Author: Matt Hougan, Chief Investment Officer of Bitwise
Translated by: TechFlow
I first heard about Bitcoin in February 2011.
At the time, I was working at ETF.com, managing a young team of financial analysts responsible for operating the world's first ETF data and analysis service. We would meet weekly to discuss market dynamics. In February 2011, Bitcoin first broke through $1, and my analyst announced this historic "dollar threshold". Then, he led a brilliant conversation exploring what Bitcoin was, how it worked, and what it might become.
If I had invested $1,000 in Bitcoin after that meeting, it would be worth $88 million today. Instead, I left the office to get coffee.
I share this story because everyone - everyone - has this feeling. We all wish we had bought Bitcoin earlier.
But what we forget in these stories is that Bitcoin faced enormous risks at the time.
For example, on the day I held the $1 meeting, the world's largest cryptocurrency exchange was New Liberty Financial. Here are their terms of service.
In hindsight, it's easy for me to say I should have bought $1,000 worth of Bitcoin. But at the time, this meant sending $1,000 to a random PayPal address. Add in custody, regulatory, technological, and government risks... investing $1,000 in Bitcoin in 2011 was a massive gamble.
I share this story for two reasons:
1) To free you from the first-time Bitcoin loss dilemma;
2) To make you believe that things are different now.
In fact, I believe today - now - is the best time in history to buy Bitcoin at a risk-adjusted price.
We just eliminated the last survival risk
Every investment involves balancing risk and reward. A lottery ticket can turn $1 into $1 billion, but your expected return is zero.
In its early days, Bitcoin was a bit like a lottery ticket: massive upside potential, but equally massive risks.
For example, when Bitcoin was first launched, no one could guarantee it would succeed. Yes, the white paper was brilliant. Yes, logic suggested it would succeed. But before Bitcoin, there had been multiple attempts to create electronic cash that had failed. (For instance, look at this paper 'How to Mint: Cryptography of Anonymous Electronic Cash', written by the NSA in 1997.)
But early Bitcoin faced other significant risks beyond the technology itself. Trading was risky for years - early exchanges were either unreliable or had low trading volumes and poor operations. Later, Coinbase was founded in late 2011, changing the game.
For a while, custody was also a risk - until well-known blue-chip companies like Fidelity began offering self-custody and institutional custody.
In Bitcoin's early days, there were also reasonable concerns about money laundering, criminal activities, regulatory standards, mining concentration, and more.
The incredible thing about Bitcoin is that over time, it has slowly but steadily eliminated every survival risk.
The spot Bitcoin ETF launched in January 2024 provides regulatory clarity for U.S. institutional investors wanting to enter the field, helping us overcome another major obstacle.
But even after the ETF launch, one survival risk always lingered in my mind: what if the government banned it?
U.S. Strategic Bitcoin Reserve
When someone asks me "What keeps you up at night?" I always mention this point.
I've always thought about how the U.S. confiscated private gold reserves in 1933 to replenish the treasury. Why would it allow Bitcoin to develop to a point where it could threaten the dollar?
Honestly, I didn't know the answer.
When pressed on stage, I always reminded people that the U.S. government bought gold from its citizens in 1933: if Bitcoin becomes big enough to challenge the dollar, I would say, your investment might get a pretty good return.
That was the best I could do.
But earlier this month, President Trump signed an executive order establishing the U.S. Strategic Bitcoin Reserve. Just like that, the last survival risk for Bitcoin disappeared before my eyes.
Many people wonder why the U.S. would do this. AQR Capital hedge fund founder Cliff Asness immediately wrote after Trump signed the executive order: "If cryptocurrencies are long-term competitors to the dollar, why would we promote a direct competitor that challenges our status as the world's reserve currency?"
The answer, of course, is that Bitcoin is better than the alternatives.
For the U.S., the best scenario is that the dollar remains the world's reserve currency. But if we reach a point where we face risks to this status, we're better off turning to Bitcoin rather than currencies from competing nations.
This is something I didn't initially consider: the U.S. would of course accept Bitcoin. It's the best backup option in the market.
What This Means for Investors
At Bitwise, we're reportedly starting to see the impact of this de-risking. Two years ago, Bitwise clients would typically allocate about 1% of their portfolio to Bitcoin and other crypto assets - an amount they could easily afford to lose.
Given the non-zero possibility of Bitcoin being banned or facing other failures, this made sense. In today's environment, things are different. We're now seeing more frequent 3% allocations. As more people realize the massive de-risking we're seeing in Bitcoin, I believe you'll see this number rise to 5% or even higher.
Risks and Important Information
No investment advice is provided; risk of loss: before making any investment decision, each investor must conduct their own independent review and investigation, including the merits and risks of the investment, and must make investment decisions (including determining if the investment is suitable) based on such review and investigation.
Crypto assets are digital representations of value that can serve as a medium of exchange, unit of account, or store of value, but they do not have legal tender status. Crypto assets are sometimes exchanged worldwide for U.S. dollars or other currencies, but currently they are not backed by any government or central bank. Their value is entirely determined by market supply and demand forces, and they are more volatile than traditional currencies, stocks, or bonds.
Crypto asset trading involves significant risks, including extreme market price volatility or flash crashes, market manipulation, cybersecurity risks, and the risk of losing principal or entire investments. Additionally, crypto asset markets and exchanges have different regulatory controls or customer protection measures compared to stocks, options, futures, or forex investments.
Crypto asset trading requires understanding of the crypto asset market. When attempting to profit through crypto asset trading, you must compete with traders worldwide. Before engaging in substantial crypto asset trading, you should possess appropriate knowledge and experience. Crypto asset trading can result in massive and instant financial losses. Under certain market conditions, you may find it difficult or impossible to liquidate positions at reasonable prices.
The views expressed represent an assessment of the market environment at a specific time and are not a prediction of future events or a guarantee of future results, subject to further discussion, refinement, and revision. The information in this article is not intended to provide accounting, legal, tax, or investment advice and should not be relied upon as such. You should consult your accountant, legal, tax, or other advisors regarding the matters discussed in this article.
