Original Author: Matt Hougan, Bitwise Chief Investment Officer
Original Compilation: Chopper, Foresight News
In previous memos, I usually focused on the single most important event in the market. However, the current industry variables are complex, making it difficult to center on just one logic. This article interprets the market from three dimensions.
1) Crypto Assets Become a Contrarian Investment Choice
The current crypto market is performing poorly. Bitcoin has fallen 21% year-to-date, and mainstream assets like Ethereum, Solana, and XRP have suffered deeper declines, plummeting 33%, 37%, and 31% respectively. Crypto ETFs continue to experience net outflows, and spot trading volumes have dropped to multi-year lows.
The key reason for the weak performance is that crypto is no longer the hot trend in capital markets. Concepts like artificial intelligence stocks, robotics companies, and SpaceX are in the spotlight, with the Nasdaq 100 Index surging 43% year-to-date. Naturally, capital has little interest in lingering in the crypto sector.
In an environment where the AI sector is siphoning off capital from the entire market, the crypto industry is undergoing a painful transformation: shifting from a momentum-driven hot topic to a contrarian investment target.
This is a crucial turning point affecting the industry's direction. Momentum investing rides market trends, offering excellent experiences during uptrends; contrarian investing, however, is a long and arduous test of investor patience, long-term thinking, and fundamental analysis, with returns realized intermittently.
This also explains why crypto capital increasingly values project revenue, with protocols boasting solid fundamentals like Hyperliquid being highly favored. The market has not abandoned the crypto track, but under the contrarian investment logic, capital is ditching speculative hype and turning towards assets with strong fundamentals.
The crypto industry will not vanish; only the types of investors and projects rewarded by the market have fundamentally changed. Understanding this point is key to seizing profit opportunities in the next bull market.
2) Market Awaits Regulatory Clarity, but the CLARITY Act is Likely Stalled
The second major factor contributing to the weak crypto market is the significant regulatory uncertainty brought by the CLARITY Act.
This act is a core framework bill for the crypto sector in the United States, currently progressing through Congress to establish unified national crypto regulations. Although the bill recently cleared a hurdle in the Senate, prediction market Polymarket data shows only a 55% probability of it being approved and enacted this year. My personal view is more pessimistic: recent consultations with industry insiders in Washington suggest Republicans estimate around 30%. Whether the probability is 5%, 30%, or 50%, the bill's passage is far from guaranteed.
This uncertainty keeps institutional capital on the sidelines. From the perspective of large institutional investors, it's a binary choice:
· Invest in AI stocks, whose prices are continuously hitting new all-time highs;
· Allocate to crypto assets, but face a nearly 50% downside risk if the bill fails in the next two months.
The latter is difficult to attract capital.
Therefore, it is judged that until regulatory clarity is achieved, major crypto assets are unlikely to sustain a bull run. Compared to the final outcome of the bill passing or failing, eliminating the uncertainty itself is more critical. If the bill passes, crypto rallies; if it fails, the industry can gradually digest the negative news; it is only the protracted tug-of-war stage of uncertainty that makes it hard for the market to strengthen.
3) Capital Shifts Towards New Generation Fundamental Assets
This bear market is fundamentally different from past crypto winters: in previous downturns, capital collectively sought refuge in Bitcoin, causing altcoins to collapse across the board; but this time, capital is not piling into safe-haven assets. Instead, it is flowing into smaller-cap, fundamentally sound emerging assets.
Looking at the monthly return data for major crypto assets in May 2026: the most notable aspect of the market is not the widespread decline, but the assets performing strongly against the trend. While Bitcoin, Ethereum, and Solana weakened simultaneously, Hyperliquid surged 72% monthly, Zcash gained 50%, and XLM rose 44%. These are not super large-cap assets; they garnered capital favor based on their own unique fundamental logic.
This is a concrete manifestation of the aforementioned "contrarian investment logic": as crypto moves away from momentum speculation, fundamentals become the core of pricing, and the capital rotation has already materialized.
Simultaneously, the fact that some assets are profiting against the trend also indicates this bear market is entering its mid-to-late stages. In deep bear markets, the entire market declines uniformly. When a batch of assets begins to chart independent upward trajectories based on genuine fundamentals, it signals an impending shift in the market cycle.
Summary
To be honest, the market will likely remain under pressure in the short term. The CLARITY Act approval tug-of-war continues, SpaceX is nearing its IPO, Anthropic has filed its prospectus, and AI themes continue to dominate financial headlines. Adding to crypto positions now will probably be an unpleasant experience, but the essence of contrarian investing is precisely to build positions in neglected areas and make counter-intuitive decisions against the trend.
This is exactly the case with today's crypto market. Patience and conviction are the keys to success. Anchoring on fundamentals and value to discover quality assets will yield substantial long-term returns.
