Author: Matt Hougan, Chief Investment Officer of Bitwise

Translated by: 0xjs@Jinse Finance

I first heard about Bitcoin in February 2011.

At the time, I was working at ETF.com, managing a team of young financial analysts and operating the world's first ETF data and analysis service. We would meet weekly to discuss what was happening in the market. In February 2011, Bitcoin's price first broke through $1, and one of my analysts mentioned this historic "dollar threshold". Then, he led a brilliant discussion about what Bitcoin was, how it worked, and what it might become.

If I had invested $1,000 in Bitcoin after that meeting, today that investment would be worth $88 million. However, I left the office at the time and went to buy a cup of coffee.

I share this story because everyone - and I mean everyone - has this feeling. We all wish we had bought Bitcoin earlier.

But we're missing a point in these stories, which is that Bitcoin faced enormous risks at the time.

For example, on the day of the meeting about the $1 Bitcoin, the world's largest cryptocurrency exchange was New Liberty Financial. Here are their terms of service.

In hindsight, it's easy to say I should have bought $1,000 worth of Bitcoin. But at the time, it meant transferring $1,000 to a random PayPal account. Add to that the risks of custody, regulation, technology, and government... Putting $1,000 into Bitcoin in 2011 was a huge gamble.

I share this story for two reasons: first, so you don't blame yourself for missing the Bitcoin investment; second, to make you believe that the situation is different now.

In fact, I believe that right now - at this moment - is the best time ever to buy Bitcoin in terms of risk-adjusted returns.

We've just eliminated the last major survival risk of Bitcoin

Every investment requires weighing risks and rewards. A lottery ticket can turn $1 into $1 billion, but your expected return is zero.

When Bitcoin was first born, it was a bit like a lottery: huge upside potential, but equally huge risks.

For instance, when Bitcoin was first launched, it couldn't even guarantee that it would work properly. Yes, its white paper was excellent. Logically, it seemed like it should work. But before Bitcoin, there had been multiple attempts to build electronic cash systems that had failed. (For example, you can look at the NSA paper from 1997 titled "How to Mint Money: Cryptography for Anonymous Electronic Cash".)

But in Bitcoin's early days, there were other significant risks beyond the technology itself. Trading was a risk factor for years - early trading platforms were either unreliable or struggled with low trading volumes and poor operations. It wasn't until the end of 2011 when Coinbase was established that the situation improved.

For a while, custody was a risk factor - until established blue-chip companies like Fidelity began offering self-custody and institutional custody services.

In the initial stages of Bitcoin's existence, there were reasonable concerns about money laundering, criminal activities, regulatory standards, mining centralization, and more.

What's amazing about Bitcoin is that over time, it has slowly but surely eliminated each of these major survival risks.

The launch of the Bitcoin spot ETF in January 2024 crossed another major hurdle, providing regulatory clarity for U.S. institutional investors interested in entering this field.

But even after the ETF launch, one major survival risk continued to linger in my mind: what if the government banned Bitcoin?

U.S. Strategic Bitcoin Reserve

This is what I always mention when someone asks me at conferences, "What keeps you up at night?"

I had been thinking that it was well-known how the U.S. confiscated privately held gold in 1933 to replenish the treasury. So why would it allow Bitcoin to develop to a scale that could threaten the dollar's status?

To be honest, I didn't know the answer at the time.

When pressed on stage, I would always remind people that the U.S. government "purchased" gold from citizens in 1933: I would say that if Bitcoin developed to a scale that could challenge the dollar, your investment might have already made a fortune.

That was the best answer I could provide.

But just earlier this month, President Trump signed an executive order establishing the U.S. Strategic Bitcoin Reserve. Just like that, the last major survival risk of Bitcoin disappeared before my eyes.

Many people are wondering why the U.S. would do this. AQR Capital hedge fund founder Cliff Asness wrote immediately after Trump signed the order: "Why would we promote a competitor that directly competes with the dollar, our long-standing world reserve currency, if cryptocurrency is a viable long-term alternative?"

The answer is, of course, that Bitcoin is better than other alternatives. For the U.S., the best scenario is for the dollar to continue maintaining its status as the world's reserve currency. But if the day comes when the dollar's status is at risk, choosing Bitcoin as an alternative is better than choosing currencies like the yuan.

This is something I didn't initially consider: of course the U.S. would accept Bitcoin. It's the best backup option in the market.

What does this mean for investors?

In practical terms, at Bitwise, we've already started seeing the impact of this risk reduction. Two years ago, Bitwise's clients would typically allocate about 1% of their portfolio to Bitcoin and other crypto assets - an amount they wouldn't be too concerned about losing. Considering the possibility of Bitcoin being banned or facing other failures, this allocation was reasonable. But in today's environment, things are different. We're now seeing clients more commonly allocating 3% to Bitcoin. As more people around the world realize that Bitcoin's risks have significantly decreased, I believe this percentage will rise to 5% or even higher.