Should Institutional Investors Buy Bitcoin? w/CIO of Bitwise

Crypto Cycles

The cyclical nature of cryptocurrency markets is driven by their early-stage development and speculative tendencies. Matt Hougan explains that as promising technologies, cryptocurrencies attract investors early, leading to cycles of hype and correction 1. This pattern is not unique to crypto but is seen in any rapidly growing market. Erik Torenberg adds that the reflexivity of crypto markets, where price increases attract more buyers, exacerbates these cycles 1.

What happens in any market that goes up a lot is investors start building leverage on top of their positions. They start maybe over investing, they get overexcited and overhyped.

--- Matt Hougan

Despite these cycles, the market doesn't revert to its starting point, indicating a gradual maturation process.

   

Volatility Decline

As the cryptocurrency market matures, its volatility is decreasing, attracting more fundamental investors. Matt Hougan notes that Bitcoin's volatility has reduced by about 50% over the past decade, a sign of progress 2. This reduction is due to a shift from speculative to more fundamental investors, including institutional investors and financial advisors. Erik Torenberg highlights that the decreasing risk of crypto going to zero further compresses market volatility 2.

The likelihood that crypto goes to zero has been dramatically reduced. And that naturally compresses the volatility in the market.

--- Matt Hougan

This trend suggests a more stable future for cryptocurrencies as they continue to integrate into mainstream financial systems.