Outlook on Bitcoin's Future

Author: Will Clemente, On-chain Analyst for Bitcoin

Compiled by: Jiahua, ChainCatcher

I hope everyone had a pleasant summer. It has been a while since I wrote a long piece about Bitcoin. In this article, I want to consolidate my thoughts on this asset and some ideas that have gradually taken shape in my mind recently, discussing how to view and allocate Bitcoin in the future.

Last year, I shifted my personal focus in the market towards commodities. The reason was that it had become quite clear that the crypto market was facing an oversupply issue, which made the entire market feel very heavy.

At the same time, apart from a few localized areas like Hyperliquid, the industry lacked sufficient innovation, at least compared to the active performance of other markets. Consequently, the market also faced issues of insufficient demand, unable to digest the large supply.

I initially thought there was a window for Bitcoin to perform strongly at the end of last year: small-cap stocks were surging, and gold had just gone through a strong rally. However, Bitcoin ultimately only made a failed breakout—just a few days before October 10—which left me very disappointed.

In January of this year, due to the market performance resembling the previous bear market we experienced in 2022, I further reduced my remaining Bitcoin exposure.

To be frank, this year has not been a pleasant year to focus on Bitcoin or the entire crypto market. In terms of the percentage drop from Bitcoin's peak, this round has been milder overall than the last one, but from many perspectives, this bear market may even be tougher than in 2022.

At least in 2022, you could clearly point out the reasons for the market decline: rising interest rates, the cleansing of leverage and fraud, and the collapse of FTX. You could then say, "If these factors might change, and by the end of 2022, the space for further deterioration was clearly smaller than for improvement, then Bitcoin could likely be a good long-term buying point."

But today, there is no similar logic; the Digital Asset Treasury (DAT) and quantum computing risks might be a few exceptions—more on that later—and in my view, these two issues have finally begun to show some signs of repair.

Bitcoin ETFs hold about $50 billion in assets. They set records for fund inflows at their launch, only to be surpassed by memory ETFs earlier this year. Large financial institutions have also begun to launch related lending products.

Last year, driven by central bank reserve demand and the narrative of "de-dollarization," gold performed exceptionally well; logically, that should have been a time for Bitcoin to shine.

Now, almost anyone looking to gain exposure to Bitcoin has corresponding channels. Because of this, Bitcoin ETFs saw a net outflow of $5 billion over the past year, while DRAM-related products attracted $10 billion in funding within a month, a contrast that is particularly disappointing.

Network Health Status

When discussing Bitcoin's fundamentals, we are clearly not talking about traditional financial metrics but observing the underlying state of the network itself. I won't go through all the indicators just to list data, but there are two points that I believe are indeed very important.

In an increasingly centralized world, with state-led economies, markets influenced by the state, and the potentially strongest technological centralization forces we have seen so far brought by large tech companies, I truly believe that "decentralization" itself has value.

For those less familiar with Bitcoin's underlying mechanisms, the network consists of miners that everyone has heard of, as well as nodes. Anyone can run a node. Nodes are responsible for executing rules and validating the network, while miners provide security for the network through computational work supported by a large amount of energy. Nodes are spread across the globe, and it is likely that many more nodes are not easily traceable. The following list covers nearly 200 countries.

We can observe mining pools—though mining pools do not control individual miners—but it is difficult to track every independent miner like we can track nodes. However, we can observe the overall energy input supporting the entire network through hash power.

From any perspective, Bitcoin's total network hash power is declining. After 2022, due to increased competition and rising energy prices, miners' profit margins have been squeezed. More importantly, many mining companies have begun to shift towards artificial intelligence and high-performance computing (AI/HPC). So far, for those publicly listed mining companies that have already transitioned, this has proven to be a prudent business decision.

Bitcoin's performance has lagged behind AI-related assets, while the market's demand for hash power is growing rapidly, further reinforcing the aforementioned trend. Therefore, this situation can be interpreted pessimistically or optimistically.

The pessimistic side is that, from the perspective of energy input ensuring network security, the technical security level of the Bitcoin network has indeed declined; at the same time, as a digital commodity, the energy input value supporting each unit of Bitcoin—its production cost—has also decreased.

However, it is worth noting that due to the difficulty adjustment mechanism, the Bitcoin network itself has not fallen into crisis because of this. The network automatically adjusts the mining difficulty and reward conditions every two weeks based on the hash power level. When competition decreases, this mechanism incentivizes new miners to join and provide security for the network.

The optimistic side is that, despite almost all publicly listed mining companies we know shifting towards AI/HPC, the total network hash power has only fallen back to the level of mid-last year. This indicates that the actual participants in Bitcoin mining, who can obtain cheap energy, may be more than some people initially thought. Combined with node distribution data, the Bitcoin network still maintains a decentralized and healthy state.

Overall, I believe the Bitcoin network itself remains as decentralized and healthy as ever.

Valuation Methods and Current Indicators

Bitcoin clearly does not generate cash flow, but we can still compare its current valuation with historical market performance through several unique methods.

From a technical perspective, Bitcoin is currently consolidating near its previous high from 2021, slightly below the 200-week exponential moving average (EMA). The weekly RSI has shown a bullish divergence coming out of the oversold zone, and the last time it reached such an oversold level was at the deepest point of the previous bear market.

Historically, the 200-week moving average has always been a good baseline threshold to start considering gradually accumulating Bitcoin spot positions.

In on-chain data-based valuation methods, one of the most effective indicators is the Market Value to Realized Value ratio (MVRV). It compares Bitcoin's current marginal trading price with the aggregated cost basis of the entire network; the latter is calculated based on the price when the tokens were last transferred to a new wallet cluster.

When this ratio is high, it means the current marginal trading price is far above the average cost of the entire network. There are a lot of unrealized profits (PNL) in the market, and many holders have a strong motivation to take profits.

When this ratio is below 0, it means that, overall, market participants are in a state of unrealized losses. Historically, this usually marks a phase more suitable for accumulating positions.

You will notice that in 2024-2025, this indicator has never really reached the kind of euphoric peak levels seen in the past. This reflects the gradual maturation of this asset class in recent years, with volatility also contracting.

Considering that the peak indicators of each bull market have been steadily decreasing, while the lowest points of each bear market have slightly risen, a reasonable conclusion might be: the market does not necessarily have to enter negative territory to find a bottom this time.

It is extremely difficult to buy 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 seem to be actively accumulating chips. After a sustained distribution in the mid to late 2025, they have now started to increase their holdings again, indicating they believe the current price level has value.

Trading volume has almost completely dried up. @n3ocortex created a great chart showing that the turnover ratio of Bitcoin spot trading relative to its market value has dropped to historical lows. ETF and DAT trading volumes are also showing a similar state.

The implied volatility of near-month options has dropped to its lowest level in years, indicating that the market views Bitcoin as "dead money" that will not perform in the short term. Meanwhile, options skew data shows that the only thing the market has been noticeably interested in over the past year is purchasing more downside protection.

Finally, looking at the derivatives market: the Bitcoin futures basis—the price difference between forward contracts and Bitcoin spot prices—has been declining for several years, and it is even difficult to reach levels that are on par with U.S. Treasury yields.

This implies two things:

1. More and more funds are arbitraging the Bitcoin futures basis;
2. The market is not giving a high premium for forward Bitcoin futures contracts relative to spot prices.

Putting these factors together, the objective picture presented is that the market has completely quieted down. In both the futures and options markets, traders have not shown bullish views and are pricing in the continued flattening of Bitcoin volatility.

Meanwhile, multiple indicators show that Bitcoin is entering a deep value zone; long-term holders are starting to accumulate again. This seems to contrast with traders' views and the trend of Bitcoin ETFs experiencing a net outflow of $5 billion over the past 52 weeks.

DAT and the Ghost of "Quantum Computing"

During the bull market from 2023 to 2025, one of the biggest pressures facing the market is digital asset treasury companies. At least theoretically, the design logic of such tools is to dilute common stockholders in a way that can enhance per-share value, thereby accumulating more Bitcoin and ultimately increasing shareholder value.

However, after Strategy and Japan's Metaplanet achieved success, many similar companies began to compete for return opportunities, significantly intensifying competition. The funds flowing into these tools have been widely dispersed, leading to a continuous narrowing of their premiums relative to net asset value.

In recent months, we have seen several related news items: some treasury companies have slowed their pace of Bitcoin accumulation, some have started to sell Bitcoin directly, and a few companies have even completely changed their strategies. I believe these are positive signals of market self-correction.

Recently, even when Saylor announced the sale of Bitcoin, the price of Bitcoin rose instead. According to the information from Strategy's latest earnings call, the company is restructuring its capital and prioritizing STRC. This stands in stark contrast to the previous situation where "announcing the purchase of Bitcoin led to a drop in Bitcoin prices."

Looking ahead, I do not believe DAT will exert the same level of pressure on the market as it did 6 to 9 months ago, especially given that Bitcoin's price has fallen more than 50% from its peak.

I do believe that quantum computing is a real threat, especially on a time scale of over five years. In recent months, while assisting with investment analysis at STIX, I have come into contact with several quantum computing startups that are just beginning to mature and have spoken with some people in the industry, thus gaining some understanding of this field. Of course, I am by no means an expert.

My view is that this threat should be taken seriously. However, when Bitcoin's price is at $60,000, having fallen 50% from its peak, and is underperforming compared to other assets, I believe the current price has largely accounted for this risk.

From now on, even considering the most extreme doomsday scenarios, these concerns that have been widely discussed publicly are likely to develop in a less negative direction. The worse Bitcoin performs due to market concerns about quantum risks, the more motivation large holders and institutions that profit from Bitcoin trading, custody, and lending will have to push a group of developers to find and propose solutions.

This is similar to the situation when the previous cycle of ETFs was approved: the market tends to trade in anticipation of the probability of issues being resolved. Therefore, once the relevant risks are completely mitigated, you will no longer be able to buy at extremely low prices.

Potential Bullish Logic

Even if you believe Bitcoin is currently at a price suitable for long-term allocation, the opportunity cost remains an extremely important consideration for medium- to short-term capital allocators: the current economic heat is high, and there are genuinely speculative and investment-worthy innovative opportunities in the market. In contrast, allocating funds to Bitcoin seems to miss out on many things.

The core question that has persisted over the past few months is: since gold has risen this year and high-beta stocks have performed strongly, why has Bitcoin not followed suit? What needs to happen for Bitcoin to start performing from now on?

As shown in the previous chart, on-chain data indicates that long-term holders are making significant purchases. Meanwhile, DAT has shown signs of capitulation, and ETFs have brought significant net selling pressure.

The end of previous Bitcoin bear markets relied on the exhaustion of selling power, rather than necessarily needing a catalyst that could stimulate a large influx of new demand. Now, if you have ever felt concerned about DAT, quantum computing risks, or Bitcoin's underperformance, how many people have not sold and can continue to sell at a pace exceeding that of the past 6 to 9 months?

Clearly, if macroeconomic or geopolitical turmoil occurs, Bitcoin could still experience a sharp drop due to a sudden increase in asset correlation. But here we are discussing judgments over the next few months in this higher time frame.

I completely understand that there is currently no clear catalyst. The "Clarity" Act might count as one, but I do not 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 of further deterioration relative to the expectations already reflected in the current price. This is exactly the opposite of the judgments made during a bull market: in a bull market, people assess the probability that the actual situation will be better than expected.

I do not rule out the possibility of one last drop occurring at some point this year, but having come this far, I believe the market has accounted for many of these risks over the past year.

A potential catalyst for Bitcoin might simply be large institutions making stable purchases as required. The growth of assets under management (AUM) during the initial phase of ETF listings was astonishing, but we have long passed the initial excitement phase. Since last October, the total AUM of ETFs has been slowly declining.

One possible catalyst is that large asset management institutions decide to include a small, single-digit percentage allocation of Bitcoin in their various investment portfolios. This would bring in a flow of funds that is less sensitive to price changes for Bitcoin.

This statement may sound like a forced search for comfort, but Bitcoin has lacked significant correlation with various assets over the past year. For large management institutions that often seek to diversify asset correlations and risk exposures, this could indeed become a reasonable basis for allocating a small amount of Bitcoin.

Conclusion: How to Consider Allocation Going Forward

In short: I believe Bitcoin has become "cheap," although there may still be a possibility of another drop at some point this year. The fundamentals of the network are generally healthy. At this point, most risks have already been priced in; those who would sell due to these risks have likely already sold. You are unlikely to buy at the absolute bottom.

In my view, there are several ways to allocate from now on. Of course, this is not investment advice.

The simplest strategy is to consider gradually buying Bitcoin spot through dollar-cost averaging over the next few months. You could also wait for the last drop or act after the market shows renewed vitality and upward momentum.

Another strategy is to start allocating now. Given that implied volatility is very cheap, you can simultaneously use the options market to hedge against any potential last drop that might shake you out of your position.

Personally, I have not yet pulled the trigger, but I will likely start taking action in some way very soon.

I hope this article has provided some valuable insights and sparked discussions about how others are viewing these issues. Perhaps the "four-year cycle" proves that we live in a simulated world. In any case, the price movement of this orange coin seems poised to be interesting in the coming months.

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