rewrite this title What Happened to Crypto? – Nanalyze

It’s been nearly a year since we posed a simple question. How Much Crypto Exposure Should You Have If Any? The answer was simply stated as follows. “There’s no rush, people. No FOMO. The time to be adding crypto exposure is when everyone is condemning it. And they will, because that’s the nature of a volatile asset class.” That day bitcoin closed at $117,491. Today, it’s trading at $65,177, or about 44% less in just 11 months.

People line up to buy crypto at all-time highs but today they’re shunning it. That means if you’re considering exposure to cryptocurrency and/or Bitcoin, now is probably a good time to start doing some dollar cost averaging. If you’re someone already holding cryptocurrencies, should you be worried?

A Basket of Cryptocurrencies

When we talk about “cryptocurrencies,” let’s be clear about what that entails. Sure, Coinbase $COIN lists more than 16,000 cryptocurrencies on their platform, but most of that is absolute junk. When 50% of all cryptocurrency projects become worthless, maybe it’s best to just hold the largest, most legitimate names.

Our last piece pointed to the Grayscale CoinDesk Crypto 5 ETF $GDLC as a viable (albeit expensive) way to get exposure to more than 80% of all cryptocurrency value with an investment in just five major crypto assets. Earlier this year, CoinDesk Indices removed Cardano (ADA) and added Binance Coin (BNB) which means they’re rebalancing the portfolio’s constituents over time. The goal of the ETF is to track the CoinDesk 5 index which tracks the top five largest cryptocurrencies by market cap. When Cardano slid 77% in a year and Binance only fell 14%, the constituents were shuffled accordingly.

In fact, all major cryptocurrencies took a tumble since our last piece, as seen below.

It’s not surprising to see the collective basket lose 47% over time since cryptocurrencies have historically been very highly correlated with each other. The “good news” is that the correlation to equities seems to be declining, considering the Nasdaq 100 $QQQ appreciated +20% over that same time frame. However, if we zoom out a bit we can see that Bitcoin – and likely the broader crypto universe – has become increasingly correlated with U.S. equities in the past six years.

With crypto falling while the market rallies, that trend may be softening. We’ll see if that holds true should a bear market come along. Will crypto fall in tandem, or will investors buy up the depressed assets? As with all quality assets, buyers should always want to see prices fall as low as possible. But are these quality assets?

The Importance of Institutional Adoption

It’s tough to argue against the commonly-held position of tenured finance professionals who point to cryptocurrencies having no intrinsic value. A store of wealth that contains no wealth. The best counterpoint would be that if the world’s largest institutions see value in the largest cryptocurrencies out there – mainly Bitcoin and Ethereum – then we ought to as well.

While the recent drama over at Microstrategy $MSTR (err… Strategy) points to all our past concerns about how bitcoin isn’t just some magical money creation machine, it’s not just a passing fad either. With a combined market cap of $2.2 trillion, there is some “there there” as they say, and manifestations such as stablecoins (Tether aside) aim to provide more legitimacy to this asset class.

Late last year, State Street published a piece on the increasing adoption of cryptocurrencies by institutions. They cite increasing regulatory approval as the impetus, as well as a desire to improve risk-adjusted returns and provide a hedge against “debasement.” Real assets like real estate and gold provide a hedge against fiat currencies like the dollar, and the belief is that cryptocurrencies like Bitcoin can do the same.

We want to see institutions control a larger percentage of the overall pool of digital assets. That would give cryptocurrencies some much needed stability as well as creating a positive feedback loop where institutional adoption builds trust which leads to greater adoption. We’ve seen some baby steps made with the approval of cryptocurrency ETFs in 2024, then the GENIUS Act’s passing and the allowance of cryptocurrencies in U.S. retirement accounts in 2025.

This increasing adoption and trust loop can be seen in the volatility of the underlying assets, which has been declining steadily over time, intuitively. Volatility is an indicator of risk, or how likely an investment is to make a big swing – up or down. As more big fish enter the pool, significant price swings are going to be less likely. It’s the same reason why small cap stocks tend to be more volatile than large caps, it takes a lot more transacting to move a larger asset than a smaller one.

We want to see large institutions restore investor confidence in digital assets after they have plummeted from their peaks. In a recent interview, John D’Agostino, the Head of Institutional Strategy at Coinbase, says sovereign wealth funds, family offices, and other large investors are actively buying cryptocurrencies during the current bear market. We can’t verify this with Coinbase’s quarterly presentation because it only shows transaction revenue, not whether these transactions were purchases or sales. However, if anyone were to know what institutions are doing with their cryptocurrency positions, it would be D’Agostino.

As for our own crypto exposure, it entails only one asset. Bitcoin.

Our Bitcoin Position

Our bitcoin journey started back when Coinbase was first getting their operations off the ground and looking to open new accounts. For every new account we helped them open, they’d give us $10 in bitcoin. As a result of that relationship we accumulated bitcoin at quite a low cost basis. Later on we added to that position where it sits today at an average of $7,815 with the original cost basis covered. (Psychologically, investors treat “house money” differently, so we need to be careful about that.) Today, that represents about 2% of total assets under management, or about a fifth of our total alternative asset pool.

As with any asset, we want to define objective rules as to what conditions would need to be true for us to exit our crypto exposure. Since alternative assets are meant to provide diversification effects, and these are the same reasons institutions want exposure, any stagnation or decline in institutional adoption would signal a problem for the asset class. There’s also an argument to be made for expanding outside of just a single cryptocurrency – Bitcoin – as the asset class matures. That could mean creating a “mini ETF” of crypto assets that we manage over time.

Moving to a Mini ETF

Lately we’ve been talking a lot about “mini ETFs” or small baskets of stocks (usually 4-6) that provide us with the purest exposure to a theme via leaders that are most likely to move ahead of the pack. We looked at semiconductors, electricity infrastructure, and “HALO” stocks. Now we’re considering a move from just holding Bitcoin to diversifying across the top five cryptocurrencies. With Bitcoin being such a heavy weight in the basket, it might make sense to reduce the weighting by capping it while increasing the weighting of the remaining holdings. Otherwise, why make the switch in the first place?

Perhaps a simple crypto mini ETF could look something like this.

Cap the largest asset (or don’t) depending on your preferences

If capped, adjust the weightings for remaining constituents accordingly

Purchase assets using these defined weightings

At every GDLC rebalance, adjust constituents/weightings accordingly

Taking this approach gives you diversified crypto exposure that’s being guided by the methodology of a leading index provider without having to pay an exorbitant 2.5% expense ratio. For some people on the sidelines, there’s a much bigger question to ask though.

Should You Invest in Crypto?

Everyone falls into one of the below three buckets:

You’re holding crypto at a profit

You’re holding crypto at a loss

You’re not holding crypto

Bucket three is the easiest decision to make. If you find cryptocurrency to be a compelling alternative asset, dollar cost average into the above bucket until you reach X% of your total assets where “x” should probably not move into double digits. If you don’t find this asset class compelling, move on with your life.

People in bucket two should be adding if they have room to add. Why? Because aside from price, nothing seems to have changed with the original thesis. If you’re holding an asset that drops, and your original thesis hasn’t changed, you add more, not sell. That leaves folks in bucket three who are being looked upon jealously by the other two buckets. Here’s a thought on what the “bucket three” people ought to consider doing.

If you’re a “crypto expert” as defined by the amount of time you’ve spent in Bali, then continue holding your cherry-picked winners and live with the consequences. If you’re heavily concentrated in one or more cryptocurrencies, and you’re not sleeping well at night because of that, buy the basket shown earlier. You need to make some decisions around weighting, trimming, and/or capping, but just make sure it’s rules-based to keep things objective and simple. You can always just rebalance on the same day GDLC does and mimic their holdings and weightings. Job done.

So what do we plan to do with our Bitcoin position? Nanalyze Premium subscribers will find out soon enough when we announce our plan in the Nanalyze Market Open, a daily email that goes out to all our paying subscribers who happen to be generally better-looking than your average person.

Conclusion

It’s truly incredible to see how predictably humans behave. When assets are hitting new highs, everyone wants to buy them. When they’ve plummeted, everyone wants to sell them. That’s precisely what you shouldn’t be doing. As always, set a rule when you purchase any asset as to what would make you sell it. For our Bitcoin position (or perhaps mini ETF in the future), decreasing institutional adoption would mean a changing thesis that would have us rethink that alternative asset in favor of something more compelling. For now, that doesn’t seem to be the case.