Research Report | December 2025
David R. Snyder, CFA
October marked the end of the fourth year of the Bitcoin cycle and a likely intermediate top based on past cycles, which would also be the beginning of a down cycle for the rest of crypto. This will have a major negative effect on the stock market as the $3.2 trillion crypto market is made up of the marginal buyers of stocks. If crypto declines significantly, crypto investors will be forced to liquidate their stock holdings, especially their speculative stocks. This is a major new risk for the stock market that first showed its impact in 2022. Bitcoin has been a leading indicator of the stock market with the last lag on the downside in 2021 being three months or nine months if the peaks in 4/21 and 10/21 are considered a double top. In 2018 it’s lead time was 9 months.
Bitcoin began trading in 2009 and was a response to the massive monetary and fiscal stimuli during and after the financial crisis. The thesis was that the massive stimuli would cause high inflation, doubts concerning US ability to repay debt and dollar depreciation, with resulting loss of purchasing power. Thus, Bitcoin would be a secure alternative store of value with its blockchain technology and fixed supply. The Bitcoin bulls often cite the purchasing power of one dollar in 1918 being worth only five cents today (adjusted for inflation) and thus investors have lost money in real terms just holding cash. However, that is an absurd argument as that assumes investors kept their dollars under their mattresses since 1918. If an investor just rolled over risk-free liquid short term Treasury Bills (T-Bills) since 1925, they would have earned 3.4% compounded annually and 60 basis points annually more than inflation. According to a Morningstar study, since 1954 (the Fed became more aggressive with monetary policy starting in the early 1950’s), T-Bills earned 64 basis points annually more than the inflation rate with outperformance in two-thirds of rolling 3 year periods. The average marginal tax rate in the US is about 25%. Thus, after tax returns would be about 20 basis points below the inflation rate in the US. But 35% of investments in the US are in tax deferred vehicles. Therefore, the after tax return of combined taxable and tax deferred assets invested in T-Bills equals the exact annual inflation rate. And remember more risky assets that have higher returns than T-Bills still are subject to capital gains tax when sold.
Despite continuous federal deficits over the last 25 years causing the federal debt held by the public to reach 100% of GDP, the annual inflation rate has only averaged 2.5% since 1995 with only three years above 3.4%. This 30 year period is one of the most stable inflation rate periods in the history of the US. Yet Bitcoin bulls believe the US dollar has been somehow debased.
Michael Saylor, chairman of Microstrategy (MSTR 171), a Bitcoin Treasury company, recently said that his house was worth $100,000 in 1930 and is now valued at $46,000,000. He argued that the 1930 dollar lost 99.9% of its value. But of course higher risks investments are on average going to return more than risk free investments such as T-Bills. Basic finance theory and common sense. He failed to mention that his house probably lost 70 to 80% of its value during the Depression while T-Bills held their value. Much higher returns are required for much higher volatility. Stocks, which are more risky investments than residential housing, returned even more than his house since 1930. In fact, $100,000 invested in stocks in 1930 would be worth about $1.2 trillion dollars today.
Bitcoin bulls contend that the US dollar will depreciate and lose its status as the world reserve currency. Nothing could be further from the truth. First the US dollar has been a very stable currency over the last 70 years. The broad price-adjusted US dollar Index published by the Fed (adjusted for the aggregated home inflation rates of all included currencies) has been in a 20% band between 85 and 105 90% of the time over the last 65 years. The dollar index is about the same level as it was in 1969!
Global trading in foreign exchange markets is 89% in US dollars vs. 90% in 1989, barely a blip. And that is with daily exchange turnover volume of $10 trillion. The US dollar share of foreign reserves has dropped to 58% but that tends to be correlated with the value of the US dollar which declined over the last year. The 58% share is higher than the early 1990’s when it fell below 50%. There is little sign of US dollar erosion in trade invoicing with the share of USD and EUR holding firm at 40-50%. Also, foreign holdings of US Treasury debt has declined form 50% in 2008 to under 39% today. And as discussed earlier, the US deficit issues are overblown with regards to ability to pay and outweighed by US exceptionalism.
The proponents of bitcoin argued it is a store of value, a means of exchange, and a non-correlated asset. They have been wrong on all three accounts as I have repeatedly forecast. Even though Bitcoin has increased dramatically since its inception, it has traded similar to high beta speculative stocks, especially speculative tech stocks. High beta assets are not stores of value. The analogy would be buying Sirius XM Holdings (SIRI 20) at the end of the financial crisis (2/09) at $.50 and as of today making fortyfold on the investment and as high as eightyfold at its peak. SIRI managed to make a remarkable recovery. Does that make it a store of value? Speculative stocks that end up being big winners are not stores of value.
Bitcoin has not been a non-correlated asset, at least since 2018. It has been highly correlated with speculative stocks at least in recent years, with a beta over 2. Thus, it has been both high beta and correlated. As it has become a more mature asset, its returns have not provided any alpha since 2018. And this year Bitcoin beta was approaching one with returns similar to the S&P 500 until the recent sharp decline. As far as a medium of exchange, it has failed because of its volatility as well as not having any real value. The share of US consumers who use crypto for payments has not increased from 2021’s 1%. Bitcoin used for transfers has actually declined from 0.7% in 2022 to 0.5% in 2024. El Salvador adopted Bitcoin as legal tender in 2021 and it has been a disaster. Despite a myriad of incentives including giving each citizen a $30 Bitcoin bonus, only 8% use Bitcoin and almost no businesses accept it even though the government mandated businesses to accept it as legal tender. It even caused the major credit agencies to downgrade their credit ratings. They still prefer to hold and use dollars.
I never believed in crypto and specifically Bitcoin until 2020 when it became apparent that enough people believed in Bitcoin it will have some staying power. Even though Bitcoin has no economic value, if enough people believe in it then it can have staying power. When Coinbase (COIN) went public in 4/21 I wrote that Bitcoin had reached its top for the cycle at $63,104. The price of Bitcoin only slightly exceeded the April price (double top) in October, before collapsing. I then recommended closing out half of Bitcoin shorts at about $19,000 and then the rest later at $28,000.
I have argued endlessly with crypto bulls since 2020 that the real value of crypto was in the blockchain technology that would be adopted by traditional finance companies. My strong view has always been that the blockchain technology would be the layer 1 and 2 for stablecoins and tokens, which would be the real use case and growth sector. But the bulls always argued that would never happen because stablecoins were still backed by the US dollar. With stablecoins and token use skyrocketing, the crypto bulls now have conceded that point. Their hope is that some of the crypto’s currently traded will be the layer 1 blockchain of many of these stablecoins. But Bitcoin is not being considered as a layer1 blockchain for most stablecoins and is being left behind on real use cases.
Other cryptos such as Ethereum and Solano appear to have some clear economic value as platforms for stablecoin but the race is early. Also, it is my view that the traditional finance companies are going to adopt their own blockchain technologies, especially layer1 blockchain, to control the whole payment process and not pay out fees to third parties. The two biggest issuers of stablecoin, Circle (USDC) and Tether (USDT), have developed or backed their own layer 1 blockchains, Arc and Plasma (XPL). Stripe, an innovative payments company, is also developing its own layer 1 blockchain, called Tempo. Stripe wants to own the full technology stack and control the economics and user experience for stablecoin-based finance. JPM coin (JPMD) operates on multiple blockchains, including JP Morgan’s own private permissioned blockchain.
I have asked many of my clients and peers what they desire in a payment system. They want security, speed and permissionless transactions. However, they still want some very limited central authority overseeing the transaction to protect them. So they really want a permissionless system except for the added limited central oversight. It is likely that the result will be a consortium of private blockchains run by financial institutions that are compatible with each other. Ethereum’s role may be limited as their best case scenario is that banks integrate their private networks with public blockchains or that banks develop Layer 2 networks on top of Ethereum layer 1 networks, but then Ethereum’s fees would be significantly reduced.
Bitcoin though has no value because other cryptos are faster, better and more efficient as payment and transfer platforms. The analogy would be that if a company sells pens at $1 each and costs $.90 to manufacture, and another company sells a better pen at $.80 with manufacturing costs of $.70, then the economic value of the $1 pen company would be zero. Even though the pen has a utility, it has no economic value. Likewise, even though Bitcoin has a utility, its economic value is zero because other blockchains are better overall at secure and fast transactions at lower costs. Limiting supply of something that has no economic value does not give it value.
Many call Bitcoin “digital gold” which it is not. First, only about 38% of gold’s value is from investment demand. Second there is already digital gold without blockchain. It can be bought digitally with a third party custodian or it can be purchased as an ETF online. Yes, there is one day settlement but that will soon be same day settlement. Third some investors prefer to be able to see and feel gold which can’t be done with Bitcoin. Fourth there will soon be tokenized gold ETF’s thus there will be no need for Bitcoin as digital gold will be available through blockchain technology.
Bitcoin bulls in the past believed that Bitcoin would replace gold as a store of value. However now that the price of gold has appreciated significantly for the past two years, they argue that Bitcoin should trade at the same value as gold and not take away from gold’s valuation. How convenient. But why should there now be double the amount of investments in gold by way of its digital proxy?
Investors also argue that gold is not used as a medium of exchange, but it is still used as a store of value, thus Bitcoin can still be a store of value. However, 62% of demand for gold are from real uses such as jewelry and industrial, unlike Bitcoin. Investors buy gold as an inflation hedge as the price of producing gold increases when there is inflation translating to higher prices for gold. Gold is part of the real economy and has fundamental value other than investor demand.
Bitcoin bulls admit there is no real valid metric to value Bitcoin so they fall back on the idea that Bitcoin should trade at the same value as gold even though that theory was debunked above. The total value of gold is $29 trillion and proven reserves are another $9 trillion. Bitcoin bulls argue that crypto including Bitcoin should trade at the combined gold and reserve valuation of $37 trillion. First, Bitcoin bulls argue that Bitcoin is not an operating company. Only operating companies get credit for proven gold reserves. The price of gold already accounts for proven reserves. Second, only 38% of gold is held for investment purposes with half of that held by Central banks. So private investment holdings are only a little over 20% of gold’s value (net of numismatic gold coins). Jewelry is 50% and industrial is 12%. These are averages for the last 10 years. Thus, at today’s gold value, the investment holdings of gold are $11 trillion not $29 trillion. Private investment holdings are about $6 trillion.
Gold jewelry is not an investment in gold. Most jewelry is 14 karat gold (58% gold) and the value of the gold is only on average about 20 to 30% of the value of the jewelry. There are other costs such as materials, labor, design, overhead (rent, etc.), and design. Then the final price at retail includes on average a 100% mark up at both the manufacturer and retail level. Jewelry with 24 karat gold (pure gold) is usually luxury jewelry with higher brand value and bigger mark ups, offsetting the higher gold content. A typical $30,000 Rolex watch, for example, has about $6000 of gold in the watch using average gold prices over the last decade. Also much of gold jewelry has sentimental value that is worth more to the owner than the value of the jewelry.
The average melting value of the gold in jewelry is only about 50 to 60%. Thus typical gold jewelry has about 25% of the value of the jewelry in gold, which if melted brings the value of gold to only 15% of the original purchase price. Clearly buying gold jewelry is not an investment in gold.
Today’s gold price is extremely overvalued. Gold has historically averaged about a 50% premium to production costs which today are about $1700 per ounce. That would result in a price of about $2550 per ounce. At that price the total value of gold would be about $17 trillion and the investment holdings would be $6.6 trillion, while private investment holdings would be only $3.4 trillion. The $6.6 trillion investment demand assumes that Central banks are going to invest in Bitcoin. So far there is only a minuscule $47 billion of Central bank holdings of Bitcoin and most of that is confiscated from criminals and sold soon thereafter. Don’t believe that Central Banks will ever build big reserves of Bitcoin.
Thus, the argument that Bitcoin should trade at the same value as gold as a store of value is just wrong. The investment holdings of gold are currently $11 trillion not $37 trillion. Private investment holdings are $6 trillion, compared to $3.4 trillion for crypto and $1.8 trillion for Bitcoin. At gold’s fair value price of $2550, the private investment holdings would only be $3.4 trillion, the same as crypto today. It is absolutely surreal that some prominent investors are using gold’s $29 trillion or $37 trillion value including reserves as a price objective for gold instead of private investment holdings of gold of $6 trillion. Yet hundreds of billions of dollars are being invested on this flawed analysis!
As for gold as an investment, it is a non-correlated asset but there are better ways to hedge a portfolio. Gold produces nothing and the marginal investor demand which controls the price of gold is based on the mood of the investor. I am not in the business of predicting how investors will subjectively feel about the economy and inflation. That is artificial demand. There is very little historical correlation of gold’s price movements with economic variables. Inflation has been the best correlation but the gold price declined form the spring of 2021 until October of 2022 when the core inflation rate spiked from under 2% to 5.8% year over year in September of 2022. Thus, during the biggest spike in inflation in over 40 years the price of gold declined and actually bottomed and began a three year surge the month after core inflation peaked! Some argue that the gold price is correlated with real interest rates but then why did gold prices not do well last decade when we had the lowest real rates ever. And why did gold prices spike in 2007-8 period when real rates were historically high? If an investor believes a lower dollar or higher inflation is somewhat correlated with higher gold prices, then isn’t shorting the dollar or shorting Treasury bonds a better hedge because there is still a possibility that gold many not rise if the dollar declines or inflation rises?
The best correlation for short and intermediate term gold prices is actually just price momentum. For the long term it is the premium or discount to the cost of gold production. But that can take many years or even over a decade to revert to the mean premium.
Gold is going to face the same problem as diamonds. Man made diamonds have caused the price of all diamonds to decline since 2012. In real terms diamond prices have declined over 40%. There is a private company, Marathon Fusion, which claims it can create gold by using the high energy neutrons from a nuclear fusion reactor. Although it is many years away, remember man made diamonds progressed much faster than expected. Technology always defeats commodity inflation. From 1800 to 2000 only three commodities outpaced inflation and they weren’t oil and gold. Now with AI and quantum computing, expect even lower commodity inflation.
Crypto and specifically Bitcoin faces a major risk of quantum computing breaking the encryption that secures the network within the next five years. The crypto industry is developing quantum-resistant algorithms but it is a race against time. Even if crypto wins this race there will be future threats and vulnerabilities as public ledgers.
Even if the other crypto’s have some intrinsic value, their price mechanisms are absurd. An investor in one crypto doesn’t own shares in the network, but owns the private key that allows the investor to control, transfer and transact with a specific amount of digital value. A crypto owner has the right to transact for goods and services and to sell it to another person or entity, as well as secure it using encryption and private key management. But the crypto owner doesn’t have any legal rights to a share of the network. Crypto has created “smart contracts” but their enforceability is still unclear. There is very little legal precedent for interpreting and enforcing these contracts. With traditional equities and bonds there are 200 years of legal precedent and contract law developed.
The protocol and strategy of crypto networks are decided by consensus, but the node runners, miners, Proof of Stake (POS) token holders as well as core developers and founders have more influence than other Crypto holders. And node runners and miners constitute only a very small fraction of crypto holders. There isn’t any real developed contract law for crypto as there is for financial instruments. For example, there are centuries of developed laws and procedures to protect minority shareholders of equities in contrast to small minority Bitcoin owners. There are thousands of statutes, regulations and legal precedent developed for disclosure obligations for traditional financial products. Ditto for marketing, public relations, and specific decisions such as elections of officers. Very little for crypto. There are standard hierarchies for managing businesses (such as CEO, CFO, COO) for public equities, none for crypto. Public companies also give detailed financial projections to be able to analyze and track the company. Just projecting the specific crypto network is going to expand in the future is not a reason to invest in the crypto blindly.
Why would I invest in a network that I can’t have an ownership stake, not have the information I need to really analyze the network, not be protected by established laws and regulations, and have no valid metric to value the network? No thanks!
Crypto and Bitcoin are supposed to democratize the world and allow access to finance for everyone. But the top 2% of Bitcoin holders control 73% of Bitcoin. The top 10% of miners control 90% of Bitcoin capacity and the top 0.1% control 50% of mining capacity. Most small investors have lost money in Bitcoin and other crypto.
Many cryptos have restrictions on supply. Bitcoin for example, halves about every four years, reducing the rewards for mining new blocks by 50%. That is not a free market, but a contrived manipulated market attempting to create artificial scarcity. At least gold prices are determined by a free market. No the US dollar is not a manipulated market. The US government increases the money supply over the long run in line with nominal GDP growth with a goal of 2 to 3% inflation. And even though it is a fiat currency, can’t think of anything more secure than being backed by the US government and its taxing authority.
The dramatic increase of crypto treasury companies this year is a clear sign of the top. There are over 100 Bitcoin treasury companies and over 60 Ethereum treasury companies. Of course, these crypto treasury companies can only raise capital when crypto prices are really high and near the end of their up cycle. It is a failed business model and now MSTR was forced to raise capital to fund their preferred stock dividends after the price of Bitcoin declined 30% in two months. Most of these crypto treasury companies were failed crypto mining companies that were desperate to find a way to boost their stocks. Some of them such as Bitmine Immersion Tech (BMNR 37), soared 1000% or more when they announced they would become crypto treasury companies. BMNR ‘s claim to fame is that it will acquire enough Ethereum to be able to receive staking rewards of between 3 and 5%. And that makes BMNR increase 1000% in value? Seriously? Never seen a 4% dividend so valuable? BMNR bulls also tout their 5% Ethereum stake goal, giving them more influence. Never saw a stock go up 1000% because an activist investor revealed a 5% stake in a traditional stock giving the investor more influence. Usually around 5 to 10%. The BMNR stock reactions have been insane until recently.
Some of these crypto treasury companies have been trading at a premium to their net assets of the underlying crypto holdings such as Microstrategy (MSTR 215). That is partly because investors don’t like the pricing mechanism of crypto and feel more comfortable buying it through traditional equity holdings. But the stock market really doesn’t like manipulation (issuing stock above NAV and then buying more crypto) and eventually investors revolt. This will continue for the next couple of years with these crypto treasury companies trading at discounts to NAV eventually likely causing liquidations.
Harvard University recently invested in Bitcoin and has already lost 20%, or more than $90 million. Classic buying at the top as a new asset is established. Reminds me so much of when CalPERS decided to increase significantly their investments in commodities to as high as 7 or 8 billion dollars as a new asset class in the 2007-08 period, right at the multi-year top. From October of 2007 to June of 2011 CalPERS commodity investments decreased at a 6.9% annual rate and didn’t perform well for the rest of the decade. A disaster. I actually wrote about this gaffe in real time back then, describing how CalPERS was buying at the top.
Stablecoins may not grow as fast as expected as they threaten to pull deposits from US banks which hold over $18 trillion in deposits. Banks account for over 50% of all loans in the US and siphoning bank deposits (which they leverage to make loans) for stablecoins could negatively affect the US economy. Regulations are still in flux as to whether stablecoins can offer yields, but exchange stablecoin products are already offering yields. But now that dollar deposits can be tokenized, the market for stablecoins may not be as big as the consensus believes. Also this week Tether was downgraded by Standard & Poor’s because their stablecoin, USDT, has weak coverage as only 72% of its assets backing USDT are cash and T-Bills, with significant Bitcoin and gold assets. According to one analysis, If both Bitcoin and gold decline by 30%, Tethers equity buffer would disappear and USDT would be technically insolvent, which would cause panic selling of USDT, Bitcoin and gold. This could be a major problem for stablecoins in the future that would reverberate throughout the financial markets. Only stablecoins that are 100% backed by US Treasury T-Bills will grow assets over the long term.