Can AI Replace Crypto Investments? Bitwise CIO: AI Is Draining Funds, Crypto Has Become a "Contrarian Bet"

Bitwise Chief Investment Officer Matt Hougan issued a clear warning in a market memo released in early June 2026: as AI stocks absorb the capital and attention that previously flowed toward digital assets, cryptocurrencies have turned into a contrarian bet. Hougan wrote in the note: “The crypto market is now brutal. One main reason is that crypto is no longer the focus of widespread attention. AI stocks, robotics companies, SpaceX… When the Nasdaq 100 index rises 43% year over year, do we still need cryptocurrencies?”

This statement is not an isolated pessimistic judgment, but a systematic diagnosis of the structural changes in the crypto market in mid-2026. As of early June 2026, the crypto market is going through a “painful transformation”: shifting from the momentum-trading model of the past to a contrarian environment that requires a long-term perspective and fundamental analysis. Investors still believe in the long-term value of crypto assets, but when they are no longer viewed as “the most exciting momentum trade,” rebuilding investment logic becomes unavoidable.

How AI Capital Expansion Is Changing the Global Asset Allocation Landscape

The prerequisite for understanding the shift of cryptocurrencies into contrarian bets is to see the scale and speed of AI capital expansion. Data from the first quarter of 2026 provides a clear answer: global total venture capital is approaching $300 billion, with AI-related companies accounting for about $242 billion alone—roughly 80% of the global venture capital share. This proportion is far higher than the 55% in the same period of 2025, marking AI’s evolution from “one of the venture themes” into “almost all of venture capital.”

Historically, there are hardly any precedents for this kind of change in funding concentration. The closest references are the 1999 dot-com bubble and the 2020–2021 SPAC frenzy, but it is the first time that a single theme has captured 80% of global venture capital funding. At the same time, crypto VC investment in crypto startups has clearly cooled. In 2026 Q1, venture capital in the crypto industry was only about $5 billion, down from nearly $6 billion in the same period last year—capital and talent are being systematically redirected toward the AI sector.

Capital expenditures by hyperscale cloud service providers further amplify this effect. In 2026, hyperscale cloud service provider companies plan to deploy more than $600 billion on AI infrastructure—far exceeding the entire risk financing pipeline of the crypto market. When incremental funds are absorbed at such a large scale by one sector, the liquidity environment for other asset classes will inevitably come under pressure.

What Deep Structural Changes Are Taking Place Within the Crypto Market

One key judgment Hougan makes about this adjustment is that it is not the indiscriminate sell-off seen in 2018 or 2022, but a structural migration of capital. Unlike past bear markets in which capital retreated into Bitcoin as a “safe asset,” in this cycle the funds have not flowed into Bitcoin in search of safety; instead, they have shifted to smaller tokens with stronger usage metrics and fundamental support.

This judgment was validated by market performance in May 2026. Against the backdrop of a broad decline in the overall market, Hyperliquid is up more than 120% since the beginning of the month; Stellar (XLM) is up about 44%; and Zcash has increased by 50%. Hougan pointed out that these assets have been able to outperform in a down cycle because they have “a unique story the market is rewarding,” rather than being “macro concept stocks.” This kind of selective outperformance suggests that institutional allocators are applying a methodology similar to stock-sector analysis to digital assets—measurable on-chain revenue, active user data, and genuine adoption indicators are replacing narrative-driven speculative logic.

From a more macro structural perspective, the overall market value of crypto has contracted by about $1.16 trillion over the past six months, while since February 2026 the combined financing scale of major AI companies has been approximately $140 billion. This pair of figures clearly reveals the redeployment of funds between the two tracks. The capital in the crypto market has not disappeared; it has undergone a paradigm shift from “passive holding” to “active screening.”

The Dual Relationship: Is AI Merging With or Competing Against Crypto?

The story of capital competition is only one side of the coin. On the other side, the integration between AI and crypto is also accelerating in 2026. AI agents are evolving from conversational tools into autonomous economic participants. They need to autonomously complete payments, call APIs, and settle data procurement—high-frequency, micro-value, cross-border activities that are precisely where traditional payment systems have structural shortcomings.

Data shows that this trend is already accelerating. In Q1 2026, global stablecoin trading volume reached $2.8 trillion, with about 76% of transaction volume driven by automated systems and bots, while retail transfers fell by 16% in the same period. Since 2025, more than 17,000 AI agents have been deployed on-chain, and automated activity has accounted for about 19% of all on-chain transactions. Financial interactions between machines are growing at a pace far faster than that of human users.

Meanwhile, structural reorganization is also taking place within the crypto market itself. In 2025, for every $1 invested into the crypto industry, the share flowing into “AI × crypto hybrid” projects was about $0.40—doubling from the previous year. The valuation caps for pure crypto narrative projects are declining. To maintain valuation levels, projects need to add a second layer of narrative across dimensions such as AI agents, the data layer, computing power, or regulatory compliance. This means that, for the crypto market, AI is both a pressure source from capital competition and a driving force for narrative upgrading: the former affects short-term liquidity, while the latter determines the long-term value anchor.

How Crypto Investment Logic Is Shifting From Momentum Trading to Fundamental Drivers

Hougan defines the current phase of the crypto market as a “transformation from momentum trading to contrarian bets.” The soil for momentum trading is abundant liquidity, clear narrative hotspots, and continuous price increases. The core requirements for contrarian bets are: a long-term perspective, fundamental judgments, and the ability to withstand short-term market divergences.

This shift means investors’ evaluation frameworks need to be rebuilt. Nick Ruck, Director at LVRG Research, describes this change as follows: crypto is “quietly becoming a genuine contrarian bet that smart investors in mature markets make to seek clear directional returns.” He attributes this transformation to real adoption metrics, an increasingly clear regulatory environment, and verifiable on-chain utility—rather than speculative momentum or social media hype cycles.

In such an environment, the valuation logic for crypto assets is converging toward the framework of traditional finance. Projects with measurable revenue, active users, and real usage scenarios are more likely to stand out when capital is scarce. Hougan’s view of the cycle aligns with this as well: he analyzes that the crypto winter may be closer to its end than its beginning, because the market has already shown “a few green shoots”—signs of selective strength. And when those green shoots begin to look like true growth, the direction of the cycle is changing.

Regulatory Uncertainty and the “Wait-and-See” Logic of Institutional Allocation

As capital is diverted toward AI, regulatory uncertainty forms another barrier for institutional funds to enter the crypto market. The U.S. Clarity Act aims to establish a comprehensive regulatory framework for digital assets, but its passage is currently in a highly uncertain probability range. Polymarket data shows the probability of the act being passed by the end of the year is about 55%, while probabilities estimated by Washington insiders whom Hougan consults range from 5% to 30%.

The impact of this uncertainty on institutional allocation decisions is direct. In the memo, Hougan describes the dilemma facing institutional investors: either invest in AI stocks—these stocks seem to set historical highs every day—or invest in crypto—but face a major regulatory setback with nearly a 50% probability within the next two months. Given this contrast, it is logical for institutional capital to stay on the sidelines or shift toward the AI track.

The scale of institutional withdrawals is corroborated by fund-flow data. Last week, outflows from digital asset investment products totaled $1.67 billion, marking the third consecutive week of net outflows and the second-largest single-week outflow in 2026. Over three weeks, cumulative outflows reached $4.21 billion, while Bitcoin’s cumulative inflows from the beginning of the year have shrunk from $3.9 billion two weeks ago to about $1.2 billion.

If the Clarity Act is ultimately passed, it will inject much-needed institutional certainty into the crypto market. Hougan’s view is that crypto can survive if the bill fails, but if it passes, a rebound may occur—yet it cannot thrive in the in-between state of regulatory uncertainty.

Is the Crypto Market Cycle Approaching a Structural Bottom?

To judge whether the crypto market is approaching a bottom, multiple dimensions of signals must be examined. From the perspective of capital-flow structure, capital has not fully exited the crypto ecosystem; instead, it is migrating to sub-sectors with fundamental support. Active sector rotation is underway, with funds shifting toward RWA, AI-related tokens, and efficient-utility infrastructure.

From the perspective of institutional behavior, Wintermute’s early-June analysis indicates that long-term holders already consider current prices attractive under an 18-month outlook and are gradually building positions via OTC counterparty desks using TWAP. This “cycle reset” behavioral pattern is fundamentally different from panic selling.

From the perspective of market breadth, the total crypto market cap has fallen by about 46% from its October 2025 peak—an overall drawdown that is considered relatively large within historical cycles. Hougan’s frameworkal judgment is: when the market begins to show selective strength driven by real adoption metrics, the tail end of the cycle may be closer than its beginning. Of course, this does not mean a short-term reversal is imminent. As AI capital competition and regulatory uncertainty have not gone away, the market may still remain structurally segmented, with projects that have weaker fundamentals facing continued clearing pressure.

Summary

Bitwise CIO Matt Hougan’s warning that cryptocurrencies are becoming a “contrarian bet” is essentially a systematic diagnosis of the structural adjustments in the crypto market in mid-2026. AI is absorbing global capital at an unprecedented scale—accounting for about 80% of global venture capital in 2026 Q1, and hyperscale cloud service providers’ annual AI spending exceeding $600 billion—directly squeezing liquidity space within the crypto market.

However, structural changes within the crypto market cannot be ignored either: capital is moving from “indiscriminate sell-offs” to “selective allocation driven by fundamentals in high-quality assets.” Projects such as Hyperliquid and Stellar showing strength against the broader downtrend are the leading signals of this shift. At the same time, the integration of AI and crypto is deepening in parallel—deployment of on-chain AI agents and growth in automated trading indicate that crypto is becoming the underlying financial infrastructure of the machine economy.

In the short term, regulatory uncertainty remains the main obstacle for institutional funds to enter. But over the medium to long term, projects with real revenue, active users, and clear application scenarios may gain structural returns as capital is reallocated. The current market environment is no longer a broad rally driven by easy liquidity; it is a professional market that tests the ability to make fundamental judgments.

Frequently Asked Questions (FAQ)

What judgment did Bitwise CIO make about the crypto market?

Bitwise CIO Matt Hougan said in a market memo in early June 2026 that as AI stocks absorb the capital and attention originally directed toward digital assets, cryptocurrencies have shifted from momentum trading to contrarian bets. He noted that the total crypto market cap fell 5.3% to $2.38 trillion on that day, which is 46% lower than the peak in October 2025.

Why does AI affect capital inflows into the crypto market?

Since ChatGPT was launched to the public at the end of 2022, NVIDIA’s stock price has risen nearly 1,500% cumulatively. In 2026, hyperscale cloud service providers plan to invest more than $600 billion in AI infrastructure. When the Nasdaq 100 index rises 43% year over year and the crypto market is down more than 20% over the year, institutional and retail capital naturally tend to flow to asset classes that perform better.

How is this crypto correction different from the bear markets in 2018 and 2022?

Hougan pointed out that, unlike in past bear markets where capital retreated into Bitcoin, investors in this cycle have shifted toward smaller tokens with strong usage metrics and fundamentals. Assets such as Hyperliquid, Zcash, and Stellar have shown selective strength amid declines in the overall market, indicating that institutional allocators are evaluating digital assets using a methodology similar to stock-sector analysis.

Which tokens does Hougan specifically mention?

Hougan lists Hyperliquid, Zcash, and Stellar as examples, saying that these tokens demonstrate relative advantages driven by fundamentals during the downturn. Hyperliquid has risen more than 120% so far in 2026 despite the broader market decline.

Is the crypto market cycle approaching a bottom?

Hougan believes the crypto market may be closer to the end of the winter than the beginning. The market has already shown “a few green shoots”—i.e., signs of selective strength. Institutional long-term holders are also gradually building positions through OTC platforms, which is more like a cycle reset than a bubble bursting.

What impact does the Clarity Act have on the crypto market?

The Clarity Act is U.S. market-structure legislation for digital assets. Its passage probability is currently subject to significant disagreement, at about 55% according to Polymarket, while some insiders estimate it to be between 5% and 30%. Hougan said that crypto can survive if the bill fails, and may rebound if it passes, but the current uncertainty is limiting the size of institutional capital allocations.