Bitwise: Why is the market reacting wrong? What is the only important question in Bitcoin?

What really matters about strategic bitcoin reserves.

The U.S. government established a strategic Bitcoin reserve last week.

Please take a moment to think about these words.

Fifteen years after Bitcoin was created — and people have called it a “pet rock” and “rat poison” — the U.S. government has declared it a “strategic” asset that cannot be sold.

This is a historic milestone that will, over time, propel Bitcoin to new all-time highs. Congratulations to all who believed in this possibility before it became popular.

But now we have to talk about how the market viewed this news.

Market reaction and why it went wrong

Despite the historic nature of the announcement, Bitcoin has fallen sharply in recent days. As I write this memo, Bitcoin has fallen 13% from Thursday’s highs above $92,000 to below $80,000, its lowest level since November 2024.

There are a number of reasons for the move, including heightened economic concerns and a general pullback in the stock market that had nothing to do with the reserve announcement. But make no mistake: Part of the pullback was due to the announcement itself.

As this Barron’s article explains, cryptocurrency investors were upset because the government did not announce immediate plans to buy more Bitcoin. Instead, it said the reserve would be capitalized with confiscated assets already owned by the federal government.

Market disappointment is ridiculous for many reasons.

First, simply “not selling” the government’s existing holdings is a major victory. The U.S. currently holds approximately 200,000 Bitcoins, valued at approximately $16 billion. Under the previous administration, most or all of them were scheduled to be sold by 2025. Removing this excess supply from the market is significant.

Second, I think the market is significantly underestimating the likelihood that the government will actually start buying more Bitcoin in the near term. I encourage you to read the executive order in its entirety. Among other things, it clearly states the following:

“The Secretaries of the Treasury and Commerce should develop strategies for acquiring additional government bitcoins, provided that such strategies have no budgetary impact and do not impose incremental costs on American taxpayers.” (Emphasis added.)

Note that it does not say ministers “may” or “can”; it says “should.” Having spent part of my career writing speeches for federal officials, I can tell you that these words are carefully chosen in official statements.

“Should” means something here, and I think the market is missing the point.

But the biggest reason why the market's skepticism is ridiculous is that investors are simply focusing on the wrong issues.

The Only Question That Matters in Bitcoin

If you are a long-term investor, the only question that matters in Bitcoin is: Will Bitcoin become a global macro asset with geopolitical importance like gold?

Will more countries add Bitcoin to their strategic reserves… or less? Will more sovereign wealth funds invest in Bitcoin… or less? Will it play a bigger role in global financial markets… or a smaller one?

If Bitcoin is indeed globally important, here’s my take: it will be a $10-50 trillion asset, implying a 5x to 25x return over current prices. If not, it will become a footnote in history, lingering below $150,000 with only a small group of libertarians, cypherpunks, and speculators supporting it.

There is no middle ground. Bitcoin is either globally important or it isn’t.

Keeping this in mind can calm short-term noise. Would it be nice if the government stepped in and bought 100,000 Bitcoins? Sure — that would probably immediately increase the price by 20% from current levels. I wouldn’t argue against it.

But that's not as important as whether Bitcoin will become a globally important macro asset. From that perspective, the strategic reserve is a big step forward. It's the U.S. government's warning to the world that "Bitcoin is important." This is important to other countries - from the Czech Republic and El Salvador to China, Russia and India - who may be considering building their own strategic reserves. Do you think they would be more willing to join before or after the U.S. starts taking major action?

That's why, despite all the volatility and anxiety among investors today, I see a big takeaway.

This short-term weakness is a gift.