Bitwise: Is it a market size of k billion dollars? The encryption sector is aiming for.

Author: Matt Hougan, Chief Investment Officer of Bitwise; Translated by: Golden Finance

One of the biggest mistakes of cryptocurrency skeptics is underestimating the market size that cryptocurrencies aim to disrupt. This leads them to overlook some matters that should be taken seriously.

For example: Bitcoin is an asset worth $2.3 trillion. People are often surprised when they hear this number. There are very few things in the world that are worth $2.3 trillion, most of which are household names. For instance, Amazon is worth $2.3 trillion. But Amazon is a service that many people use every day, while Bitcoin is not.

So, why is Bitcoin worth $2.3 trillion? Because it is entering a very large market. Gold is a $25 trillion asset, and Bitcoin is competing with gold.

This is crucial to its investment logic.

Imagine you have two startups: one trying to disrupt Amazon and the other trying to disrupt gold. To reach a valuation of $2.3 trillion, the company disrupting Amazon would need to capture 100% of the market, forcing the Seattle-based giant into bankruptcy. Good luck with that. But if the startup's goal is to disrupt gold, the situation is quite different: to achieve a $2.3 trillion valuation, it only needs to capture less than 10% of that market.

Bitcoin is not the only example.

Blockchains like Ethereum and Solana are competing for the issuance, trading, and settlement of stablecoins and tokenized assets. These are huge markets. According to McKinsey, the global payments industry processes 3.4 trillion transactions annually, worth $1.8 trillion. According to estimates from SIFMA and First American, the total value of stocks, bonds, and real estate is $665 trillion.

Trillions? Tens of trillions? These are among the largest potential markets in the world.

These markets are so large that, in fact, no single centralized company would dare to hope to capture even a small part of them. But Ethereum and Solana are different. As decentralized supercomputers with global scale, they truly have the opportunity to capture significant market share. This is why they are valued at approximately $500 billion and $100 billion, respectively.

Valuation of Tether

I recently recalled this phenomenon when there were reports that the stablecoin issuer Tether was trying to raise funds at a valuation of $500 billion. This would make Tether one of the most valuable startups in the world, alongside OpenAI and SpaceX.

On one hand, this seems absurd. OpenAI is committed to creating general artificial intelligence, SpaceX wants to land humans on Mars. Meanwhile, Tether essentially operates a digital currency market fund.

But Tether aims at a very large market. It holds nearly 100% of the stablecoin market in non-Western countries. It is possible that many emerging market countries will shift from primarily using their local currency to using USDT. If this happens, Tether could ultimately manage trillions of dollars in assets and earn all the interest.

As background reference: In 2024, Saudi Aramco achieved the most profitable year in its history, earning $120 billion. At current interest rates, if Tether's asset size reaches $3 trillion—accounting for about 3% of the global money supply—its profits would exceed this figure, making it the most profitable company in history.

This Should Change the Way You Invest

Understanding that cryptocurrency is targeting a very large market will change several things.

Firstly, it shows investors the upside potential of cryptocurrencies. These are one of the largest and most important markets in the world. Targeting Amazon is vastly different from targeting the entire global payment market.

The second impact is: it has made many investors hope to diversify their investments.

Investing in cryptocurrencies is like investing in early-stage startups: you are looking for black swans. If you find one, the potential returns are enormous. But you must anticipate that many of the projects you invest in will fail. Even large projects. Ethereum, Solana, Ripple, Aave, Hyperliquid, Chainlink: almost every existing crypto project could fail. In fact, I guess that the billion-dollar level failures in the cryptocurrency space will be more than in any other industry in history.

But I expect that these failures will coexist with significant successes. (This is one of the reasons I like the Bitwise cryptocurrency index fund.) Diversifying investments shifts the question from "Which cryptocurrency assets will succeed?" to "In five years, will cryptocurrency be more important or less important?"

"If you have five minutes today, I encourage you to read the article "Black Swan Farming" by Y Combinator founder Paul Graham. It discusses the economics and strategies of investing in projects with huge potential. If you're investing in cryptocurrency, this is what you should be doing.

Please take action accordingly.