Author: Will Clemente, Bitcoin Analyst/STIX Investment and Strategy Member/Co-founder of Reflexivity Research
Translation: Jiahua, ChainCatcher
I hope everyone has had a pleasant summer. It has been a while since I wrote a long article about Bitcoin. In this article, I want to concentrate my thoughts on this asset and share some ideas that have gradually taken shape in my mind recently, discussing how to view and allocate Bitcoin in the future.
Last year, I basically shifted my focus from the market toward commodities. The reason was that it had become quite clear that the crypto market was facing an oversupply issue, which made the whole market feel very heavy.
Meanwhile, except for a few localized areas like Hyperliquid, the industry lacked sufficient innovation, at least compared to the active performances in other markets. Therefore, there were also problems of inadequate demand and an inability to digest the large supply.
I initially thought there would be a window at the end of last year for Bitcoin to perform strongly: at that time, small-cap stocks surged, and gold had just experienced a strong round of trading. However, Bitcoin essentially only made a failed breakout right before October 10, which greatly disappointed me.
In January of this year, as the market performance was quite similar to what we experienced in the previous bear market of 2022, I further reduced my remaining Bitcoin exposure.
Honestly, this year has not been a pleasant year to focus on Bitcoin or the entire crypto market. Looking at the percentage drop from Bitcoin's peak, this round has been gentler overall than the last, but from many perspectives, this bear market could be even tougher than in 2022.
At least in 2022, you could point out the reasons for the market decline: rising interest rates, deleveraging, and the collapse of FTX. Then you could say, “If these factors could change, and by the end of 2022 the room for further worsening was clearly smaller than for improvement, then Bitcoin is likely a good long-term buying point.”
But there is no similar logic today; the Digital Asset Treasury company (DAT) and quantum computing risks may be the few exceptions, which I will discuss later, and in my view, both issues are finally showing some signs of repair.
The Bitcoin ETF holds about 50 billion dollars in assets. They set records for fund inflows when they first launched, only to be surpassed by memory ETFs earlier this year. Large financial institutions have also begun to launch related lending products.
Last year, driven by central bank reserve demand and the narrative of “de-dollarization,” gold performed exceptionally well; ideally, that should have been a moment for Bitcoin to shine.
Today, almost anyone looking to gain exposure to Bitcoin has corresponding channels. Because of this, last year Bitcoin ETFs saw a net outflow of 5 billion dollars, while DRAM-related products attracted 10 billion dollars in just one month, a contrast that is particularly disappointing.
Network Health Status
When discussing the fundamentals of Bitcoin, we are clearly not discussing traditional financial metrics, but observing the underlying state of the network itself. I won't go through all the metrics just to list the data, but there are two points that I believe are indeed very important.
In an increasingly centralized world, with state-led economies and state-influenced markets, coupled with the powerful technological centralization force brought by large tech companies, I genuinely believe that “decentralization” itself has value.
For those who are not very familiar with the underlying mechanisms of Bitcoin, there are both miners you’ve heard of and nodes in the network. Anyone can run a node. Nodes are responsible for executing rules and verifying the network, while miners provide security for the network through energy-intensive computational work. Nodes are spread around the globe and likely many more nodes are not easily traceable. Just the list below covers nearly 200 countries.
We can observe mining pools—though mining pools do not control individual miners within them—yet it is hard to track each independent miner like you can with nodes. However, we can observe the overall energy investment that supports the entire network through computational power.
No matter how you look at it, the overall Bitcoin network hash rate is declining. After 2022, due to increased competition and rising energy prices, miners' profit margins have been squeezed. More importantly, many mining companies have started to pivot to artificial intelligence and high-performance computing (AI/HPC). So far, this has proven to be a prudent business decision for those publicly listed mining companies that have already made the switch.
Bitcoin's performance has lagged behind AI-related assets, while the growth rate of demand for computational power in the market is very strong, which further reinforces the trend mentioned above. Therefore, this situation can be interpreted from both pessimistic and optimistic angles.
The pessimistic view is: from the perspective of energy input that secures the network, the technical security level of the Bitcoin network has indeed declined; meanwhile, as a digital commodity, the energy input value supporting each unit of Bitcoin—i.e., production cost—has also decreased.
However, it is worth noting that due to the difficulty adjustment mechanism, the Bitcoin network itself has not fallen into crisis because of this. The network automatically adjusts the mining difficulty and reward conditions every two weeks according to the level of computational power. When competition decreases, this mechanism incentivizes new miners to join and provide security for the network.
The optimistic view is: despite almost all listed mining companies we know pivoting to AI/HPC, the overall network hash rate has only returned to the level of mid-last year. This indicates that the actual participants in Bitcoin mining who can obtain cheap energy are perhaps more than some had originally thought. Coupled with node distribution data, the Bitcoin network still maintains a decentralized and healthy state.
In summary, I believe the Bitcoin network itself remains as decentralized and healthy as it has ever been.
Valuation Methods and Current Metrics
Bitcoin clearly does not generate cash flow, but we can still compare its current valuation with historical market performance through several unique methods.
From a technical perspective, Bitcoin is currently consolidating near its pre-2021 highs, slightly below the 200-week exponential moving average (EMA). The weekly RSI has shown a bullish divergence coming out of the oversold zone, the last time it reached such an oversold level was at the lowest point of the previous bear market.
Historically speaking, the 200-week moving average has always been a solid baseline threshold to consider gradually accumulating Bitcoin spot positions.
Among the on-chain data valuation methods, one of the most effective metrics is the Market Value to Realised Value (MVRV) ratio. It compares Bitcoin's current marginal trading price with the entire network's aggregated cost basis, the latter calculated based on the price at which the tokens were last transferred to new wallet clusters.
When this ratio is high, it means the current marginal trading price is far above the network's average cost. There exists a large amount of unrealized profit (PNL) in the market, leading many holders to have a strong incentive to take profits.
When this ratio is below 0, it indicates that, from an overall perspective, market participants are in a state of floating losses. Historically, this usually marks a more suitable stage for accumulating positions.
You will notice that in 2024-2025, this metric has never truly reached the previous level of euphoric peaks. This reflects the gradual maturation of this asset class in recent years, with volatility shrinking accordingly.
Considering that the peak indicators of each bull market have been continuously dropping, while the lowest points in each bear market have slightly risen, a reasonable conclusion might be: the market may not necessarily have to enter the negative zone to find a bottom this time.
It is extremely difficult to precisely buy at the lowest point. The most important conclusion here is that Bitcoin is currently at the lower end of its historical valuation range.
Long-term holders also seem to be quite active in accumulating positions. After continuous distribution during the latter half of 2025, they have started to increase their holdings again, indicating that they believe the current price levels hold value.
Trading volume has almost completely dried up. @n3ocortex has created a great chart showing that the trading volume of Bitcoin spot relative to its market cap has fallen to historical lows. ETFs and DAT have also exhibited a similar state.
The implied volatility of near-term options has dropped to its lowest level in years, meaning the market sees Bitcoin as “dead money” that will not perform in the short term. Meanwhile, options skew data indicates that the only clear interest in the market over the past year has been to buy more downside protection.
Finally, looking at the derivatives market: the Bitcoin futures basis—the price difference between the futures contract price and the Bitcoin spot price—has been declining for several years, even struggling to reach levels consistent with US Treasury yields.
This implies two things:
- More and more funds are arbitraging the Bitcoin futures basis;
- The market is not giving forward Bitcoin futures contracts a premium relative to spot prices.
Tying these factors together, the objective picture that emerges is: the market has completely fallen silent. Neither futures nor options traders have shown bullish views, and they are pricing in continued flattening of Bitcoin volatility.
At the same time, multiple indicators suggest that Bitcoin is entering deep value territory; long-term holders are starting to accumulate positions again. This seems to contrast sharply with traders' perspectives, as well as with the trend of Bitcoin ETF seeing a net outflow of 5 billion dollars over the past 52 weeks.
DAT and the “Quantum Computing” Ghost
During the bull market from 2023 to 2025, one of the greatest pressures faced by the market is the Digital Asset Treasury company. At least theoretically, the design logic of such tools is to dilute common stockholders in a way that can enhance per-share value, thereby accumulating more Bitcoin and ultimately enhancing shareholder value.
However, after Strategy and Japan's Metaplanet achieved success, many similar companies began to vie for return opportunities, significantly intensifying competition. The funds flowing into these tools have become thoroughly dispersed, ultimately leading to a narrowing premium relative to net asset value.
In recent months, we have seen multiple relevant reports: some treasury companies have slowed their pace of Bitcoin accumulation, some have started to sell Bitcoin directly, and a few companies have even completely changed their strategies. I think these are all positive signs of market self-repair.
Recently, even when Saylor announced the sale of Bitcoin, the Bitcoin price actually increased. According to information from Strategy's most recent earnings call, the company is restructuring its capital and placing STRC in a more prioritized position. This contrasts sharply with the previous scenario where "announcing to buy Bitcoin led to a drop in Bitcoin's price."
Looking ahead, I don't believe DAT will exert the same degree of pressure on the market as it did 6-9 months ago, especially now that Bitcoin's price has fallen over 50% from its peak.
I do genuinely believe quantum computing is a real threat, particularly on a time scale of five years or more. In recent months, while assisting with investment analysis at STIX, I encountered several quantum computing startups that are beginning to mature and have talked to some insiders in the industry, thus gaining some understanding of this field. Of course, I am by no means an expert.
My view is that this threat deserves serious attention. However, when Bitcoin's price is at 60,000 dollars, having dropped 50% from its peak, and lagging behind other assets, I believe the current price has already taken this risk into considerable account.
From now on, even considering the most extreme doomsday scenarios, these worries that have been publicly discussed will likely only get less dire. The poorer Bitcoin performs due to market concerns over quantum risks, the more motivation large holders and institutions profiting from Bitcoin trading, custody, and lending will have to push a group of developers to seek and propose solutions.
This is similar to the situation that occurred when ETFs were approved during the last cycle: the market trades ahead of the probability that issues will be resolved. Thus, once the relevant risks are thoroughly mitigated, you will not be able to buy at extremely low prices anymore.
Potential Bullish Logic
Even if you believe Bitcoin is likely at a price point suitable for long-term allocation, opportunity cost remains an extremely important consideration for medium- and short-term capital allocators: the current economic climate is quite hot, and there are truly worthwhile innovation opportunities for speculation and investment in the market; by comparison, allocating funds to Bitcoin seems to miss out on many things.
The core question that has existed for the past few months is: since gold has risen this year and high beta stocks have performed strongly, why has Bitcoin not followed suit? What needs to happen for Bitcoin to start performing now?
As shown in the previous chart, on-chain data indicates that long-term holders are making substantial purchases. Meanwhile, DAT has experienced a capitulation-style liquidation, and ETFs have brought significant net selling pressure.
The ends of the previous several Bitcoin bear markets relied on the exhaustion of selling power, without necessarily needing a catalyst that could excite substantial new demand. At present, if you were concerned about DAT, quantum computing risks or Bitcoin's underperformance, how many people still have not sold and can continue to sell at a higher rate than over the past 6-9 months?
Clearly, if there is turmoil in the macro economy or geopolitical sphere, Bitcoin could still experience a sharp drop due to a sudden increase in asset correlation. But what is being discussed here is a judgment over the coming months in this higher time horizon.
I completely understand that there is currently no clear catalyst. The “Clarity” bill may count as one, but I do not believe it will have much impact on Bitcoin itself. However, this is usually how market bottoms work.
What you need to weigh is the probability of further deterioration relative to what has already been priced in at current levels. This is exactly the opposite of judgments made during a bull market: in a bull market, people assess the probability of actual conditions being better than expected.
I do not rule out the possibility of a final drop at some point this year, but having reached this point, I believe the market has already priced in many of these risks over the past year.
A potential catalyst for Bitcoin could simply be large institutions making stable purchases in accordance with established requirements. The growth of assets under management (AUM) during the initial phase of ETF listings was astonishing, but now we have long passed the initial excitement phase. Since last October, the total AUM of ETFs has been slowly declining.
One possible catalytic factor is that large asset management firms decide to include a small, single-digit percentage allocation to Bitcoin in their various portfolios. This could bring inflows that are less sensitive to price changes for Bitcoin.
This talk may sound like it is trying to force comfort, but Bitcoin has lacked significant correlation with various assets over the past year. For large management firms that often seek to diversify asset correlations and risk exposures, this could indeed serve as a reasonable basis for a small Bitcoin allocation.
Conclusion: How to Consider Allocation Going Forward
In short, I believe Bitcoin has become “cheap,” although there is still a possibility it could drop another level sometime this year. The fundamentals of the network are generally healthy. At this point, most risks have already been priced in; those who would sell due to these risks have likely already sold. It is nearly impossible to buy precisely at the lowest point.
In my view, there are several ways to consider allocation going forward. Of course, this is not investment advice.
The simplest strategy is to consider gradually buying Bitcoin spot through a dollar-cost averaging approach over the coming months. You could also wait for a final drop or act after the market shows signs of renewed vitality and upward momentum.
Another strategy would be to start allocating now. Since implied volatility is very cheap, you can also utilize the options market to hedge against any potential final drop that might shake you out of your position.
I personally have not really pulled the trigger yet, but I will likely begin to act in some way very soon.
I hope this article has provided some valuable thoughts and can spark discussions to see how others are viewing these issues. Perhaps the “four-year cycle” proves that we live in a simulated world. Regardless, the trends for this orange coin seem likely to be interesting in the coming months.
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