CEO Bitwise: Bitcoin may face two main barriers

The price of Bitcoin (BTC) rose rapidly, from $40,000 to $75,000 when spot ETF funds were approved, then climbed above $100,000 under a pro-cryptocurrency regulatory regime in the United States.

However, the CEO of Bitwise, Hunter Horsley, warns that the price of Bitcoin may face two structural obstacles before continuing its growth trajectory.

He pointed out the fierce competition from high-yield alternative options and the weakening of "digital gold" among institutions.

In Q2, Bitcoin-linked ETF funds reversed from a capital outflow of 3.3 billion USD to an inflow of nearly 10 billion USD. In contrast, demand for gold ETF funds decreased by 40%, from 30 billion USD to about 15 billion USD in the same period.

This divergence reinforces Bitcoin's outstanding 34% performance compared to gold since April, although the price of gold has narrowed the gap by 10% against BTC since mid-May.

ETF capital flows are an important indicator because they redirect institutional investors' USD into liquid and managed vehicles. Horsley stated that "institutional demand remains strong," but he warned that inflows could change if other assets provide returns, after adjusting for risk, at more attractive levels.

Bitwise CEO Reveals Major Barriers to Bitcoin

Horsley's first concern is that investors hunting for big profits may look beyond Bitcoin. He notes that the ever-expanding universe of decentralized finance projects, layer-2 tokens, and new blockchains promises exponential growth. This competition could fragment capital, shifting it towards smaller, more volatile tokens.

"Most investors and allocators are very busy. They are constantly seeking opportunities, including those types of assets that can grow by tens of times."

DeFi lending tokens, NFT platform tokens, and Ethereum layer-2 projects have provided returns of over 200% in recent quarters, far exceeding Bitcoin's annual increase of 58%.

The second barrier is the story of Bitcoin's "store of value" being eroded. Early supporters likened BTC to digital gold, a hedge against inflation unbound by any government. But Horsley argues that that narrative is gradually fading.

He predicts that the real competitors of Bitcoin will be government bonds and treasury bills, what he calls the "ultimate political store of value." The yield on the U.S. 10-year treasury bonds peaked at nearly 4.5% in the second quarter, currently providing safe, yield alternatives for investment institutions.

"The competitor of Bitcoin is not gold but rather U.S. Treasury bonds and bonds from other governments, for example: UK government bonds... The higher nominal yields from bonds may attract money away from a non-yielding asset like Bitcoin."

BTC compared to gold and stocks

Despite the challenges, Bitcoin has outperformed both gold and US stocks over the past year. On a 12-month timeframe, BTC has increased by about 58%, compared to 46% for gold and 11% for the S&P 500.

The BTC/gold ratio needs to reach 40 to restore BTC's leading position compared to gold, a point that some chartists consider to be the main growth target.

This week alone, the BTC/gold ratio increased by 1.5%, indicating relatively stable performance even amid geopolitical tensions in the Middle East. The holding strength of Bitcoin contrasts with the more volatile movements of gold in the context of regional risks.

Horsley believes that these two trends: high-profit altcoins and competition from bonds, are not an urgent threat at present but could emerge as headwinds in the next quarter. Investors and traders should monitor changes in ETF capital flow patterns and the yield curve.

Currently, the era of spot Bitcoin ETF funds seems to be firmly established. However, if DeFi tokens continue to soar or treasury bond yields remain high, Bitcoin may face stiffer competition in attracting additional new capital.

Vincent