Original author: Matt Hougan, Chief Investment Officer, Bitwise
Original translation by Chopper, Foresight News
In my previous memos, I usually focused on the most important event in the market. However, with the current complex variables in the industry, it is difficult to focus on a single logic. This article interprets the market from three dimensions.
1) Crypto assets become a contrarian investment option
The current cryptocurrency market is in a dismal state. Bitcoin has fallen 21% this year, while Ethereum, Solana, and XRP have suffered even steeper declines, dropping 33%, 37%, and 31% respectively. Crypto ETFs continue to experience net outflows, and spot trading volume has fallen to multi-year lows.
The key reason for the market weakness is that crypto is no longer a hot topic in the capital market. Artificial intelligence concept stocks, robotics companies, and SpaceX have been performing exceptionally well, with the Nasdaq 100 index rising by as much as 43% this year. Naturally, funds have no interest in the crypto sector.
Amidst the AI sector's influx of funds across the entire market, the crypto industry is undergoing a painful transformation: shifting from a trend-following hot topic to a contrarian investment target.
This is a crucial turning point that will influence the industry's future. Trend investing follows market trends and rides the wave, offering an excellent experience when prices are rising; contrarian investing, however, is a long and arduous process, testing investors' patience, long-term thinking, and fundamental analysis skills, with returns occurring intermittently.
This explains why crypto funds are increasingly focusing on project revenue, with protocols like Hyperliquid, which have solid fundamentals, gaining popularity. The market hasn't abandoned the crypto space, but under the contrarian investment logic, funds are abandoning speculative hype and turning to targets with strong fundamentals.
The crypto industry won't disappear; it's just that the types of investors and projects that the market rewards will completely change. Understanding this is key to seizing profit opportunities in the next bull market.
2) The market awaits the implementation of regulations, but the CLARITY bill is likely to be stalled.
The second major factor contributing to the weak crypto market is the significant regulatory uncertainty brought about by the CLARITY Act.
This bill is a core framework for the US crypto industry and is currently being pushed through Congress, aiming to establish unified crypto regulatory rules across the country. Although the bill recently passed a hurdle in the Senate, data from the prediction market Polymarket shows that its probability of being approved this year is only 55%. My personal view is even more pessimistic: industry insiders in Washington I recently contacted predict that Republicans estimate it at 30%. Whether the probability is 5%, 30%, or 50%, the bill's passage is by no means a certainty.
Uncertainty has led institutional investors to remain on the sidelines. From the perspective of large institutional investors, the choice is between two options:
• Stocks related to AI have seen their share prices repeatedly hit new all-time highs;
• Invest in crypto assets, but there is a nearly 50% risk of negative impact from the bill's passage in the next two months.
The latter is unlikely to attract funding.
Therefore, it's unlikely that leading cryptocurrencies will experience a sustained bull market before regulatory developments are finalized. Eliminating uncertainty is more crucial than the eventual passage or failure of the legislation. If the legislation is passed, cryptocurrencies will rise; if it fails, the industry can gradually digest the negative impact. Only during the unresolved, protracted period will the market struggle to strengthen.
3) Funds are shifting towards a new generation of fundamentally sound stocks.
This bear market is quite different from previous crypto winters: in the past, funds collectively fled to Bitcoin to avoid risk, and altcoins collapsed across the board; but in this round, funds are no longer flocking to safe-haven assets, but instead are investing in emerging targets with smaller size and reliable fundamentals.
May 2026 Monthly Returns of Major Cryptocurrencies: The most noteworthy aspect of the market isn't the widespread decline, but rather the stocks that bucked the trend and strengthened. While Bitcoin, Ethereum, and Solana all weakened, Hyperliquid surged 72% in a single month, Zcash rose 50%, and XLM climbed 44%. These are not mega-cap cryptocurrencies; they attracted investment based on their unique fundamentals.
This is a concrete manifestation of the "contrarian investment logic" mentioned earlier: when crypto moves away from trend speculation and fundamentals become the core of pricing, the shift in funds has already taken place.
Meanwhile, the fact that some individual stocks are bucking the trend and generating profits also indicates that this bear market has entered its mid-to-late stages. In a deep bear market, when the entire market declines, the emergence of a group of stocks that independently rise based on genuine fundamentals signifies an impending market cycle shift.
Summarize
Frankly speaking, the market will remain under pressure in the short term. The CLARITY bill approval process continues to drag on, SpaceX is about to IPO, Anthropic has filed its prospectus, and AI-related themes continue to dominate financial headlines. Adding to your crypto asset holdings now is likely to be a poor experience, but the essence of contrarian investing is to invest in areas no one else is paying attention to, making counterintuitive decisions against the trend.
This is precisely the case in today's crypto market; patience and perseverance are key to success. Focusing on fundamentals and value investing in high-quality assets will yield substantial long-term returns.
