormous opportunities lie.
