Author:Will Clemente, Bitcoin On-Chain Analyst
Compiled by: Jiahuan, ChainCatcher
I hope everyone had a wonderful summer. It’s been a while since I’ve written a long-form piece about Bitcoin. In this article, I’d like to consolidate my thoughts on this asset and the ideas that have recently taken shape in my mind, exploring how we should view and allocate Bitcoin going forward.
Last year, I largely shifted my personal focus on the market toward commodities. The reason was that it had become clear that the crypto market was facing an oversupply issue, which made the entire market feel very weighed down.
Meanwhile, apart from niche areas such as Hyperliquid, the industry lacks sufficient innovation, at least compared to the active performance of other markets. As a result, the market has also faced insufficient demand and an inability to absorb the large supply.
I originally thought there was a window of opportunity for Bitcoin to perform strongly at the end of last year: at that time, small-cap stocks surged, and gold had just experienced a strong rally. However, Bitcoin ultimately made only one failed breakout—just a few days before October 10—which left me deeply disappointed.
In January this year, due to the market performance at the time resembling the previous bear market we experienced in 2022, I further reduced my remaining Bitcoin exposure.
To be frank, this year hasn't been a pleasant one for focusing on Bitcoin or the broader cryptocurrency market. While the percentage decline from Bitcoin's peak has been milder overall compared to the last cycle, this bear market may, in many ways, be even harder to endure than 2022.
At least in 2022, you could clearly identify the reasons for the market decline: rising interest rates, the liquidation of leverage and fraud, and the collapse of FTX. Then you could say: "If these factors are likely to change, and by the end of 2022, the room for further deterioration was clearly smaller than the potential for improvement, then Bitcoin is likely a solid long-term buying opportunity."
But today, no similar logic exists; digital asset treasury companies (DAT) and quantum computing risk may be rare exceptions—discussed later—and in my view, these two issues are finally beginning to show signs of repair.
Bitcoin ETFs hold approximately $50 billion in assets. They set records for inflows upon their launch, a record surpassed earlier this year by memory ETFs. Major financial institutions have also begun launching related lending products.
Last year, gold performed exceptionally well, driven by central bank reserve demand and the "de-dollarization" narrative; logically, that should have been the moment for Bitcoin to shine.
Today, nearly any individual or institution seeking exposure to Bitcoin has access to appropriate channels. It is therefore particularly disappointing that, over the past year, Bitcoin ETFs experienced net outflows of $5 billion, while products related to DRAM attracted $10 billion in just one month.
Network Health Status
When discussing the fundamentals of Bitcoin, we are clearly not talking about traditional financial metrics, but rather observing the underlying state of the network itself. I won’t go through every metric just to list them, but two of them I believe are truly important.
In an increasingly centralized world, with state-dominated economies, state-influenced markets, and the potentially most powerful force of technological centralization we have ever seen from big tech companies, I truly believe that "decentralization" itself has value.
For those less familiar with Bitcoin’s underlying mechanics, the network includes miners—whom many have heard of—and nodes. Anyone can run a node. Nodes are responsible for enforcing rules and validating the network, while miners provide security to the network through computationally intensive work supported by significant energy consumption. Nodes are distributed globally, and there are likely many more that are difficult to track. The list below alone covers nearly 200 countries.
We can observe mining pools—though mining pools cannot control individual miners within them—and it is difficult to track each individual miner as we would track nodes. However, we can observe the total energy investment supporting the entire network through hashing power.
From every perspective, the Bitcoin network's hash rate is declining. After 2022, miner profit margins were squeezed due to increased competition and rising energy costs. More importantly, many mining companies have begun shifting toward artificial intelligence and high-performance computing (AI/HPC). So far, this transition has proven to be a prudent business decision for those publicly traded mining companies that have made the shift.
Bitcoin's performance has lagged behind AI-related assets, and the strong growth in demand for computing power has further reinforced this trend. Therefore, this development can be interpreted either pessimistically or optimistically.
On the downside: From the perspective of energy investment in securing network security, Bitcoin’s technical security has indeed decreased; at the same time, as a digital commodity, the energy investment value supporting each unit of Bitcoin—its production cost—has also declined.
However, it is important to note that the Bitcoin network itself has not been jeopardized due to the difficulty adjustment mechanism. The network automatically adjusts mining difficulty and reward conditions every two weeks based on the level of hashing power. When competition decreases, this mechanism incentivizes new miners to join and provide security to the network.
On a positive note: despite the fact that nearly all publicly traded mining companies we know of are shifting toward AI/HPC, the network hash rate has only declined to the level seen in mid-last year. This suggests that the number of actual participants in Bitcoin mining who have access to low-cost energy may be greater than some had assumed. Combined with node distribution data, the Bitcoin network continues to maintain a decentralized and healthy state.
Valuation Methods and Current Metrics
Bitcoin clearly does not generate cash flow, but we can still compare its current valuation to historical market performance through several unique methods.
From a technical perspective, Bitcoin is currently consolidating near its pre-2021 highs, slightly below the 200-week exponential moving average (EMA). The weekly RSI has formed a bullish divergence exiting the oversold zone, a level of oversold conditions not seen since the depths of the previous bear market.
Historically, the 200-week moving average has served as a solid baseline for beginning to gradually accumulate spot Bitcoin positions.
One of the most effective metrics in on-chain data-based valuation is the Market Value to Realized Value ratio (MVRV). It compares Bitcoin’s current marginal trading price to the aggregated cost basis of the entire network, which is calculated based on the price at which each coin was last transferred to a new wallet cluster.
When this ratio is high, it means the current marginal trading price is significantly higher than the network's average cost. There is a large amount of unrealized paper profit (PNL) in the market, so many holders have a strong incentive to take profits.
When this ratio is below 0, it means that, overall, market participants are in a state of unrealized loss. Historically, this has often signaled a phase more suitable for accumulating positions.
You'll notice that during 2024–2025, this metric never truly reached the feverish peaks of previous years, reflecting the growing maturity of this asset class and the consequent contraction in volatility.
Considering that the peak indicators of each bull market have been gradually declining, while the lowest points of each bear market have slightly risen, a reasonable conclusion might be: this time, the market doesn't necessarily need to enter negative territory to find its bottom.
It is extremely difficult to buy precisely at the lowest point. The most important conclusion here is that Bitcoin is currently at the lower end of its historical valuation range.
Long-term holders also appear to be accumulating aggressively. After a prolonged distribution phase in the latter half of 2025, they are now resuming accumulation, suggesting they view current price levels as valuable.
Trading volume has nearly dried up. @n3ocortex created an excellent chart showing that the ratio of Bitcoin spot turnover to its market cap has fallen to historic lows. Trading volumes for ETFs and DATs are showing a similar trend.
Implied volatility for the nearest-term options in the options market has dropped to its lowest level in years, suggesting that the market views Bitcoin as “dead money” with little near-term potential. Meanwhile, options skew data shows that over the past year, the only clear market interest has been in purchasing additional downside protection.
Finally, let’s look at the derivatives market: the basis for Bitcoin futures—the spread between the price of forward contracts and the spot price of Bitcoin—has been declining for years and now struggles to even match U.S. Treasury yields.
This means two things:
- An increasing number of funds are arbitraging the Bitcoin futures basis;
- The market has not assigned a high premium to Bitcoin futures contracts relative to the spot price.
Putting these factors together, the objective picture is that the market has become completely silent. Traders are not showing any bullish sentiment in either the futures or options markets, and are still pricing in further flattening of Bitcoin volatility.
Meanwhile, multiple indicators suggest that Bitcoin is entering a deep value zone; long-term holders are once again accumulating. This appears to contradict both traders' sentiment and the $5 billion net outflow trend observed over the past 52 weeks for Bitcoin ETFs.
DAT and the Ghost of Quantum Computing
One of the biggest pressures facing the market during the 2023–2025 bull run is digital asset treasury companies. At least in theory, the design logic of these tools is to dilute common shareholders in a way that increases per-share value, thereby accumulating more bitcoin and ultimately enhancing shareholder value.
However, after the success of Strategy and Japan’s Metaplanet, a surge of similar companies entered the market, significantly intensifying competition. Capital inflows into these instruments became widely dispersed, ultimately leading to a continuous narrowing of their premiums relative to net asset value.
In recent months, we have seen multiple related developments: some treasury companies have slowed their pace of Bitcoin accumulation, others have begun selling Bitcoin directly, and a few have even completely changed their strategies. I believe these are all positive signals of market self-correction.
Recently, even after Saylor announced the sale of Bitcoin, the price of Bitcoin rose. According to the most recent earnings call from Strategy, the company is consolidating its capital structure and placing greater emphasis on STRC. This stands in stark contrast to the previous pattern of “announcing Bitcoin purchases, yet Bitcoin prices falling.”
Looking ahead, I don't believe DAT will exert the same level of pressure on the market as it did six to nine months ago, especially given that the price of Bitcoin has already fallen more than 50% from its peak.
I do believe quantum computing is a real concern, especially over time horizons of five years or more. Over the past few months, while assisting with investment analysis at STIX, I’ve engaged with several quantum computing startups that are just beginning to mature, and I’ve spoken with a few people in the industry, giving me some familiarity with the field. Of course, I am by no means an expert.
In my view, this threat should be taken seriously. However, with Bitcoin trading at $60,000—50% below its peak and underperforming compared to other assets—I believe the current price already reflects a significant portion of this risk.
From now on, even under the most extreme doomsday scenarios, the trajectory of these widely discussed concerns is likely to only improve. The worse Bitcoin performs due to market worries about quantum risks, the greater the incentive for large holders and institutions profiting from Bitcoin trading, custody, and lending services to drive a group of developers to find and propose solutions.
This is similar to the situation when ETFs were approved in the previous cycle: the market prices in the probability of the issue being resolved ahead of time. Therefore, once the associated risks are fully resolved, you won’t be able to buy at such a low price anymore.
Potential bullish rationale
Even if you believe Bitcoin is currently at a price level suitable for long-term allocation, the opportunity cost remains a critical consideration for medium- to short-term capital allocators: the current economic environment is highly active, and there are genuinely innovative opportunities worth speculating on or investing in—making Bitcoin allocation seem like it may cause you to miss out on much else.
The core question that has persisted over the past few months is: Given that gold has risen this year and high-beta stocks have also performed strongly, what needs to happen for Bitcoin to finally start performing?
As shown in the chart above, on-chain data indicates that long-term holders are engaging in substantial buying. Meanwhile, DAT has experienced a capitulation sell-off, and ETFs have brought significant net selling pressure.
The end of past Bitcoin bear markets has been driven by exhaustion of selling pressure, not necessarily by a catalyst that sparks significant new demand. Now, if you’ve ever been concerned about DAT, quantum computing risks, or Bitcoin’s underperformance, how many holders remain who haven’t sold—and who could still offload at a pace faster than the past 6–9 months?
Clearly, if there is macroeconomic or geopolitical turmoil, Bitcoin could still experience a sharp decline due to a sudden increase in asset correlation. However, this discussion focuses on the outlook over the higher time frame of the coming months.
I completely understand that there is currently no clear catalyst. The Clarity Act might be one, but I don't believe it will have a significant impact on Bitcoin itself. However, market bottoms often look like this.
What you need to weigh is the probability that things will worsen beyond what is already priced in at the current level. This is the opposite of what you assess in a bull market: in a bull market, people evaluate the likelihood that actual conditions will be better than expected.I don't rule out another final drop at some point this year, but given where we are now, I believe the market has already priced in much of this risk over the past year.
A potential catalyst for Bitcoin may simply be large institutions making steady, planned purchases. The growth in assets under management (AUM) during the initial launch of ETFs was remarkable, but we have long since moved past that initial surge. Since October last year, the total AUM of ETFs has been gradually declining.
A possible catalyst is large asset management firms deciding to allocate a small, single-digit percentage of Bitcoin across their various investment portfolios. This would bring in price-insensitive capital inflows into Bitcoin.
This may sound like a stretch for reassurance, but over the past year, Bitcoin has shown little to no correlation with a wide range of assets. For large institutional investors who frequently seek to diversify asset correlations and risk exposures, this could indeed serve as a reasonable justification for allocating a small portion to Bitcoin.
Conclusion: How to consider allocation going forward
In short: I believe Bitcoin is already "cheap," although it could still drop another level at some point this year. The network's fundamentals are generally healthy. By now, most of the risk has already been priced in; those who would sell due to these risks have likely already done so. It's nearly impossible to time the exact bottom.In my view, there are several configuration options from now on. Of course, this is not investment advice.
The simplest strategy is to consider gradually buying spot Bitcoin through dollar-cost averaging over the coming months. Alternatively, you can wait for the final downturn or until market momentum and upward energy return.
Another strategy is to set up now. Since implied volatility is very cheap, you can use the options market to hedge against any final drop that might shake you out of your position.
I haven't pulled the trigger yet, but I'm likely to take some kind of action soon.
We hope this article has sparked some valuable insights and encouraged discussion on how others are viewing these issues. Perhaps the four-year cycle proves we live in a simulated world. Regardless, the coming months promise to be interesting for this orange coin.