Bitcoin hits a new historical high, what four factors will continue to drive the rise?

Author: 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 have surged, institutions are steadily incorporating cryptocurrencies into their portfolios through ETFs, and Ethereum has also 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 happen without anyone paying attention. The media coverage of the cryptocurrency bull market has already been overwhelming.

Nevertheless, 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 up considerably. The following four key 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 generally believes that the three major sources of demand for Bitcoin this year are ETFs, enterprises, and governments, which we refer to as the "three driving forces of Bitcoin demand."

So far, two forces have come into play: ETFs have purchased 183,126 Bitcoins, while publicly listed companies have bought 354,744 Bitcoins. Given that the Bitcoin network only produces 100,697 Bitcoins, this has pushed its price up by 27.1%.

But the third horse-drawn carriage has yet to truly gain momentum. Indeed, the United States has established a "strategic Bitcoin reserve", but it only includes Bitcoin obtained through criminal confiscation; Pakistan has announced the establishment of its own Bitcoin reserve, and Abu Dhabi has invested in a Bitcoin ETF, but compared to large-scale purchases by ETFs and corporations, these are just sporadic actions.

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

It needs to be clarified that I do not believe there will be a grand announcement from various countries before the end of the year, but it is certain that more countries will join, and their number will be enough to make this trend a significant potential driving force in 2026. Just this alone could significantly drive up prices.

Dollar depreciation + Interest rate decline = Bitcoin rise

A unique aspect of the current situation is that Bitcoin's price is approaching historical highs, while interest rates hover near the peak levels since Bitcoin's inception in 2009. This should not occur. 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 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 depreciation 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 a weaker dollar, to the Fed's Board of Governors, this series of actions strongly signals that the government wants a significant reduction in interest rates and a substantial depreciation of the dollar.

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

Particularly noteworthy is the appointment concerning Milan. Milan's research paper has garnered widespread attention, stating that the status of the US 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 value of the dollar against other major international currencies and suggests that the Federal Reserve could achieve this by printing a large amount of money.

If the printing of money leads to a significant decrease in interest rates and a sharp devaluation of the US dollar, the price of Bitcoin may 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 significantly declined, but the rate of change in its volatility has also slowed down considerably.

Bitcoin 30-Day Rolling Volatility

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

The reasons for the decrease in volatility are not difficult to understand: the development of ETFs and corporate coin purchases have introduced new types of buyers to the cryptocurrency market, while progress in regulation and legislation has significantly reduced market risks. I believe this is the "new normal" for Bitcoin, with its volatility currently roughly equivalent to that of high-volatility tech stocks like Nvidia.

Comparison of Bitcoin Volatility with Tesla, Nvidia, and Meta

In discussions with institutional investors, this decline in volatility is prompting them to reconsider the allocation of cryptocurrencies in their portfolios, significantly higher than before. Prior to the launch of spot Bitcoin ETFs, the initial allocation ratio for such discussions was basically around 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 size will be close to 50 billion dollars. It is worth noting that summer has always been a low season for ETF fund inflows, and this fact makes me think that this trend is likely to further accelerate in the autumn.

ICO 2.0: The Rebirth of Cryptocurrency Financing

Initial Coin Offerings (ICOs) have gained notoriety. In 2018, fraudulent ICOs were rampant, with these empty projects raising billions of dollars from investors before disappearing, and the promised products were never delivered. 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 fed up with such fraudulent behavior.

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

"I have asked the team to develop information disclosure rules, exemption clauses, and safe harbor systems that align with the characteristics of so-called 'Initial Coin Offerings', 'airdrops', and 'network rewards'... In my view, if we can stick to this path, the field of innovation may usher in a 'Cambrian explosion'."

If this concept is implemented, it may become an important catalyst for driving the market upward. Looking back at history, whether during the ICO boom or after the tide receded, the enthusiasm of cryptocurrency investors for 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 into the cryptocurrency market.

Conclusion

The market will not rise due to known positive news, but will 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 some specific driving factors that will gradually reveal their impact in the coming months and even years.

Beware of a significant price surge in the following.