Bitwise Chief Investment Officer: Crypto Has Become a Contrarian Investment—Three Logics to Understand the Current Market

By Matt Hougan, Chief Investment Officer, Bitwise

Translated by Chopper, Foresight News

In past memos, I’ve typically focused on one central theme dominating the market. But today’s industry landscape is exceptionally complex, making it difficult to distill everything into a single narrative. This piece therefore analyzes the current market across three dimensions.

1) Cryptocurrencies Have Become a Contrarian Investment

The crypto market is currently in dire straits. Bitcoin is down 21% year-to-date; Ethereum, Solana, and XRP have fared even worse—down 33%, 37%, and 31%, respectively. Crypto ETFs continue to suffer net outflows, while spot trading volumes have plunged to multi-year lows.

The core reason for this weakness is that crypto is no longer the hottest sector in capital markets. AI-related stocks, robotics firms, and SpaceX are capturing all the attention—and the Nasdaq-100 Index is up 43% year-to-date. Capital has simply moved on from crypto.

Amid AI’s massive capital draw, the crypto industry is undergoing painful transformation—from a trend-following, “hot” theme into a contrarian investment opportunity.

This marks a pivotal turning point for the industry. Trend-following investing rides momentum and feels great when prices rise; contrarian investing, by contrast, is a long, arduous process that tests patience, long-term thinking, and fundamental analysis skills—and rewards are often intermittent.

That explains why investors today increasingly prioritize revenue generation—and why protocols like Hyperliquid, with strong fundamentals, are gaining favor. The market hasn’t abandoned crypto altogether; rather, under a contrarian investment framework, capital is shifting away from sentiment-driven speculation toward fundamentally sound assets.

Crypto won’t disappear—but the types of investors and projects the market rewards have fundamentally changed. Recognizing this shift is essential to capturing profits in the next bull cycle.

2) Markets Await Regulatory Clarity—But the CLARITY Act Is Likely Doomed

The second major drag on crypto performance is the enormous regulatory uncertainty surrounding the CLARITY Act.

This bill—the cornerstone of U.S. crypto regulation—is advancing through Congress and aims to establish a unified national regulatory framework for digital assets. Although it recently cleared one hurdle in the Senate, prediction market Polymarket assigns only a 55% probability of passage this year. My own view is more pessimistic: Washington insiders I’ve spoken with estimate the odds at just 5% among Democrats and 30% among Republicans. Regardless of whether the figure is 5%, 30%, or 50%, passage is far from guaranteed.

This uncertainty keeps institutional capital on the sidelines. From the perspective of large institutional investors, the choice is binary:

• Invest in AI stocks—whose share prices keep hitting new all-time highs;
• Allocate to crypto—while facing nearly a 50% risk of adverse regulatory news within the next two months.

The latter option is unlikely to win over capital.

Thus, we conclude that major cryptocurrencies are unlikely to enter a sustained bull market until regulatory clarity arrives. What matters most isn’t whether the bill ultimately passes or fails—it’s the resolution of uncertainty itself. Passage would catalyze a rally; failure would allow the industry time to digest the negative impact. Only prolonged limbo—a protracted back-and-forth—keeps the market weak.

3) Capital Is Rotating Into Next-Generation Fundamentally Sound Assets

This bear market differs sharply from previous crypto winters: In prior downturns, capital collectively fled to Bitcoin as a safe haven, while altcoins collapsed en masse. This time, however, capital isn’t clustering into traditional safe-haven assets. Instead, it’s flowing into smaller-cap, fundamentally robust emerging projects.

May 2026 monthly returns across major crypto assets reveal the key insight: What stands out isn’t the broad-based decline—but the assets rising against the tide. Bitcoin, Ethereum, and Solana all weakened simultaneously, yet Hyperliquid surged 72% month-on-month, Zcash rose 50%, and XLM gained 44%. None are mega-cap coins; each is attracting capital based on its unique, compelling fundamentals.

This is precisely the concrete manifestation of the “contrarian investment logic” discussed earlier: As crypto moves beyond trend-chasing, fundamentals have become the primary driver of valuation—and the rotation is already underway.

Moreover, the fact that select assets are generating gains amid broader weakness signals that this bear market has likely entered its mid-to-late stage. In deep bear markets, virtually all assets fall together. When a cohort of assets begins delivering independent, fundamentals-driven upside, it’s a strong indicator that the market cycle is poised to turn.

Conclusion

Let’s be honest: Near-term pressure on the market will persist. The CLARITY Act’s approval process remains mired in stalemate; SpaceX is preparing for its IPO, and Anthropic has filed its IPO prospectus—AI narratives continue to dominate financial headlines. Adding exposure to crypto right now will likely deliver a poor experience. Yet the essence of contrarian investing lies precisely in deploying capital where no one else is looking—and making counterintuitive decisions against prevailing sentiment.

Today’s crypto market fits that description perfectly. Patience and conviction are the keys to success. Focus on fundamentals, identify high-quality assets, and the long-term returns will be substantial.