Author: Back of the Envelope

Translation: Deep Tide TechFlow

Deep Tide's Introduction: With AI stocks rising every day, why still invest in cryptocurrencies? This is the question I've heard most during recent conversations with friends. Even the most steadfast believers in cryptocurrency are quietly reducing their holdings, waiting for BTC to drop to $50,000 before making any decisions. This article dissects three common sentiments of waiting and the circumstances under which they might change—providing a rare honest sample for investors and practitioners to understand the current market sentiment.

I spend a lot of time talking with friends about what they are investing in. Investing is a way to express beliefs about the future; thus, conversations about investment are essentially discussions about where we think the world is heading. What could be more interesting than predicting the future?

One topic that has been frequently mentioned recently is crypto assets. More specifically, whether people are investing money in digital assets and what the future of most tokens will look like. The most common opinion I've heard is:

"There are only 5-10 tokens worth investing in."

"I hold some BTC and HYPE, but I've sold off most of my positions in other mainstream coins. The ones I still have, I have the mindset of 'buy and forget.'

"I'm just waiting for BTC to drop to $50,000 before I buy."

One concern repeatedly mentioned is: If you can invest in assets across the entire universe, why choose to buy digital assets instead of AI-related stocks (which may be experiencing rapidly compounding growth)? What belief does holding crypto assets express that is stronger than "I expect demand for future reasoning to multiply tenfold"?

The result is that many of my friends' personal investment portfolios—including the most fervent crypto enthusiasts—are moving away from digital assets. People are satisfied with their current positions, waiting for lower prices, and/or feel that the opportunity cost of investing elsewhere is too high.

I think it's worth dissecting the beliefs underlying these viewpoints. If these beliefs hold true for individual investors—whose investable universe is unconstrained, and every asset must earn its portfolio share based on absolute merit—then it may also hold true for institutions and funds with broad investment mandates. So, the underlying question of this sentiment is: Where will the marginal funds coming into crypto assets come from (and when can we expect this to happen)?

Below is how and why these beliefs may change in the coming year. (Of course, these three points are interconnected).

Belief 1: Satisfaction with Existing Positions

My understanding is that many people still believe in a future where digital assets (including digital value storage) will be more important than today, but it's hard to find recent catalysts. Market participants don't want to miss out on a potential crypto price surge, so they maintain some positions (even if they have little confidence in a quick price recovery).

In short: The belief in long-term growth for this category still exists, but it's not where they're willing to spend marginal time or funds. What could change this is either an observable catalyst reigniting excitement or a rotation from other parts of their portfolio.

Belief 2: Waiting for Lower Prices

One way to look at this is regarding short-term timing—people believe there will be more sell-offs and thus try to find better entry points. But timing is difficult. If you believe BTC will rise to $200,000, then entering at $60,000 versus $50,000 won't make a dramatic difference. So more accurately, I think the "waiting for lower prices" logic reflects a belief in the scalability and upside potential of the crypto asset market.

Many factors could change this. Firstly, there is market timing. Many believe in a four-year cycle, which may place the bottom for BTC sometime in late Q3 or early Q4. If we pass that point without a major crash, we could see more people starting to reallocate funds to crypto (i.e., to avoid missing out on any rebound). Similarly, if prices crash, there might be a rebound because people feel they've hit the bottom. Secondly, perhaps some event will alter estimations of upside potential. For instance, if we see sovereign countries start allocating funds to digital assets, that would be exhilarating! Maybe changes in monetary policy would reignite interest in digital assets. Etc. Finally, reflexivity could play a big role. Even a slight price increase could lead people to capitulate (buy back) to avoid the risk of being left out.

Belief 3: Opportunity Cost of Allocation

The question isn't just "Will this asset rise?" but "Compared to what I'm expecting in other concentrated assets, will this rise more?" When everything betting on AI—memory stocks, photonics, new cloud, chips... you name it—seems to be on a trajectory of "only up," it's even harder to justify putting marginal funds into anything that doesn't show potential for hyper growth (assuming growth is what you are optimizing for). The challenge is that if the AI productivity train slows down, the likelihood of other parts of the market selling off is not zero. But then again, maybe that marks a bottom (and the start of a reallocation of funds).

Conclusion

The ideas above reflect sentiments I've repeatedly heard in private discussions with respected smart individuals, so this article is intended to be a snapshot of current market thinking.

Overall, I guess we are closer to the market bottom for digital assets than to the market top. But most importantly, I just enjoy hypothesizing about the psychology of market participants, thinking about what beliefs might be expressed through asset prices.

Thanks to Jay Drain Jr, Jesse Walden, Hootie Rashidifard, Julian Fernandez, and many others for their conversations and feedback, which inspired this article.

All information contained in this article is for general informational purposes only. It does not constitute investment advice or a recommendation or offer to buy or sell any investment, nor should it be used to evaluate the merits of any investment decision. It should not be relied upon for accounting, legal, or tax advice or investment recommendations. You should consult your legal, business, tax, and other relevant advisors regarding any investment. The opinions or positions provided here are not intended to be viewed as legal advice or to establish an attorney-client relationship.