The Most Important Chart in Crypto Right Now

Subscribe to get the Weekly CIO Memo sent right to your inbox.

By Matthew Hougan

Retail sentiment in crypto is terrible even though the fundamentals are great. I smell opportunity.

There is a fascinating dichotomy in crypto right now between institutional and retail investors.

On the one hand, institutional sentiment towards crypto is the most bullish I’ve ever seen. When investment professionals look at crypto today, they see this: Institutional capital is allocating to the space in record amounts via ETFs, and Washington has gone from being one of crypto’s biggest threats to one of its biggest champions.

Things we only dreamed of a year ago—like nation-states adopting strategic bitcoin reserves—now seem somewhere between possible and imminent. And the biggest risks to crypto, like government bans or legal threats to software developers, are distant nightmares.

From a risk-adjusted perspective, it is arguably the best time in history to invest in crypto.

And yet.

Today, retail investors are wallowing in despair. It’s almost as if they are living in an alternate reality. We have a proprietary crypto sentiment score at Bitwise that looks at onchain data, flows, and derivative analytics to determine the mood of crypto investors. It’s at one of its lowest readings of all time.

Crypto Asset Sentiment Index

This aligns with the vibes I get from “crypto Twitter,” along with other sentiment indicators in the market.

Retail investors are sad because non-bitcoin crypto assets (often called “altcoins”) are doing poorly. The heatmap below from TradingView shows the returns of all crypto assets on a year-to-date basis. While there are a few green spots—most notably for Bitcoin, Solana, and XRP—it’s mostly a sea of red. The average crypto asset is getting crushed.

Year-to-Date Returns of Crypto Assets

You can extend that analysis to the past 12 months and it doesn’t improve much. Bitcoin is up 95% over the past year; Ethereum is up 2%. Retail crypto loves to speculate on altcoins, and the lack of an “altcoin season” has them depressed.

So the big question is: Who’s right?

The Answer: Institutions

Every bone in my body tells me that the answer is “the institutions.”

It’s true that it’s very easy to be bullish on bitcoin right now. So far this year, ETFs have bought ~47,000 BTC and corporations have bought ~57,000 BTC, while the bitcoin network has minted just ~18,000 new BTC. It doesn’t take a genius to think that, over time, this supply/demand dynamic will drive prices to new all-time highs.

I also concede that the story on altcoins is more complex. At present, there is no major new application driving huge interest in the space the way there was during the 2020-2021 bull market (DeFi) or the 2017-2018 bull market (ICOs). The closest we have in the altcoin space today is the meme-coin boom, but most investors see this for what it is: a short-term casino. It’s hard to tell yourself that you’re building a new and better world on the basis of Fartcoin or the Hawk Tuah token.

But long-term, I think the setup for altcoins is stronger than at any point in history. For the past four years, altcoins have largely been in a regulatory gray zone, with the SEC alleging that most are illegal securities offerings. This has stunted real-world adoption and kept large firms and the best developers from building in the space.

All that has been reversed. Today, the U.S. has made the growth of stablecoins a national priority, which will support the growth of Ethereum and Solana. Today, the largest institutions in the world feel safe building on crypto, which will bring DeFi applications to the masses.

If you squint, you can see evidence of this shift in things like stablecoin AUM, which recently hit an all-time high, or in new projects like Ondo Finance’s recent move to tokenize all stocks and ETFs in the U.S. That project would never have gotten off the ground under the past administration.

In a year or two, my guess is that you’re not going to have to squint to see the transformation in altcoins; the impact will be self-evident. And overwhelming.

It’s hard to call out a specific catalyst that will cause altcoins to rally in the next few months, but it’s harder to imagine a scenario where the market isn’t significantly bigger in the next few years.

Retail sentiment is bad in crypto right now, and to me, that signals opportunity.

Risks and Important Information

No Advice on Investment; Risk of Loss: Prior to making any investment decision, each investor must undertake its own independent examination and investigation, including the merits and risks involved in an investment, and must base its investment decision—including a determination whether the investment would be a suitable investment for the investor—on such examination and investigation.

Crypto assets are digital representations of value that function as a medium of exchange, a unit of account, or a store of value, but they do not have legal tender status. Crypto assets are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not currently backed nor supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies, stocks, or bonds.

Trading in crypto assets comes with significant risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks and risk of losing principal or all of your investment. In addition, crypto asset markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing.

Crypto asset trading requires knowledge of crypto asset markets. In attempting to profit through crypto asset trading, you must compete with traders worldwide. You should have appropriate knowledge and experience before engaging in substantial crypto asset trading. Crypto asset trading can lead to large and immediate financial losses. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price.

The opinions expressed represent an assessment of the market environment at a specific time and are not intended to be a forecast of future events, or a guarantee of future results, and are subject to further discussion, completion and amendment. The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice, or investment recommendations. You should consult your accounting, legal, tax or other advisors about the matters discussed herein.