Lower expectations for the next Bitcoin bull market.

Article by: Alex Xu

BTC has been my largest overall asset position for most of the past few years (but no longer).

During this Bitcoin bull cycle, I sold off the small leverage added during the deep bear market (about 1.1-1.2x, through BTC collateralized loans) at around 70k, and reduced my BTC holdings from full position to about 30% at 100,000-120k.

There were also some small operations, such as adding a little more when BTC retraced above 50k in 2024, and adding slightly when BTC hit 60k in February this year. These actions are all based on a long-term bullish outlook on BTC.

According to usual cyclical logic, now is a good time to accumulate more BTC and then wait quietly for the next bull cycle.

However, during the recent rebound of BTC a few days ago, I further reduced my already low 30% BTC position at the 78,000-79,000 level.

It is essential to continuously monitor the assets I hold, regularly conduct fundamental checks. Reducing BTC is also a result of ongoing assessment and deliberation. The conclusion is that I will lower my expectations for BTC’s market cap at the peak of the next bull cycle.

Let me clarify the reasons:

First, the potential energy driving BTC to continue rising in the next cycle is not as sufficient as in previous cycles.

In previous cycles, there was an expectation of exponential growth in investor groups, from niche tech enthusiasts’ financial experiments to mainstream and institutional allocations. Each cycle’s narrative has gradually materialized.

For example, in the 2023-2025 cycle, BTC entered the holdings of mainstream financial institutions through the listing of ETF-compliant products, and received strong support from Trafi financial institutions like BlackRock, along with vocal endorsements from the presidents of major countries. To elevate the narrative further, BTC would need to enter the balance sheets of leading sovereign nations, such as:

1. More sovereign funds (currently mainly Abu Dhabi)

2. Central bank reserves

*Pure government fiscal reserves (like U.S. state budgets) may be insufficient; their purchasing power is relatively small, far less than traditional financial institutions.

But in my view, achieving this leap in the next 2-3 years is quite challenging. This bull market was initially expected to see Bitcoin entering the U.S. Federal Reserve’s balance sheet, but last year this hope was largely disproven.

Currently, very few U.S. states have passed Bitcoin reserve legislation. At the peak early this year, over 20 states were pushing such bills, but only a handful have actually passed, and some are only “semi-formed” reserve bills requiring separate approval for purchase budgets.

Major central banks still show no clear interest in BTC. The short history of consensus, high volatility, and competition from gold make it difficult for BTC to enter central bank balance sheets.

Second, my personal opportunity cost has increased. Over the past half-year, I’ve gradually discovered many good companies, which are now attractively priced and will be my main focus for portfolio adjustment (another part is increasing cash reserves).

Third, the overall depression in the crypto industry negatively impacts demand and consensus for Bitcoin.

Currently, few viable business models exist in crypto. Most Web3 models (socialfi, gamefi, depin, distributed storage/computing power, etc.) have been gradually discredited over time. In reality, only DeFi can generate positive cash flow and profits. But DeFi’s development in the latter half of this cycle has been mediocre, mainly due to the shrinking of native high-quality assets, leading to contraction in DeFi activities (mainly lending and DEX trading).

The overall contraction of the crypto sector, along with declining practitioners and investors, will slow down or even cause a decline in BTC holding base.

*Hypeliquid, as an on-chain exchange, is an outlier with counter-cyclical growth. However, its success largely comes from capturing CEX’s existing market share and incorporating non-crypto asset classes (commodities, US stocks, pre-IPO assets) for around-the-clock trading, which adds little value to BTC. Relying on regulatory arbitrage and being a standout, Hypeliquid cannot offset the industry-wide decline (market prediction impacts are similar).

Fourth, BTC’s largest buyer, Strategy, continues to face rising financing costs.

It mainly raises funds by issuing perpetual preferred shares (STRC), with interest rates now at 11.5%, soon shifting from monthly to bi-weekly interest payments, or risking destabilizing the STRC market price. This feels concerning to me, although Strategy’s current financial situation is still far from a default.

Additionally, we see that most of the once-active BTC DAT concept stocks, except Strategy, have basically disappeared, leaving only it.

Strategy doesn’t need to actually default to suppress BTC prices; as the largest listed holder and net buyer, a slowdown in its buying pace and exhaustion of financing capacity will cause significant marginal selling pressure.

Fifth, Bitcoin’s main competitor in the non-sovereign asset space—gold—has narrowed the gap in product features (value proposition: resistance to fiat inflation).

We previously argued that “digital gold” Bitcoin is superior to gold because of better divisibility, portability, verifiability, and decentralization.

However, the emergence of “tokenized gold” products now offers similar verifiability, portability, and divisibility, with rapidly growing scale.

rwa.xyz provides statistics on tokenized commodity assets, most of which are tokenized gold.

Of course, many say tokenized gold relies on centralized credit, but in my view, dependence on centralized credit isn’t a necessary condition in crypto, since one of the core infrastructures—stablecoins—is mostly based on fully centralized credit.

Sixth, with Bitcoin’s halving, the issue of insufficient security budget becomes more severe (exploring new fee sources like inscriptions, BTC L2, etc. has largely failed). This is a well-known issue, but still a concern.

On the other hand, quantum computing is not considered a major threat; the community already has solutions.

Of course, I still remain optimistic about BTC after reducing my holdings; otherwise, I would have sold everything. It remains one of my major holdings, and I hope it can continue to rise.

Other possible reasons include:

Why reduce now?

Because it has rebounded quite a bit recently, so I want to trim some.

What if it rises after I reduce?

If the reasons I mentioned for being cautious weaken or become invalid due to more external and internal changes, or if new positive factors emerge that I hadn’t anticipated, and the price at that time isn’t too high, I will buy back.

If the price is already too high to buy back reasonably, then my understanding doesn’t match this asset, and I accept that outcome.

Just my personal opinion, for reference only.