Author:Will Clemente,Bitcoin On-chain Analyst
Compiled by: Jiahuan, ChainCatcher
Hope everyone had a good summer. It's been a while since I last wrote a long piece about Bitcoin. In this article, I want to consolidate my thoughts on this asset, as well as some ideas that have gradually taken shape in my mind recently, discussing how to view and allocate Bitcoin going forward.
Last year, I basically shifted my personal focus on markets to commodities. The reason was, it had become evident that the crypto market was facing a supply glut, which weighed heavily on the entire market.
Meanwhile, apart from niche areas like Hyperliquid, the industry lacked sufficient innovation, at least compared to the active performance of other markets. Consequently, there was also a lack of demand to digest the massive supply.
I originally thought there was a window for Bitcoin strength late last year: small-cap stocks were surging, and gold had just experienced a strong run. But Bitcoin basically only staged a failed breakout – just a few days before October 10th – which was very disappointing.
In January this year, due to market behavior resembling the previous bear market we experienced in 2022, I further reduced my remaining Bitcoin exposure.
Frankly, this has not been a pleasant year to focus on Bitcoin, or the crypto market at large. Judging solely by the percentage decline from highs, this cycle has been milder than the last one, but in many ways, this bear market might be even harder to endure than 2022.
At least in 2022, you could clearly point to reasons for the market decline: rising rates, the cleansing of leverage and fraud, and the FTX collapse. Then you could say: 'If these factors could change, and by late 2022 the scope for further deterioration was clearly smaller than for improvement, then Bitcoin was likely a good long-term buy.'
But today, there is no similar logic, with Digital Asset Treasuries (DATs) and quantum computing risk perhaps being the few exceptions – which will be discussed later and, in my view, are finally starting to show some signs of repair.
Bitcoin ETFs hold about $50 billion in assets. They set records for inflows at launch, only surpassed by memory ETFs earlier this year. Large financial institutions have also started launching related lending products.
Last year, driven by central bank reserve demand and the 'de-dollarization' narrative, gold performed exceptionally well; logically, that should have been Bitcoin's time to shine.
Now, almost any individual or institution wanting Bitcoin exposure has a channel to do so. It is precisely because of this that the contrast is particularly disappointing: Bitcoin ETFs have seen $5 billion in net outflows over the past year, while DRAM-related products attracted $10 billion in a month.
Network Health
When discussing Bitcoin's fundamentals, we are obviously not talking about traditional financial metrics, but observing the underlying state of the network itself. I won't go through every metric just for the sake of listing data, but there are two points I believe are truly important.
In an increasingly centralized world – state-led economies, state-influenced markets, combined with the possibly most powerful technological centralizing force we've ever seen from big tech – I truly believe 'decentralization' itself has value.
For those less familiar with Bitcoin's underlying mechanics, the network has both the widely known miners and nodes. Anyone can run a node. Nodes enforce rules and validate the network, while miners secure it through computational work backed by massive energy. Nodes are spread globally, and there are likely many more not easily tracked. The list below alone covers nearly 200 countries.
We can look at mining pools – though pools don't control individual miners within them – but it's difficult to track each independent miner like nodes. However, we can observe the total energy input supporting the network through hash rate.
From any perspective, Bitcoin's total network hash rate is declining. Post-2022, miner profit margins were squeezed due to increased competition and rising energy prices. More importantly, many miners began pivoting to Artificial Intelligence/High-Performance Computing (AI/HPC). So far, for public miners who have transitioned, this has proven a prudent business decision.
Bitcoin's performance lagged behind AI-related assets, while demand for computing power grew strongly, further reinforcing this trend. So, this can be interpreted both pessimistically and optimistically.
The pessimistic side: in terms of energy input securing the network, Bitcoin is technically less secure; meanwhile, as a digital commodity, the energy input value – i.e., the cost of production – supporting each unit of Bitcoin has also decreased.
It's worth noting, however, that the network itself is not in crisis due to its difficulty adjustment mechanism. The network automatically adjusts mining difficulty and reward conditions every two weeks based on hash rate levels. This mechanism incentivizes new miners to join and secure the network when competition decreases.
The optimistic side: despite almost every public miner we know pivoting to AI/HPC, the total hash rate has only retreated to mid-last-year levels. This suggests there may be more entities actually mining Bitcoin with access to cheap energy than some originally thought. Combined with node distribution data, the Bitcoin network remains decentralized and healthy.
Valuation Methods and Current Metrics
Bitcoin obviously does not generate cash flows, but we can still compare its current valuation to historical market performance through several unique methods.
From a technical perspective, Bitcoin is currently consolidating near the 2021 all-time highs, slightly below the 200-week Exponential Moving Average (EMA). The weekly RSI is showing a bullish divergence emerging from oversold territory, with the last time reaching such oversold levels being at the depths of the previous bear market.
Historically, the 200-week moving average has been a decent basic threshold to start considering gradually accumulating Bitcoin spot positions.
Among on-chain data-based valuation methods, one of the most effective metrics is the Market Value to Realized Value ratio (MVRV). It compares Bitcoin's current marginal trading price with the aggregated cost basis of the entire network; the latter is calculated based on the price when tokens last moved to a new wallet cluster.
When this ratio is high, it means the current marginal trading price is far above the network's average cost. There is a large amount of unrealized paper profit (PNL) in the market, giving many holders strong motivation to take profits.
When the ratio is below 0, it means that, on aggregate, market participants are sitting on paper losses. Historically, this has often marked a phase more suitable for accumulating positions.
You'll notice that in 2024–2025, this metric never truly reached the frenzied, blow-off top levels of the past. This reflects the gradual maturation of this asset class in recent years and the consequent contraction in volatility.
Considering that each bull market's metric peaks have been lower, and each bear market's deepest lows have been slightly higher, a reasonable conclusion might be that the market doesn't necessarily have to enter negative territory to bottom this time.
Buying the exact bottom is extremely difficult. The most important takeaway here is that Bitcoin is currently already in the lower historical valuation range.
Long-term holders also seem to be accumulating quite actively. After a period of distribution in mid-to-late 2025, they have resumed adding to their holdings, indicating they see value at current prices.
Trading volume has almost completely dried up. @n3ocortex made a great chart showing Bitcoin spot turnover relative to its market cap has fallen to historical lows. ETF and DAT trading volumes show a similar state.
Near-term implied volatility in the options market has fallen to multi-year lows, meaning the market sees Bitcoin as 'dead money' with no near-term performance. Meanwhile, options skew data shows that over the past year, the only thing the market has been clearly interested in is buying more downside protection.
Finally, looking at the derivatives market: Bitcoin futures basis – the spread between futures contract prices and the Bitcoin spot price – has been declining for years, even struggling to reach levels comparable to US Treasury bill yields.
This indicates two things:
- Increasingly more funds are arbitraging Bitcoin futures basis;
- The market is not pricing in much of a premium for forward Bitcoin futures contracts relative to spot prices.
Putting these factors together, the objective picture is: the market is completely dead. Neither futures nor options traders are expressing bullish views, and they are pricing in continued flattening of Bitcoin volatility.
Meanwhile, multiple metrics show Bitcoin is entering deep value territory; long-term holders are accumulating again. This seems to contradict both trader sentiment and the trend of $5 billion in net outflows from Bitcoin ETFs over the past 52 weeks.
DATs and the Specter of 'Quantum Computing'
One of the biggest pressures on the market during the 2023–2025 bull run was Digital Asset Treasuries (DATs). At least in theory, the design logic of these vehicles was: to accumulate more Bitcoin by diluting common shareholders in a way that accretes per-share value, ultimately enhancing shareholder value.
However, after successes like Strategy and Japan's Metaplanet, competition intensified significantly as numerous similar companies emerged vying for return opportunities. Inflows into these vehicles were spread too thin, eventually leading to their narrowing premiums to Net Asset Value (NAV).
In recent months, we've seen multiple related news items: some treasuries have slowed their Bitcoin accumulation pace, some have started directly selling Bitcoin, and a few have even changed strategies altogether. I view these as positive signs of market self-repair.
Recently, even when Saylor announced selling Bitcoin, the price actually rose. According to information from Strategy's latest earnings call, the company is consolidating its capital structure and prioritizing STRC. This contrasts sharply with the previous pattern where 'announcing Bitcoin buys led to price declines.'
Looking ahead, I don't think DATs will exert the same degree of pressure on the market as they did 6–9 months ago, especially given Bitcoin is already down more than 50% from its highs.
I do believe quantum computing is a real concern, especially on a time horizon of five-plus years. In recent months, while assisting with investment analysis at STIX, I've interacted with a few quantum computing startups beginning to mature and spoken with people in the industry, giving me some understanding. Of course, I'm far from an expert.
My view is that this threat should be taken seriously. However, with Bitcoin at $60,000, down 50% from highs, and underperforming other assets, I think the current price has already priced in a significant portion of this risk.
From here on out, even in the most extreme doomsday scenarios, the direction of these widely discussed, publicly known concerns will likely only improve. The worse Bitcoin performs due to market concerns about quantum risk, the more incentive large holders, and institutions making money from Bitcoin trading, custody, and lending, have to push a cohort of developers to find and propose solutions.
This is similar to the ETF approval in the last cycle: the market trades ahead of the probability of the problem being solved. Therefore, once the risk is completely resolved, you cannot buy at extremely low prices anymore.
Potential Bullish Logic
Even if you think Bitcoin is probably now at a level suitable for long-term allocation, for medium-to-short-term capital allocators, opportunity cost remains an extremely important consideration: with a hot economy and truly worthwhile innovation opportunities for speculation and investment in the market, allocating capital to Bitcoin seems to miss out on a lot by comparison.
The core question that has persisted for months is: Since gold rose and high-beta stocks performed strongly this year without Bitcoin following, what would need to happen for Bitcoin to perform from now on?
As shown in previous charts, on-chain data indicates long-term holders are buying with considerable force. Meanwhile, DATs have seen capitulatory selling, and ETFs have brought significant net selling pressure.
Previous Bitcoin bear markets ended due to exhaustion of selling pressure, not necessarily requiring a catalyst that sparked massive new demand. At this point, if you were ever worried about DATs, quantum computing risks, or Bitcoin's underperformance, how many haven't sold and can continue selling at a pace exceeding the last 6–9 months?
Clearly, Bitcoin could still experience a sharp drop due to a sudden spike in asset correlation if macroeconomic or geopolitical turmoil occurs. But we are discussing a judgment on a higher time frame over the coming months.
I fully understand there is no clear catalyst currently. The 'Clarity' Act might be one, but I don't think it will significantly impact Bitcoin itself. However, market bottoms often look like this.
What you weigh is the probability of things getting worse relative to the expectations already priced into the current price. It's the opposite of judgment in a bull market: in a bull market, people assess the probability of reality being better than expected.I'm not ruling out one last leg down sometime this year, but at this point, I think the market has priced in many of these risks over the past year.
A potential catalyst for Bitcoin could simply be stable, requirement-driven buying by large institutions. The initial Asset Under Management (AUM) growth of ETFs at launch was staggering, but we are long past the initial excitement phase. Since last October, total ETF AUM has been slowly declining.
One possible catalyst could be large asset management firms deciding to include a small, single-digit percentage Bitcoin allocation across their various investment portfolios. This would bring price-insensitive inflows to Bitcoin.
This might sound like clutching at straws for comfort, but Bitcoin's lack of clear correlation with multiple asset classes over the past year could indeed provide a reasonable basis for large management institutions, which often seek to diversify asset correlations and risk exposures, to allocate a small amount of Bitcoin.
Conclusion: How to Think About Allocation Going Forward
In short: I think Bitcoin is 'cheap,' though it could still take another leg down sometime this year. The network's fundamentals are broadly healthy. At this point, most risks have been priced in; those who would sell because of these risks have likely already sold. It's almost impossible to buy the exact bottom.In my view, there are a few ways to allocate from here. Of course, this is not investment advice.
The simplest strategy is to consider gradually buying Bitcoin spot via dollar-cost averaging over the next few months. You could also wait for a final leg down or for the market to regain vitality and upward momentum before acting.
Another strategy is to start allocating now. Since implied volatility is very cheap, you can simultaneously use the options market to hedge against any final leg down that might shake you out of your position.
I haven't really pulled the trigger myself yet, but will likely start acting in some capacity soon.
I hope this article has provided some valuable thoughts and sparked discussion on how others are viewing these issues. Maybe the 'four-year cycle' proves we live in a simulation. Either way, the coming months look interesting for this orange coin.
