Bitwise: Bitcoin's Risk Profile Drops, 3% Institutional Allocations Rise

Bitwise Asset Management, in its latest investor memo, has asserted that the current moment is the most opportune time in history to purchase Bitcoin, considering the risk-adjusted basis. The memo, titled “The Great Derisking of Bitcoin,” was authored by Chief Investment Officer Matt Hougan and released on March 25, 2025. Hougan’s analysis delves into Bitcoin’s early days and its significant milestones, highlighting the dramatic shift in the leading digital asset’s risk profile over recent years.

Hougan recalls his first encounter with Bitcoin in February 2011, when he was part of a financial analytics team. During a routine market review, a young analyst mentioned that Bitcoin had just surpassed $1, sparking a discussion about its technology and potential applications. Hougan reflects on the missed opportunity, noting that a $1,000 investment at that time would now be worth $88 million. However, he emphasizes the substantial risks involved, such as transferring funds to an untested crypto exchange and the lack of custody, regulatory clarity, and government oversight, making any cryptocurrency investment a high-risk endeavor.

Hougan’s thesis centers on Bitcoin’s ability to overcome nearly every existential threat it faced. He points out that early attempts at digital cash, such as the National Security Agency’s 1997 paper, never gained traction, making Bitcoin’s success far from guaranteed. Over time, improvements in trading venues and custodial solutions, such as the launch of Coinbase in late 2011 and the entry of major custodial providers like Fidelity, reduced barriers to entry and mitigated security concerns. Additionally, the introduction of spot Bitcoin exchange-traded funds (ETFs) in the US in 2024 removed a significant regulatory hurdle, making it easier for institutions to justify adding digital assets to their portfolios.

One lingering concern was the potential for a major government to ban or severely restrict Bitcoin. Hougan draws a parallel to the US government’s gold confiscation order in 1933, which fueled fears that a similar ban could stifle Bitcoin’s growth. However, President Trump’s executive order establishing a US Strategic Bitcoin Reserve in early March addressed this concern by making a direct investment in Bitcoin, effectively nullifying the prospect of an outright ban and transitioning to a policy of strategic alignment. Hougan views this as the removal of the last existential risk facing Bitcoin.

Critics have questioned the US government’s endorsement of Bitcoin, given its potential to compete with the dollar’s status as the global reserve currency. Hougan, however, argues that the US government is positioning Bitcoin as a hedge rather than relinquishing monetary dominance. If the dollar’s primacy comes under threat, Bitcoin presents a more controllable alternative than a foreign currency like the Chinese yuan. This strategic move reflects a profound change in perception, with Bitcoin no longer seen as just a speculative asset but as a credible alternative investment.

On the institutional front, Bitwise has observed a shift in how investors allocate to crypto. Two years ago, a 1% allocation to Bitcoin was considered aggressive, but today, with government-endorsed legitimacy and more regulated investment pathways, allocations nearing 3% are becoming more common. Hougan forecasts that as more investors recognize the derisking of Bitcoin, this number could rise to 5% and beyond. This trend underscores the evolving perception of Bitcoin as a credible alternative asset, no longer just a high-risk gamble.