Crypto Poised for a Bullish Year

Tom Lee Expects Crypto's Worst to Be Over

Tom Lee, co-founder and head of research at Fundstrat Global Advisors, believes the cryptocurrency market may have already passed through its most difficult phase. In a recent Wealthion interview, he described the coming 12 months as potentially one of the strongest periods for digital assets in the near future.

At the time of the interview, Bitcoin was trading around $77,315, approximately 39% below its record above $126,000. Despite the significant distance from its peak, Lee believes the current market structure could provide the foundation for another major advance.

Massive Liquidations May Have Cleared the Market

One of the main reasons behind Lee's optimism is the enormous liquidation wave that struck the crypto market last October.

A threat of 100% tariffs on Chinese imports triggered a severe market reaction on October 10. More than $19 billion worth of leveraged positions were liquidated in just one day, making the event one of the largest deleveraging episodes ever recorded in cryptocurrency markets.

Lee argues that the forced selling effectively removed a considerable amount of excessive leverage from the system. In his view, this could leave the market healthier as it enters the next stage of its cycle.

He also pointed to the widely followed four-year crypto cycle, suggesting that the next month could potentially represent an important bottoming period.

Bitcoin Remains Below Its Record High

Despite Lee's optimism, the market has yet to fully recover from the previous downturn.

Bitcoin was hovering around $77,315 during the interview, while its previous record stood above $126,000. That leaves the largest cryptocurrency roughly 39% below its peak.

Ethereum, meanwhile, had risen about 3.2% over the preceding 24 hours to approximately $2,533. Lee remains constructive on Ethereum as well, citing developments within the broader crypto ecosystem that could strengthen demand for ether.

Tokenization Could Become a Trillion-Dollar Industry

Lee's second major argument centers on tokenization.

The concept involves representing traditional assets such as stocks, bonds and investment funds on blockchain networks. Instead of relying entirely on conventional financial infrastructure, tokenized assets could potentially move through blockchain-based systems more efficiently.

Lee views this development as a major structural transformation that could eventually benefit Bitcoin, Ethereum and other blockchain networks capable of supporting smart contracts.

A $20 Trillion Opportunity?

The numbers behind Lee's thesis are enormous.

He has suggested that if approximately $100 trillion worth of assets eventually moved onto blockchain networks, capturing just 1% of that value as revenue could produce around $1.1 trillion in annual income.

Using traditional business valuations, Lee estimates that such an industry could represent an opportunity worth roughly $20 trillion.

However, the current tokenization market remains tiny compared with that projection.

The Current Tokenized Market Is Still Small

Research from BeInCrypto indicated that tokenized assets on-chain totaled only around $60 billion as of May 31.

That figure is dramatically smaller than the $100 trillion potential market Lee describes. Furthermore, a significant portion of tokenized assets appears to have limited activity. About 56% reportedly recorded no transfers during a particular week.

This has led some market observers to question whether all forms of tokenization represent genuine financial transformation. Critics have even characterized some projects as little more than assets being placed on a blockchain without meaningful economic activity.

Lee Has a Direct Interest in Ethereum's Success

Lee's optimism toward Ethereum is also relevant because of his corporate role.

As chairman of BitMine Immersion Technologies, he oversees a company with a large ether treasury. BitMine reportedly holds approximately 5.93 million ETH, equivalent to around 4.9% of Ethereum's total supply.

That position has also created substantial paper losses. Reports indicate that BitMine's ether holdings are currently around $5 billion below their acquisition value.

This exposure means Lee's bullish outlook on Ethereum and tokenization has a direct connection to a company whose balance sheet is heavily invested in ETH.

Lee Also Challenges the Current Inflation Narrative

Lee's market outlook extends beyond cryptocurrencies.

He argues that some economists may be interpreting inflation incorrectly by overlooking two unusual components: portfolio management fees and flash memory prices.

According to Lee, these categories account for roughly 60% of the difference between core CPI and core PCE.

Investment advisory fees can rise when financial markets climb because many are calculated as a percentage of assets under management. The effect is captured more strongly by PCE than CPI.

Meanwhile, flash memory prices have experienced significant increases and are reflected in PCE calculations but not in the same way in CPI.

Lee argues that removing these effects would bring underlying CPI much closer to the Federal Reserve's preferred inflation range, potentially reducing the need for aggressive monetary tightening.

CLARITY Act May Matter Less Than Expected

Lee also played down the potential importance of the CLARITY Act.

The legislation was expected to address regulatory responsibilities in the U.S. crypto market, including a major role for the Commodity Futures Trading Commission and involvement from the Securities and Exchange Commission.

Lee's argument is that the CFTC already performs much of the relevant oversight, meaning the legislation may not fundamentally change the industry's trajectory.

He compared crypto with prediction markets, arguing that these markets expanded substantially even without waiting for a specific legislative framework.

A 2% Allocation Became More Than 85%

One of Lee's most striking examples involves Fundstrat's long-standing portfolio recommendation.

For more than a decade, the firm has suggested that investors consider allocating about 2% of their portfolios to crypto.

Lee says that clients who maintained that original allocation without adding more capital now have more than 85% of their portfolios represented by cryptocurrency.

The dramatic change, he explained, came from the appreciation of the assets rather than investors continuously increasing their exposure.

Most Retail Investors Still Have Little Crypto Exposure

Lee estimates that approximately 80% to 90% of retail investors still hold no cryptocurrency.

Many of these investors have instead maintained exposure to traditional assets such as gold.

From Lee's perspective, investors are eventually faced with a choice between maintaining their existing approach and participating in the potential growth of digital assets.

Bitcoin Could Have More Room to Run

Lee has made similarly optimistic predictions in the past.

In August, he suggested that fear within financial markets could eventually push Bitcoin toward $150,000.

He now views the approximately six-week rally as another indication that the market may have already established its cycle low.

Additional signs of renewed borrowing among South Korean investors seeking crypto exposure have also caught his attention, as they could indicate that leverage is gradually returning to the market.

What Lee's Outlook Means for Investors

The broader crypto market is still recovering from the extraordinary liquidation event that occurred last October.

Although prices have stabilized, Bitcoin and other major assets remain below their previous highs.

Lee's thesis is that three developments could create a favorable environment over the next year: the removal of excessive leverage, the progression of the four-year market cycle and the long-term expansion of tokenized assets.

If his forecast proves correct, the current market could represent an accumulation phase before another substantial rally.

At the same time, the tokenization argument remains highly dependent on future adoption. The enormous difference between the projected $20 trillion opportunity and today's roughly $60 billion in tokenized assets demonstrates just how much growth would still be required.

A Bullish View With Important Caveats

Lee's position carries considerable influence because of his roles at both Fundstrat and BitMine. His firm's historical 2% crypto allocation strategy has also produced extraordinary results for investors who maintained their positions as cryptocurrency prices increased.

Nevertheless, his corporate exposure to Ethereum should be considered when evaluating his views on ETH and tokenization.

For now, the central question is whether the crypto market has truly completed its downturn and is entering a new expansion phase—or whether investors are still waiting for another major test of the market's support levels.

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