Bitcoin has found a place in the global portfolio

Zoom in: Bitcoin was created to be a medium of exchange on the internet. But what really worked for it was becoming an alternative investment — something that has a good track record of going up over time, even if its day-to-day volatility can be stomach churning.

• The original blockchain may end up being useful to the world in other ways, but bitcoin's basic function as a store-of-value has been established.
• In tech world parlance, Satoshi Nakamoto's innovation has found product-market fit.

Catch up quick: The approval of Bitcoin ETFs 15 months ago proved that a lot of capital had been waiting to hit buy on bitcoin as soon it got some kind of regulated wrapper.

• And last week was the best week this year for crypto ETFs.

What they're saying: The ETFs "basically helped, if you will, normalize cryptocurrency into an investable asset," Mike Johnson, a partner at EY, the giant professional services firm, tells Axios.

• In recent research his company did in collaboration with Coinbase, they found that a majority of institutional investors have become comfortable with bitcoin as an investment, and plan to increase their allocations.
• Further, EY is seeing people start with ETFs and then get interested in directly purchasing bitcoin, suggesting that the new instruments are an entry point to greater sophistication about the asset's unique features.

Other forces are at work now, too. Charles Edwards, of Capriole Investments, a quantitative bitcoin-focused hedge fund, said on an Unchained podcast, that there's a flywheel developing as corporate investors imitate the purchases of publicly traded Strategy (formerly MicroStrategy).

• Most notably, SoftBank and some big players in bitcoin just launched Twenty One, a big fund, with $4 billion in BTC, aimed at making similar moves.
• "It's probably going to be the main driver of price action the next 12 months," Edwards said.

Other digital assets

Investors' recent push into bitcoin — and mainly only bitcoin — can be seen in the recent surge in "bitcoin dominance," a metric measuring BTC's share of the total crypto market cap.

• At 64%, it's at the highest level since January 2021.

Between the lines: Other crypto assets and blockchain projects are stuck in what's known as the trough of disillusionment — the period when a much-hyped class of product loses interest from the public because it hasn't lived up to expectations.

Yes, but: EY's Johnson ascribes the weak demand for other blockchain-powered products to regulatory uncertainty and also their very newness.

• Regulatory clarity should bring more products to market as more market participants feel comfortable innovating on chain.

Bitcoin "decoupling"

Bitcoin is up 700X since May 2013. The S&P 500 is 3X over the same time period. Bitcoin has also doubled in value since January 2024.

• This is what the believers are looking at when they call bitcoin a hedge against inflation.
• They aren't watching the asset on a weekly or monthly timeline. They are looking at what happens if they hold it for years.

Zoom out: At present, with the larger economy awash in uncertainty, many investors have retreated into gold, driving it to a new all-time high.

• At first, bitcoin didn't benefit from that same shift, but that has started to turn around more recently, making it again — at the moment — look more like digital gold than a risk asset.

The bottom line: "Obviously, there's some trepidation in the market because the last crypto winter," Johnson said.

• But the investing public now trusts bitcoin and crypto more broadly than it did just a few years ago.
• "We do believe we are on a path to mass adoption," he said.