Author: Matt Hougan, Chief Investment Officer at Bitwise

Translator: Luffy, Foresight News

Currently, there is an interesting duality between institutional investors and retail investors in the cryptocurrency space.

On the one hand, institutional investors are very optimistic about the prospects of cryptocurrencies. Today, investment professionals observing cryptocurrencies see that institutional capital is pouring into the crypto market through exchange-traded funds (ETFs) on an unprecedented scale, and Washington has gone from being one of the biggest threats to cryptocurrencies to being one of their most powerful supporters.

Things that we could only dream of a year ago (such as countries adopting Bitcoin as a strategic reserve) now seem to be somewhere between possible and imminent. And the biggest risks facing cryptocurrencies, such as government bans or legal threats to software developers, have become distant nightmares.

From a risk-adjusted perspective, it can be said that now is the best time in history to invest in cryptocurrencies.

However.

Retail investors are currently mired in despair. They seem to be living in a parallel reality. We have a proprietary cryptocurrency market sentiment score at Bitwise that assesses the sentiment of crypto investors based on on-chain data, capital flows, and derivatives, and it is currently at one of its lowest levels ever.

Crypto Asset Sentiment Index. Data source: Bloomberg, CoinMarketCap, glassnode, NilssonHedge, Alternative.me and Bitwise Europe.

This is consistent with the atmosphere I feel from "Crypto Twitter" and other sentiment indicators in the market.

Retail investors are despondent because Altcoins (often referred to as "shitcoins") are performing poorly. The heatmap below from TradingView shows the year-to-date returns of all crypto assets. While there are a few bright spots, the most obvious being Bitcoin, Solana and XRP, overall it is mostly red. So, in general, crypto assets are taking a beating.

Crypto asset year-to-date returns, source: TradingView. Data as of February 11, 2025.

If we extend the analysis to the past 12 months, the situation is not much better. Bitcoin is up 95% over the past year; Ethereum is up only 2%. Retail investors are eager to speculate on Altcoins, and the absence of an "Altcoin bull market" has left them in low spirits.

So the key question is: who is right?

Answer: Institutions are right

My instincts tell me that the answer is "institutional investors".

It's true, it's easy to be optimistic about Bitcoin right now. So far this year, ETFs have bought about 47,000 Bitcoins, corporations have bought about 57,000 Bitcoins, while the Bitcoin network has only mined about 18,000 new Bitcoins. It's easy to imagine that as this supply-demand dynamic plays out, it will drive Bitcoin prices to new all-time highs.

I also admit that the situation with Altcoins is more complex. Currently, there is no major new application that has sparked the kind of huge interest in the crypto space that we saw during the 2020-2021 DeFi bull market or the 2017-2018 ICO bull market. The closest thing to a bull market in the Altcoin space right now is the Memecoin craze, but most investors understand what that is: a short-term gamble. It's hard to convince oneself that a whole new and better world can be built on Fartcoin or Hawk Tuah token.

But in the long run, I believe the landscape for Altcoins is more solid than it has been at any point in history. Over the past four years, Altcoins have largely operated in a regulatory gray area, with the U.S. Securities and Exchange Commission (SEC) claiming that most Altcoins are illegal securities offerings. This has hindered their real-world application, making large companies and talented developers reluctant to venture into the space.

But now everything is changing for the better. Now, the U.S. has made stablecoin development a national priority, which will support the growth of Ethereum and Solana. Now, the world's largest institutions are starting to build in the crypto space, bringing DeFi applications to the masses.

If you look closely, you can see signs of this transformation, such as the recent all-time high in the assets under management of stablecoin projects, or the recent tokenization of U.S. stocks and ETFs by Ondo Finance. Projects like these would not have been possible to launch under the previous government oversight.

I suspect that within a year or two, you will see a transformation in the Altcoin landscape; the impact will be obvious and sweeping.

Pinpointing the specific catalysts that will trigger an Altcoin rebound in the coming months is difficult; but it's harder to imagine that the market won't grow significantly in the coming years.

The current low morale of retail investors in the cryptocurrency space, in my view, is a sign of opportunity.