By Hana Yamamoto
Bitcoin's recent price weakness may be presenting investors with an uncommon long-term entry point, according to Gautam Chhugani of Bernstein. Chhugani frames the past two years as an institutional adoption phase for cryptocurrencies, driven principally by the rapid growth of Bitcoin exchange-traded funds and increased demand from corporate treasuries.
In Chhugani's view, Bitcoin ETFs accumulated $165 billion in assets within a 21-month span, a pace Bernstein characterizes as the fastest ETF growth on record. Separately, Strategy alone purchased more than $48 billion of Bitcoin over the last two years, he said, underscoring substantial structural demand from large investors.
Despite those inflows, Bitcoin has underperformed relative to gold over the past year, raising questions about the "digital gold" narrative. Chhugani notes that Bitcoin's market capitalization has declined to roughly 4% of gold's market cap, positioning it near the lower bound of its historical ratio. He attributes part of gold's strength to markedly increased central bank purchases, particularly in China and India.
Yet Chhugani argues that the U.S. macro and political environment could alter the relative standing of Bitcoin and gold. He highlights several policy developments as potentially pivotal: the adoption of the GENIUS Act to formalize U.S. dollar stablecoins, the proposal to create a U.S. Strategic Bitcoin Reserve under President Donald Trump's crypto executive order, and the prospect of Kevin Warsh becoming Federal Reserve chair. Taken together, these shifts increase, in Chhugani's assessment, the "non-zero probability" that the United States could more closely embrace Bitcoin as an alternative sovereign asset and, in extreme scenarios, revalue or partially substitute gold reserves with Bitcoin.
Chhugani acknowledged the argument may sound unlikely, but he framed it within a geopolitical game-theory context in which the U.S. would seek to check gold's rise as an alternative to U.S. Treasuries in central bank reserves. He suggested that, should Bitcoin's decline relative to gold persist, the administration would likely offer policy support — for example, by accelerating passage of digital asset market structure legislation, referred to in his comments as the Clarity Act.
On the tactical horizon, Chhugani conceded that crypto markets may currently be in a short-term bear phase. Nevertheless, he expects a reversal during 2026, anticipating Bitcoin could stabilize near prior cycle peaks around $60,000. He projects a relatively rapid recovery that would establish a stronger base for what Bernstein terms a potentially consequential Bitcoin cycle that could form the foundation for a sovereign phase.
Institutional flows, Chhugani added, remain robust and have not shown signs of the leverage-driven capitulation seen in past cycles. That resilience among large holders, in his view, reduces the likelihood of a prolonged structurally damaging sell-off tied to margin liquidation dynamics.
Key points
- Institutional adoption accelerated rapidly: Bitcoin ETFs amassed $165 billion in 21 months, and Strategy bought over $48 billion of Bitcoin in two years, indicating strong structural demand.
- Bitcoin has underperformed gold recently, with market cap near 4% of gold's, partly reflecting elevated central bank gold purchases in China and India.
- U.S. policy initiatives, including the GENIUS Act, a proposed U.S. Strategic Bitcoin Reserve, and the potential appointment of Kevin Warsh as Federal Reserve chair, could shift the asset's sovereign status.
Risks and uncertainties
- Short-term market risk: Crypto may still be in a bear phase, meaning prices could decline further before any reversal, affecting investor returns and market sentiment.
- Policy uncertainty: Although Bernstein highlights potential U.S. policy support, the timing and scope of legislation such as the Clarity Act are uncertain, creating execution risk for any sovereign revaluation thesis.
- Relative performance risk: Continued outperformance of gold due to central bank purchases could weaken Bitcoin's standing as an alternative reserve asset.
Bottom line
Bernstein's analysis presents the current Bitcoin pullback as a potentially rare long-term entry point ahead of an eventual sovereign-oriented cycle. The thesis rests on sustained institutional demand, the absence of leverage-driven capitulation, and a set of U.S. policy developments that could legitimize and elevate digital assets' role within official frameworks. However, the path is uncertain, with short-term downside risk and open questions about the timing and content of policy measures.
Disclosure: This article is for informational purposes and does not constitute investment advice.