Bitwise: What will happen to retail investors in despair in the future?

There is an interesting dichotomy between institutional and retail investors in the cryptocurrency space right now.

On the one hand, institutional sentiment toward cryptocurrencies is the most bullish I have ever seen. When investment professionals look at cryptocurrencies today, they see a situation where institutional capital is being allocated to the space in record amounts through ETFs, and Washington has gone from being one of cryptocurrencies’ biggest threats to one of its biggest supporters.

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

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

However.

Today, retail investors are in deep despair. They seem to be living in an alternate reality. Bitwise has a proprietary cryptocurrency sentiment score that determines the sentiment of cryptocurrency investors by looking at on-chain data, flows, and derivatives analysis. The index is currently at one of its lowest levels in history.

Cryptoasset Sentiment Index

Source: Bitwise Asset Management, with data from Bloomberg, CoinMarketCap, Glassnode, NilssonHedge, Alternative.me and Bitwise Europe.

This is consistent with the feeling I get from Crypto Twitter and other sentiment indicators in the market.

Retail investors are feeling sad because crypto assets other than Bitcoin (often called “altcoins”) are underperforming. The heat map below from TradingView shows the year-to-date returns for all crypto assets. While there are a few green dots — most notably Bitcoin, Solana, and XRP — it’s mostly a sea of ​​red. Common crypto assets are getting hammered.

Cryptoasset year-to-date returns

Source: TradingView. Data as of February 11, 2025.

You can extend this analysis to the past 12 months, and the results are not much better. Bitcoin is up 95% over the past year; Ethereum is up 2%. Retail investors love speculating in altcoins, and the lack of an “altcoin season” is frustrating them.

So the big question is: Who is right?

Answer: Institution

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

Indeed, it’s easy to be bullish on Bitcoin right now. So far this year, ETFs have purchased about 47,000 BTC, corporations have purchased about 57,000 BTC, and the Bitcoin network has only minted about 18,000 new BTC. It doesn’t take a genius to figure out that this supply and demand dynamic will drive prices to new all-time highs over time.

I also admit that the story of altcoins is more complicated. There are currently no major new applications that have generated huge interest in the space like the 2020-2021 bull run (DeFi) or the 2017-2018 bull run (ICOs). The closest thing we have in the altcoin space today is the memecoin craze, but most investors believe it is just a short-term casino. It is difficult to tell yourself that you are building a new and better world based on Fartcoin or Hawk Tuah tokens.

But in the long run, I think the altcoin scene is stronger than at any time in history. For the past four years, altcoins have largely been in a regulatory gray area, with the US SEC alleging that most altcoins are illegal securities offerings. This has hindered real-world adoption and prevented big companies and the best developers from entering the space.

All of this has been reversed. Today, the United States has made the development of stablecoins a national priority, which will support the development of Ethereum and Solana. Today, the world’s largest institutions feel safe building on cryptocurrencies, which will make DeFi applications accessible to the masses.

If you look closely, you can see evidence of this shift, such as the recent record high stablecoin market cap, or new projects like Ondo Finance’s recent move to tokenize all U.S. stocks and ETFs, a project that would never have gotten off the ground under past administrations.

My guess is that in a year or two, you won’t have to look far to see the shift in altcoins; the impact will be self-evident and overwhelming.

It’s hard to name a specific catalyst that will cause altcoins to rally in the coming months, but it’s even harder to imagine a scenario where the market doesn’t expand significantly over the next few years.

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