Bitwise: Three Changes in the Crypto Market Worth Paying Attention To

Author: Matt Hougan, Chief Investment Officer of Bitwise; Translation: Shaw, Golden Finance

In my usual weekly memo, I typically focus only on the most core market issue at present. But recently, market volatility has been so diverse that I can't just revolve around a single main theme.

I believe there are three market changes worth paying attention to right now.

1. Cryptocurrencies are becoming a contrarian investment

Currently, the crypto market is bleak: Bitcoin has fallen 21% year-to-date, while mainstream coins like Ethereum, Solana, XRP have dropped even more, down 33%, 37%, and 31% respectively. Meanwhile, ETF funds continue to outflow, and spot trading volume has fallen to multi-year lows.

The core reason is that crypto assets are no longer the market’s focus of enthusiasm. The Nasdaq 100 index has gained 43% this year, AI concept stocks, robotics industry, and SpaceX-related assets are hot, and funds naturally shift away from crypto.

In an environment where AI themes siphon all market funds, the crypto industry is undergoing a painful transformation: from momentum trading to contrarian investing.

This is a critical turning point.

Contrarian investing has long-term return potential, but profit realization is often unstable; momentum investing offers a comfortable experience, riding the wave of market prosperity. Conversely, contrarian investing is a torturous process that tests investors’ patience, long-term thinking, and fundamental analysis skills.

This is also why more and more crypto investors are beginning to value project fundamentals and favor protocols like Hyperliquid with clear fundamentals. The market hasn't abandoned the crypto track, but under the big environment of contrarian investing, investors are shifting from chasing hot themes to anchoring on fundamentals.

The crypto industry will not disappear; it has simply changed the type of projects and assets that attract investors. Understanding this is key to capturing gains in the next bull market.

2. The market is waiting for regulatory legislation to be enacted, but the probability is low

The second major factor behind the crypto market’s downturn: The CLARITY Act brings huge regulatory uncertainty. This bill is a foundational piece of legislation in the US Congress aimed at establishing a comprehensive regulatory framework for crypto markets.

Although the bill recently passed a voting hurdle in the Senate, market prediction platform Polymarket estimates the probability of enactment within the year at only 55%. My personal view is more pessimistic: recent discussions with Washington insiders suggest a probability range of just 5% among Democrats, up to 30% among Republicans. Whether it’s 5%, 30%, or 50%, one thing is certain: the bill is far from guaranteed to pass.

This uncertainty directly causes investors to hold cash and wait. From an institutional investor’s perspective, there are two choices now:

• Invest in AI stocks, which are hitting new highs; or

• Invest in crypto assets, but with nearly a 50% chance of setbacks in the bill’s passage in the next two months, regulatory risk remains high.

Clearly, the second option is less likely to attract funds.

Therefore, before regulatory clarity is achieved, leading crypto assets are unlikely to see sustained upward movements. Compared to whether the bill ultimately passes or fails, eliminating uncertainty is more critical. If the bill passes, crypto will benefit; if it fails, the industry can gradually digest the negative impact; only during the unresolved transitional period will the industry struggle to rally.

3. Funds are seeking the next generation of potential assets

The third point I observe is that this bear market cycle is fundamentally different from previous ones. In past crypto bear markets, risk-averse funds flocked to Bitcoin, while small and mid-cap altcoins generally declined across the board; but this round of funds has not rushed into safe-haven assets, instead shifting toward smaller, less mature but fundamentally sound emerging coins.

Below is a heatmap of the recent one-month price changes of mainstream cryptocurrencies:

Crypto asset returns in May 2026

The most striking aspect isn’t the red, but the green.

Indeed, Bitcoin, Ethereum, Solana all weakened, but Hyperliquid surged 72% in one month, BNB rose 17%, Zcash gained 50%, Stellar increased 44%. These coins are not the major mainstream assets, but each relies on unique fundamental logic to attract capital.

This is a concrete manifestation of the contrarian strategy mentioned earlier. When crypto assets bid farewell to momentum trading and fundamental value returns to the core of pricing, the current fund rotation is the best proof.

In my view, this also indicates that the current bear market is nearing its end, not just beginning. In a deep bear phase, the entire market declines; when a batch of assets based on real performance begins to rise independently, the market cycle has already shifted.

Conclusion

Honestly, the crypto market is likely to remain under pressure in the coming weeks. The slow progress of the CLARITY bill, SpaceX’s upcoming IPO, Anthropic’s recent filing of an S-1 for US listing, and the continued dominance of AI themes in financial headlines all contribute.

Currently, adding to crypto positions feels suboptimal, but this is precisely the essence of contrarian investing: to profit from contrarian moves, you need to find market niches that others overlook and act against the crowd when they hesitate.

This is the current crypto market: patience and resilience will eventually pay off. As long as you anchor on fundamentals and intrinsic value to identify quality assets, long-term returns can be very attractive.