Joe Burnett, vice president of Bitcoin strategy at Strive, said Bitcoin’s story may be entering a phase that many market participants are still underestimating: falling returns and falling volatility do not necessarily point to a future of permanently muted upside. He argues that lower volatility can change how much capital Bitcoin can absorb, how useful it becomes inside the financial system, and how much dollar credit can be built on top of it.
Burnett wrote that when Bitcoin fell more than 50% from its high last quarter, he argued the bear market was not a system flaw but part of Bitcoin’s early adoption process. Earlier this year, he also laid out why Bitcoin could reach $11 million by 2036. He said he still sees that scenario as possible, but the more important question is what path Bitcoin would take to get there.
Power-law models explain the past, but not necessarily the end state
Burnett said Bitcoin’s early cycles produced 100x gains, while returns in more recent cycles have narrowed sharply. If that trend simply continues, Bitcoin would start to resemble a mature asset, with returns moving closer to normal levels over time.
He said the power-law framework captures that pattern well. In that view, returns compress as an asset grows in size, and Bitcoin has spent more than a decade tracking a remarkably stable long-term path relating price to time.
Still, Burnett said he is no longer convinced that a power law is enough to describe Bitcoin’s final stage. His reason is straightforward. As Bitcoin matures, returns are falling, but volatility is falling too, and that second variable may matter just as much for future price behavior.
Lower volatility, he wrote, improves Bitcoin’s risk-adjusted returns and makes Bitcoin-backed borrowing easier. If Bitcoin develops into premium collateral across the global financial system, the amount of dollar credit created against it could expand substantially. In his framework, diminishing returns push volatility lower, lower volatility attracts more capital and supports more financing, and those forces could eventually send Bitcoin above its long-term power-law track.
A metal-fatigue analogy for Bitcoin monetization
To explain the transition, Burnett borrows a concept from materials science. Engineers who study metal fatigue track how cracks spread under repeated stress. An airplane wing bends slightly on every flight. A bridge deck is compressed and released over and over as vehicles pass. Each event causes only minor damage, but the damage accumulates and the crack grows.
He said engineers usually divide crack growth into three regions. The first is the crack-initiation stage, where growth is irregular and difficult to model. The second is the Paris-law region, where the crack expands in a more regular pattern and appears roughly as a straight line on a log-log chart. The third comes when the crack reaches a critical point, accelerates rapidly, and the earlier power-law relationship no longer applies, ending in fracture.
Burnett argues that Bitcoin monetization follows a similar path. In his analogy, the stressed material is the dollar credit system.
- The first stage is discovery. Returns and volatility are both extremely high, large pools of capital struggle to allocate meaningfully to Bitcoin, and Bitcoin is difficult to use as collateral.
- The second stage is maturity. Returns and volatility narrow together, risk-adjusted returns improve, investors can scale positions, and Bitcoin becomes a more attractive collateral asset.
- The third stage is monetization driven by the financial system. Cash buying and credit-backed buying enter the market at scale, a self-reinforcing loop begins, and price starts to accelerate again, breaking above the power-law path.
In Burnett’s view, many people stop at the second stage and assume diminishing returns will continue forever. He takes the opposite view. The second stage is what creates the conditions for the third one. Lower volatility, better risk-adjusted returns, and stronger collateral quality make it easier for existing capital to move in and more practical for investors and institutions to finance Bitcoin purchases.
Falling volatility is changing Bitcoin’s role as an asset
Burnett said the drop in Bitcoin volatility is already pronounced. In March 2014, one-year realized volatility was close to 147%. At the time the article was published, Perplexity Finance data put that figure at about 44%. Fidelity recently said Bitcoin’s current volatility is lower than 98.5% of its historical trading days.
He said that as long-term returns remain strong, lower volatility lifts the Sharpe ratio and can attract additional capital even without new credit creation. Burnett pointed to 2016 through early 2017 as an earlier example: volatility compressed significantly, and strong performance then drew in more money.
He also described volatility as a kind of hidden tax on position sizing. For an investor with a fixed risk budget, if Bitcoin volatility is cut in half, that investor can theoretically double the position size without increasing the asset’s contribution to overall portfolio risk. By that logic, lower volatility alone expands the room for existing capital to allocate to Bitcoin, even before any new lending enters the picture.
Drawdown history tells a similar story, he said. Bitcoin’s three earlier major bear markets saw peak-to-trough declines of about 85%, 84%, and 77%. In the current cycle, Bitcoin fell from a high of roughly $125,000 in October 2025 to a low of roughly $58,500 in June 2026, a drawdown of about 53%.
Burnett said NYDIG reached a similar conclusion near the June low: this cycle’s drawdown was 52.7%, compared with 77.6% in 2021 to 2022, while earlier cycles ranged from 84% to 94%. Each cycle has produced a smaller decline and a higher floor, and NYDIG described the long-term fall in volatility as one of the clearest features of the present stage.
For Bitcoin holders, he wrote, that shift may feel disappointing. Bull markets are smaller, bear markets are shallower, and overall returns are lower. For lenders, though, the same trend makes Bitcoin much more attractive because it is turning into better collateral.
Better collateral can support a larger credit base
Burnett said the lender’s core question is simple: how much of a decline can Bitcoin withstand before the value of collateral approaches the outstanding loan balance?
He offered a numerical example. If someone holds $100,000 worth of Bitcoin and borrows $20,000 against it, the starting loan-to-value ratio is 20%. If LTV rises to 80%, the lender liquidates the collateral.
The smaller the worst expected drawdown, the larger the loan amount a lender can safely extend against the same collateral. Under unchanged liquidation rules, Burnett wrote, if the expected worst drawdown falls from 80% to 50%, the amount of credit that can be safely issued rises by 2.5x.
The same logic applies on the borrower side. He said financing structures used by companies such as Strategy and Strive can increase Bitcoin exposure without taking on short-term forced-liquidation risk, and those structures become more resilient as drawdowns get shallower. In that sense, lower volatility supports larger financing capacity while reducing credit risk.
Price appreciation amplifies the effect. If Bitcoin doubles while the associated dollar debt stays unchanged, LTV is cut in half. The same amount of Bitcoin can then support more borrowing and provide funding for additional buying.
Burnett said this financing logic can remain intact even if Bitcoin no longer delivers 100% annual returns. He used a simple spread example: if expected annual Bitcoin returns fall to 30% while the financing cost of Bitcoin-related preferred shares is about 13%, there is still an expected return spread of about 17 percentage points.
As long as extreme drawdowns continue to narrow, he said, that spread may still be enough to support financing at large scale. And as the market lowers its assessment of collateral risk, cheaper funding channels could open over time, including bank credit lines, investment-grade bonds, and securitization backed by Bitcoin-collateralized loans.
Strategy’s model ties lower Bitcoin volatility to tighter credit spreads
Burnett said the mechanism is already visible in public markets. Strategy has published an illustrative credit model that uses assumed Bitcoin volatility to estimate the credit spread on its preferred shares.
Holding other assumptions constant, the model assigns STRC a 360-basis-point credit spread when Bitcoin volatility is 60%, placing it in non-investment-grade territory. When volatility falls to 40%, near current realized levels, the spread narrows quickly to 56 basis points, which moves into investment-grade territory. If volatility falls to 30%, the spread drops to just 6 basis points.
At the same time, the model’s probability that collateral assets fail to cover creditor claims falls from about 26% to less than 0.5%. Burnett’s conclusion is that lower volatility reduces the credit risk of the same instrument, and lower credit risk usually leads the financial system to supply more funding.
That creates an unusual setup: returns and volatility decline at the start, yet the result could be a renewed increase in returns later on.
The capital-and-credit flywheel
Burnett said these pieces together form a self-reinforcing loop. As Bitcoin grows and matures, volatility falls. Better risk-adjusted returns let investors commit more capital. Better collateral quality makes financing cheaper and more abundant. Existing capital and new dollar credit then compete for a supply capped at 21 million BTC, pushing the price higher.
As price rises, collateral values rise too, which creates more borrowing capacity and feeds the next round of buying. Burnett compared the mechanism, from a credit-expansion angle, to a speculative attack in macro finance: borrow the relatively weaker currency, buy the asset that is harder to debase, and let the trade strengthen itself.
He said the credit expansion can come through several channels. Banks can make Bitcoin-backed loans and, as the Bank of England explained in “Money creation in the modern economy,” commercial bank lending creates deposit money at the same time. Companies can also issue convertible bonds and perpetual preferred shares, then use the proceeds to buy Bitcoin. Both paths expand dollar-denominated credit while taking more Bitcoin out of liquid circulation.
What a break above the power law would mean
Burnett closed by asking where the process ends. New technologies usually follow an S-curve, beginning slowly, then spreading quickly, and finally approaching saturation. Many investors extend that logic to Bitcoin and assume its price should eventually flatten in the same way.
He said that view misses a crucial point: the dollar side of BTC/USD is not static. The pool of dollar capital and dollar credit that can be used either to buy Bitcoin directly or to finance Bitcoin purchases can keep growing.
Bitcoin supply is fixed, he wrote, but the stock of dollars and dollar credit available to chase Bitcoin does not face the same hard cap. The lower volatility goes, the more existing capital can reasonably allocate to Bitcoin. The better Bitcoin functions as collateral, the more capacity the financial system has to expand dollar credit against it.
Even if Bitcoin adoption eventually saturates, the amount of capital willing to hold Bitcoin outright or buy it through financing could still keep expanding. In that case, Bitcoin’s dollar price could accelerate again and move above the power-law path that describes the second stage.
Burnett mapped that outcome to the third region of the metal-fatigue curve. Cracks do not keep expanding at the Paris-law rate forever. Once a critical threshold is reached, they accelerate and eventually cause fracture. In his analogy, the stressed material is the dollar credit system, and the “fracture” is the moment when Bitcoin breaks upward against the dollar beyond the old power-law path.
The argument does not deny diminishing returns. It reorders their significance. Diminishing returns lower volatility, lower volatility improves allocability and collateral quality, and capital plus credit can then create a price flywheel around a fixed-supply asset. If that process keeps building, Burnett says Bitcoin’s future path may be something other than a slow drift along an established power-law curve.