Bitcoin downturns are becoming less severe, and bull markets may soon follow.

The shift in bitcoin ownership since the arrival of ETFs is changing how market downturns and upturns are felt across portfolios, according to Rasmussen. Before ETFs, bitcoin ownership tilted more heavily toward retail investors, crypto-native funds and traders making tactical bets. ETFs gave financial advisers and other professional investors a familiar way to add bitcoin to traditional portfolios, bringing a different set of allocation habits, rebalancing rules and risk calculations into the market.

Ownership changed the math of a crash

For professional investors, bitcoin may be treated as a small satellite allocation rather than a core holding. Rasmussen said a professional investor might allocate around 2% of a portfolio to bitcoin, while crypto-focused retail investors can have 20%, 30%, or more of their money tied to the asset.

That difference means a bitcoin price move does not hit every investor in the same way. A large decline can look severe for a heavily concentrated holder, but can be contained inside a diversified portfolio that holds bitcoin as a small allocation. Rasmussen described the contrast with a simple example: “If it goes down 50%, my portfolio is only down 1%,” Rasmussen said in an interview, describing how an investor with a 2% allocation might view the decline.

Rebalancing can buy dips and sell rallies

The second change comes from portfolio discipline. An adviser targeting a 2% bitcoin allocation may buy after a steep decline to bring the position back to its target weight. If bitcoin surges and reaches 5% of the portfolio, that same investor may sell some at the next rebalancing.

This mechanism creates a stabilizing pattern: falling prices can trigger buying, while rising prices can trigger selling. That could soften sell-offs, but also limit the size of rallies. The effect is not about a single view on bitcoin; it is about the rules that institutional-style portfolios apply to every asset.

Smaller drawdowns may come with smaller upside

Mark Connors, chief investment officer at Risk Dimensions, expects growing institutional participation to contribute to smaller drawdowns than the 70-80% declines seen in previous cycles. His view suggests that as more professional money enters the market, the historical pattern of very deep losses may become less likely.

But investors shouldn't expect to get something for nothing. Connors said bitcoin's volatility has fallen over time, but its returns have moderated as well. More institutional investors could mean “smaller blow-off tops due to rebalancing,” he said.

For readers, the practical effect is that bitcoin is increasingly being experienced through the lens of portfolio construction. The asset may still move sharply, but the amount of pain and excitement felt by different investors now depends on how much bitcoin they hold, what rules govern their positions, and whether they are buying dips or selling peaks as part of a target allocation.