Author: Matt Hougan, Chief Investment Officer of Bitwise

Translated by: Golden Finance

As a long-term cryptocurrency investor, it can sometimes be frustrating.

When I invest in cryptocurrencies, I am essentially betting on the future of money and finance for years to come. I firmly believe that robust digital currencies (like Bitcoin) will provide a crucial escape from the ongoing devaluation of the dollar and other fiat currencies; stablecoins will revolutionize payment methods; and tokenization will forever change the way we trade stocks and bonds.

I make these investments with the expectation that they will yield returns in a few years or even decades. So far, progress has been quite smooth. Bitcoin has risen over 350 times in the past decade and has been the best-performing asset globally in every cycle.

But not all cryptocurrency investors are like this. Some engage in high-leverage investments—up to 100 times—hoping to get rich quickly. These investments sometimes succeed and sometimes fail.

Most of the time, I can comfortably ignore the "casino" aspect of cryptocurrencies because it is just noise; it does not fundamentally alter the trajectory of cryptocurrency development. But occasionally, it becomes too loud to ignore. Last weekend was an example.

At 4:57 PM Eastern Time last Friday, President Trump tweeted on "Truth Social," threatening to impose a 100% tariff on all imports from China. This move was a response to China's threat to cut off rare earth metal exports, which are crucial to the U.S. tech manufacturing industry.

The tweet sounded like a significant escalation in the global trade war. With the stock market closed, traders were eager to find a way to respond, so they turned to a place that never closes: the cryptocurrency market.

Bitcoin's price plummeted. As the price fell, leveraged traders faced automatic liquidations, leading to further price declines and a downward spiral. Nearly $20 billion in leveraged positions were liquidated, marking the largest liquidation in cryptocurrency history. Bitcoin's trading price dropped by as much as 15%. Altcoins fared worse, with Solana dropping by 40% at one point.

But then, the market quickly reversed, falling fast and rising just as quickly. The Trump administration eased the trade war, and cryptocurrency prices rebounded. By Monday morning, Bitcoin's trading price had risen back to $115,000, nearly matching the level before Trump's tweet. It was as if the flash crash had almost never happened.

Since then, I have been pondering the question: "Is the 1011 crash important?"

This time, my answer is "not important." The reason cryptocurrencies rebounded so quickly is that the fundamentals of their prospects—such as their underlying technology, security, or regulatory environment—did not change. But "not important" is not necessarily the definitive answer. In some cases, actions like last Friday's will certainly have an impact on the long-term trajectory of cryptocurrencies.

In this week's memo, I want to share a checklist of considerations I use to determine whether market turbulence like last Friday's is a fleeting moment or a significant event.

Question 1: Did any major market participants collapse?

Whenever there is a significant market pullback, the first thing Bitwise does is check in with partners and service providers (from custodians to liquidity providers). Even if a market pullback is driven by technical factors, if it fundamentally harms large institutions like hedge funds or well-known market makers, it can cause real damage. In this case, the damage seems limited to individual investors. Some companies suffered losses, but they all appear to be able to survive. This is also one reason why cryptocurrencies rebounded so quickly.

Question 2: How did blockchain technology perform?

The second question I often ask is how cryptocurrencies—the blockchain itself—performed. Market volatility is a stress test for the cryptocurrency market. Can they handle such high trading volumes? Are decentralized exchanges functioning well? Were any websites shut down?

Cryptocurrencies performed reasonably well during this pullback, even if not perfectly. Many DeFi platforms performed flawlessly: platforms like Uniswap, Hyperliquid, and Aave showed no losses. However, a few centralized platforms like Binance encountered issues; in fact, it had to refund nearly $400 million to traders. Overall, the performance of cryptocurrencies was comparable to, or even better than, traditional markets under similar circumstances.

Question 3: What does my inbox look like?

The third question I ask is, what does my inbox look like? If I am bombarded with emails, calls, or texts from investors, I know the market is truly in panic and may take some time to calm down.

This time, however, I heard nothing. While I received many inquiries from the media and a lot of replies on crypto Twitter, professional investors largely ignored the news.

Next Steps

All of this suggests that the 1011 flash crash will not have any lasting impact. The long-term forces driving this market—improvements in regulation, increased allocation by institutional investors, and the growing recognition that cryptocurrencies are disrupting all traditional markets—remain intact. It also helps to take a step back: by 2025, Bitcoin is projected to rise by 21%, and the Bitwise 10 Large Cap Crypto Index is expected to rise by 22%.

The crypto market may appear slightly tense in the short term. Market makers and liquidity providers typically withdraw from the market in the days following significant volatility, and a lack of liquidity can lead to substantial price swings.

But I expect that over time, the market will gradually regain vitality and refocus on the fundamentals of cryptocurrencies. At that point, I believe the bull market will continue.

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