Bitcoin hits a new high, four factors may become the continuous rising "invisible engine"

Written by: Matt Hougan, Chief Investment Officer of Bitwise

Compiled by: Saoirse, Foresight News

There are indeed many exciting developments in the current cryptocurrency space: regulations and legislation are continuously improving, stablecoins are gaining momentum, corporate purchases of cryptocurrencies are surging, institutions are steadily incorporating cryptocurrencies into their portfolios through ETFs, and Ethereum has regained vitality, injecting much-needed altcoin momentum into the entire cryptocurrency market.

However, these situations have long been an open secret. I always feel that the market underestimates the scale of each progress, but that does not mean they are happening without anyone noticing. The media coverage of the cryptocurrency bull market has already been overwhelming.

Nonetheless, I believe that by the end of this year, the market will still experience a series of significant upward surprises, strong enough to drive prices to rise dramatically. The following four important dynamics, in my opinion, have not yet been reflected in the current market pricing.

This year more governments will buy Bitcoin

At the beginning of 2025, the market widely believes that the three main sources of demand for Bitcoin this year are ETFs, enterprises, and governments, which we refer to as the "three drivers of Bitcoin demand."

So far, two driving forces have emerged: ETFs have purchased 183,126 bitcoins, while listed companies have bought 354,744 bitcoins. Given that the Bitcoin network only produces 100,697 bitcoins, this has driven its price up by 27.1%.

But the third horse has not really gained momentum yet. Indeed, the United States has established a "strategic Bitcoin reserve," but it only contains Bitcoin acquired through criminal forfeiture; Pakistan has announced the establishment of its own Bitcoin reserve, and Abu Dhabi has invested in a Bitcoin ETF, but these are merely sporadic moves compared to the large-scale purchases by ETFs and corporations.

The market generally believes that the process of countries adopting Bitcoin as a reserve asset has been stalled, but I have doubts about this. Although the actions of governments and central banks are slow, based on our discussions at Bitwise, they are indeed making progress.

It is important to clarify: I do not believe that there will be a grand announcement from various countries by the end of the year, but it is certain that more countries will join, and their number will be sufficient to make this trend a significant potential driver for 2026. Just this alone could significantly drive up prices.

Dollar depreciation + interest rate decline = Bitcoin rise

One unique aspect of the current situation is that the price of Bitcoin is approaching historical highs, while interest rates are hovering around the peak levels since Bitcoin's inception in 2009. This shouldn't be the case. For non-yielding assets like Bitcoin (and gold), high interest rates are undoubtedly a significant challenge, as they greatly raise the opportunity cost threshold for holding such assets.

The market has been digesting expectations of multiple interest rate cuts before the end of the year, which should have provided support for Bitcoin. However, I believe the market has overlooked a key trend that has far-reaching implications.

The Trump administration strongly hopes for a devaluation of the dollar while also wishing for a more accommodative policy from the Federal Reserve. From directly criticizing Federal Reserve Chairman Jerome Powell to appointing Stephen Moore, who advocates for dollar devaluation, to the Federal Reserve Board, this series of actions strongly signals that the government wants a significant reduction in interest rates and a substantial devaluation of the dollar.

It may not be three interest rate cuts, but possibly six or even eight.

Particularly noteworthy is the appointment regarding Milan. Milan has garnered significant attention for his research paper, in which he asserts that the status of the dollar as the global reserve currency imposes a heavy burden on the United States. He calls for a new "Mar-a-Lago Agreement" to lower the dollar's exchange rate relative to other major international currencies and suggests that the Federal Reserve could achieve this goal through substantial money printing.

If the large-scale printing of money leads to a significant drop in interest rates and a substantial devaluation of the US dollar, the price of Bitcoin could rise significantly.

A decrease in volatility means an increase in allocation ratio

One of the most underestimated trends in the cryptocurrency space is the significant decrease in Bitcoin's volatility. Since the launch of the spot Bitcoin ETF in January 2024, not only has Bitcoin's own volatility markedly declined, but the rate of change in its volatility has also significantly slowed down.

30-day rolling volatility of Bitcoin

(Data source: Bitwise Asset Management, based on Coin Metrics data; Time range: December 31, 2012, to August 10, 2025)

Note: The green shadowed area represents the period after the launch of the spot Bitcoin ETF.

The reasons for the decrease in volatility are not hard to understand: the development of ETFs and corporate buying behavior have introduced a new type of buyer into the cryptocurrency market, while progress in regulation and legislation has significantly reduced market risk. I believe this is the "new normal" for Bitcoin, whose volatility is currently roughly comparable to that of high-volatility tech stocks like Nvidia.

Comparison of Bitcoin's volatility with Tesla, NVIDIA, and Meta

(One-year rolling annualized volatility; Data source: Bitwise Asset Management, based on Bloomberg data; Time frame: December 31, 2019, to June 30, 2025)

In discussions with institutional investors, this decrease in volatility is prompting them to reconsider the allocation of cryptocurrencies in their portfolios, which has significantly increased compared to the past. Before the launch of spot Bitcoin ETFs, the initial allocation for such discussions was basically starting at 1%, whereas now, I frequently hear discussions starting at 5% or even higher.

This is also one of the important reasons for the accelerated inflow of funds into Bitcoin ETFs. Since July 1, the net inflow of funds has reached 5.6 billion dollars, and based on this calculation, the annual inflow is expected to approach 50 billion dollars. It is worth noting that summer has traditionally been a low season for ETF fund inflows, and this fact makes me believe that this trend is likely to further accelerate in the autumn.

ICO 2.0: The Rebirth of Cryptocurrency Financing

Initial Coin Offerings (ICOs) have become notorious. In 2018, fraudulent ICOs flooded the market, and these scam projects raised billions of dollars from investors only to run away with the money, with the promised products never materializing. This was also a significant reason for the abrupt end of the cryptocurrency bull market in 2017. The U.S. SEC subsequently launched a crackdown, and investors became thoroughly weary of such fraudulent behavior.

I believe that most investors and observers have regarded ICOs as 'substandard products', but SEC Chairman Paul Atkins outlined a blueprint for the revival of ICOs in his recent speech on the 'Cryptocurrency Agenda':

"I have asked the team to develop information disclosure rules, exemption clauses, and safe harbor systems that align with the characteristics of the so-called 'Initial Token Offerings', 'Airdrops', and 'Network Rewards'... In my opinion, if we can stick to this path, the field of innovation may usher in a 'Cambrian Explosion'."

If this idea is realized, it may become an important catalyst for driving the market upward. Looking back in history, whether during the ICO boom or after the downturn, the enthusiasm of cryptocurrency investors for investing in crypto projects has never diminished. Once the new ICO market 2.0 is launched, it is expected to attract a large amount of new funds to the cryptocurrency market.

Conclusion

The market will not rise due to known positive news, but will only rise due to positive news that has not yet been reflected in the price.

I believe that, overall, the market has underestimated the scale of the current bull market in the cryptocurrency space and has overlooked certain specific driving factors that will gradually reveal their influence over the coming months and even years.

Beware of a sharp rise in prices afterwards.