U.S. stocks hit record highs, while Bitcoin drops 13%: Why do institutional funds choose AI stocks over crypto assets?

In the second quarter of 2026, global capital markets showed a rare picture of divergence.

In the US stock market, the Nasdaq 100 index rose cumulatively by 27.7%, the S&P 500 by about 14.8%, and the Dow Jones by 12.9%. Technology stocks were especially strong, with an overall increase of 43.5%. Within that, the semiconductor index surged 88.2%, and the storage chip index jumped 159%. In addition, the combined total market value of three chip giants—Micron Technology, Intel, and AMD—rose by about $2 trillion in the second quarter. At the same time, EPFR Global data shows that stock funds accounted for 64.7% of tracked assets, reaching a historical high.

However, within the same time window, Bitcoin fell 13.4%, and its drawdown expanded to 32.9% year-to-date.

Over the past few years, the market has repeatedly validated a certain logic: rising risk appetite → tech stocks rally → Bitcoin benefits in sync. For a long period, Bitcoin was widely regarded by the market as an alternative investment for “high-beta technology stocks,” showing a highly positive correlation with the Nasdaq index. But in 2026, this historical correlation is being broken.

Why are investors willing to buy AI stocks but no money is flowing into Bitcoin? When Wall Street’s risk appetite reaches extreme levels, why is Bitcoin left out? This article will break down the deeper reasons behind this divergence from four dimensions: capital flows, market narratives, supply structure, and macro logic.

Stock market enters extreme risk appetite, but Bitcoin does not follow

The US stock performance in the second quarter of 2026 is enough to go down in the capital markets history of recent years.

From the overall indices, the Nasdaq 100’s quarterly gain reached 27.7%, the S&P 500 rose 14.8%, and the Dow Jones increased 12.9%. From the structure, tech stocks as a whole rose 43.5%, including the semiconductor index up 88.2%, the storage chip index up 159%, and software ETFs up 13.2%. At the individual stock level, Micron Technology gained 214% in the second quarter, Intel rose 191%, and AMD climbed 176%.

The data on capital allocation also confirms the extremity of risk appetite. EPFR Global data shows that the share of stock funds in tracked assets has reached 64.7%, the highest level in history. The cash ratio is at a historical low—meaning institutional investors not only did not keep defensive positions, but instead allocated a large portion of available funds to equity assets.

Yet in the same quarter, Bitcoin fell 13.4%. As of July 17, 2026 (Beijing time), Bitcoin was around $64,418, down 0.71% over the past 24 hours. Its change over the past 30 days was +2.46%, but over the past year it was -45.66%. The Fear & Greed Index has recovered to 27; although it shifted from “extreme fear” to “fear,” it is still far from the optimistic range.

Classified as a high-risk asset as well, Bitcoin has shown a notable divergence in capital preference from tech stocks. This divergence is not driven by the market’s overall risk aversion—on the contrary, the market is in the peak of risk-seeking. The issue lies in the structural choices of capital flows.

Why Bitcoin lost its high-beta tech-stock attribute

The root cause of the break in correlation between Bitcoin and tech stocks is that market narrative leadership has shifted.

Over the past several years, the market has broadly assigned Bitcoin multiple roles: “digital gold” as an inflation hedge; a substitute asset to hedge against fiat currency depreciation; and a substitute investment for technology stocks during periods of high risk appetite. With these narratives stacking together, Bitcoin became highly positively correlated with the Nasdaq index and was incorporated by many institutions into configuration frameworks of “tech stocks +.”

But the market’s main line in 2026 is completely different. AI infrastructure investment has become the core narrative running through the year, with funds prioritizing the following areas: Nvidia and the AI chip ecosystem, semiconductor manufacturing and equipment, cloud computing infrastructure, and large technology stocks. This capital flow pattern forms a clear list of “AI beneficiaries,” and Bitcoin is not among them.

In a research report on July 10, NYDIG’s research head Greg Cipolaro said that Bitcoin’s decline is not driven by macro risk aversion, but by Bitcoin’s unique supply pressure. The key significance of this assessment is that it rules out the “the whole market is de-risking” explanation and narrows the analysis to structural issues within the crypto market itself.

Bitcoin’s own supply side is facing three layers of pressure.

First, pressure comes from the largest corporate holder reducing its holdings. Strategy (formerly MicroStrategy) sold a cumulative 3,588 BTC between June 29 and July 5, 2026, raising about $216 million in cash. Of this, 1,363 BTC were sold from June 29 to 30 at an average price of about $59,256, and 2,225 BTC were sold from July 1 to 5 at an average price of about $60,773. This is the company’s largest sale since it launched its Bitcoin strategy in 2020. As of July, Strategy still holds 843,775 BTC, about 4% of Bitcoin’s total supply. Its average cost is about $75,476, with an unrealized loss on the books of more than $10 billion. The shift from “continuous buying, never selling” to pausing additional purchases and even actively reducing holdings is a structural shock to market confidence.

Second, pressure comes from continued outflows from ETFs. On July 13, Bitcoin spot ETFs recorded a single-day net outflow of $424.66 million, the largest daily outflow since July began. Fidelity’s FBTC saw net redemptions of $245.62 million, while BlackRock’s IBIT flowed out $185.50 million. Glassnode data shows that ETF trading volume has fallen 78% from its peak, indicating sustained weakening demand for Bitcoin.

Third, pressure comes from reduced leverage. Changes in positions in the derivatives market show that the current decline is more about the concentrated closing of previously bullish positions rather than new large-scale shorting. On-chain data also shows that long-term and short-term holders have been selling in sync around the $65,000 level. This selling pressure from holders stands in sharp contrast to the continuous buying that AI stocks are receiving.

ETFs become a key variable for Bitcoin’s rebound

Spot Bitcoin ETFs were once seen as revolutionary products that could change market structure. Since launching in January 2024, their assets under management have reached hundreds of billions of dollars. ETFs provide regulated and convenient Bitcoin exposure routes for institutional investors, and were once viewed as a core bridge for bringing Bitcoin into mainstream asset allocation.

But recently, ETF fund flows are sending the opposite signal.

The $425 million single-day net outflow on July 13 is not an isolated event. Before that, on July 9, Bitcoin ETFs had already recorded a $95.30 million outflow. Although there was a net inflow of $197.4 million in the previous week, ending eight consecutive weeks of weekly net withdrawals, overall, year-to-date Bitcoin ETFs have accumulated net outflows of $5.8 billion.

The structure of the fund flows also matters. Large redemptions from top products like Fidelity and BlackRock contrast with VanEck’s $6.14 million HODL inflow and Grayscale’s mini trust inflow of $53.40 million. This divergence indicates that institutional investors are not exiting across the board; instead, they are reallocating assets across dimensions such as fee structures, brands, and liquidity. But the overall direction is still net outflow.

Tepid ETF trading activity further worsens the problem. Glassnode notes that the US spot ETF trading volume has fallen 78% from its high, below the 2024 level. Low trading volume means that even if there are new buyers, there may not be enough price momentum to drive a sustained rebound.

Compared with the stock market: capital is continuously entering US equities, and stock fund positioning hits a historical high. Compared with the Bitcoin market: institutional capital is retreating, and ETFs are continuously bleeding. This divergence in capital flows is the key cut for understanding the current market split.

Why rate-cut expectations didn’t push BTC

From a traditional macro logic perspective, the macro environment in the first half of 2026 should have supported Bitcoin.

US June CPI and PPI both came in below expectations. The cooling inflation data temporarily pushed both crypto assets and US stocks higher. Following the classic chain: stronger rate-cut expectations → improved dollar liquidity → risk assets benefit → BTC rises.

But reality did not follow this script.

CME’s “FedWatch” data on July 17 shows that the probability the Fed keeps rates unchanged in July is 89.8%, while the probability of cumulative rate hikes of 25 bps is 10.2%. Fed Chair Waller said clearly at a hearing before the House of Representatives that the Fed should not be overly optimistic about the inflation mandate based on a single month’s data. JPMorgan strategists expect the Fed to keep rates unchanged before the end of 2026 because inflation is still running above the central bank’s long-term target. Market expectations for rate cuts at the start of 2026 have been replaced by the probability of rate hikes.

The true macro picture is not “easing is coming,” but “tightness pause, not over.” In this context, the logic behind capital’s choices has changed fundamentally.

The core that the market is trading right now is not simply “a liquidity trade,” but “a trade with earnings certainty.” Sectors like AI chips, semiconductors, and cloud computing have clear paths for revenue growth and verifiable performance delivery—Taiwan Semiconductor’s second-quarter net profit rose 77% year over year, and it upgraded its full-year revenue growth target in the second revision to “slightly above 40%.” Bitcoin lacks a similar cash-flow or earnings anchor. In an environment short of incremental liquidity, it is difficult to attract institutional capital seeking certainty.

Schroders Investment points out that strong recent US economic data is weakening rate-cut expectations while also increasing the likelihood of rate hikes in the coming year. In an “economic rebound” scenario, the probability the Fed keeps rates unchanged is higher than what the market currently expects. This means the “liquidity-driven” narrative that Bitcoin relies on is unlikely to get macro support in 2026.

Can Bitcoin regain Wall Street’s attention in the future?

For Bitcoin to regain Wall Street’s favor, four key signals need to be watched.

Signal 1: ETF funds re-enter. ETFs are the main channel for institutional money into the Bitcoin market. When daily net outflows turn into sustained net inflows—especially when top products like BlackRock and Fidelity show consecutive increases in holdings—it would indicate a fundamental shift in institutional sentiment. If the current weak state, where ETF trading volume is down 78% from its peak, can improve, it would be an important prerequisite for a trend reversal.

Signal 2: Stablecoin supply growth. Stablecoins are the “dried gunpowder” of the crypto market— the first stop for off-exchange capital entering the crypto ecosystem. As of July 2026, the global stablecoin total market cap is about $299.06 billion. But the overall trend still faces pressure: in the second quarter, the stablecoin market cap fell 1.6% to $305.1 billion. When stablecoin supply resumes growth, it means new purchasing power is entering the market.

Signal 3: Bitcoin breaks through key price regions. Glassnode data shows that $69,000 is the current key battleground. On the technical side, Bitcoin shows early signs of being resisted near the 50-month exponential moving average around $65,900. If it can break through these resistance zones effectively, it would draw trend-following capital into the market.

Signal 4: Rotation of funds after risk appetite in the stock market tops out. When stock fund positioning hits a historical high of 64.7% and the cash ratio is at a historical low, the source of incremental funds is running out. If US stocks experience a phase adjustment or the AI narrative shows marginal weakening, some money may reassess Bitcoin’s allocation value. But the prerequisite for this rotation is that Bitcoin’s own fundamental pressures (supply side and ETF outflows) have already been digested.

Conclusion

The market divergence in the second quarter of 2026, at its core, is capital choosing between the “AI narrative” and the “crypto narrative.” When there is a clear earnings realization path, money flows first to assets with certainty in growth logic—AI chips, semiconductors, and cloud computing. Bitcoin in this stage faces not only competition for external capital, but also structural pressure on its own supply side (Strategy’s selling, ETF outflows, and leverage deleveraging).

The correlation break between Bitcoin and tech stocks is not a permanent decoupling. It is a rational market choice at a specific stage. When the AI narrative enters a period of valuation digestion, Bitcoin’s own supply pressure clears out, and macro liquidity conditions improve materially, the relationship between capital flows to the two could be recalibrated.

But before that, Bitcoin needs to solve its own problems first: when the sell pressure on the supply side will ease, when ETF funds will return, and when market confidence will be rebuilt. The process by which these conditions are met one by one is also the process by which Bitcoin re-enters Wall Street’s asset allocation radar.