Local targets profit against the trend, indicating that this round of the bear market has entered its mid-to-late stage.

Written by: Matt Hougan, Chief Investment Officer of Bitwise

Translated by: Chopper, Foresight News

In previous memos, I typically focused on one major core issue in the market, but currently, the industry variables are complex and difficult to explore with a single logic. This article interprets the market from three dimensions.

1) Cryptocurrency Assets Become Counter-Trend Investment Choices

The current cryptocurrency market is bleak. Bitcoin has dropped 21% this year, while mainstream coins like Ethereum, Solana, and XRP have seen even steeper declines of 33%, 37%, and 31% respectively. Cryptocurrency ETFs continue to experience net capital outflows, and spot trading volumes have fallen to multi-year lows.

The key reason for the market's weakness is that cryptocurrency is no longer the darling of the capital market. Stocks in artificial intelligence, robotics companies, and targets like SpaceX are thriving, with the Nasdaq 100 index rising as much as 43% this year, and capital naturally has no interest in staying in the cryptocurrency track.

In an environment where the AI sector is siphoning off capital from the entire market, the cryptocurrency industry is undergoing painful transformation: from a hot topic that followed the trend to becoming a counter-trend target.

This is a critical turning point that affects the direction of the industry. Trend-following investment enjoys excellent experiences when the market rises; meanwhile, counter-trend investment involves a long and torturous process that tests investors’ patience, long-term thinking, and fundamental analytical abilities, with intermittent returns.

This also explains why current cryptocurrency capital places increasing emphasis on project revenue, with protocols like Hyperliquid—which have solid fundamentals—being favored. The market has not given up on the cryptocurrency track, but under the logic of counter-trend investment, funds have abandoned emotional speculation in favor of targets with strong fundamentals.

The cryptocurrency industry will not die; it’s just that the types of investors and projects rewarded by the market have completely changed. Understanding this is essential to capture profit opportunities in the next bull market.

2) The Market Awaits Regulatory Clarity, but the CLARITY Act is Likely to Face Challenges

The second major reason for the weak cryptocurrency market is the enormous regulatory uncertainty brought by the CLARITY Act.

This Act is the core framework legislation for the cryptocurrency sector in the United States, currently advancing in Congress, aiming to establish a unified regulatory rule for cryptocurrency across the country. Although the Act recently passed one hurdle in the Senate, predictive market Polymarket data shows that its probability of being approved this year is only 55%. Personally, I am more pessimistic: recent insiders in Washington have given their assessments, with the Democratic camp estimating the probability of passing at only 5% and the Republican camp estimating it at 30%. Regardless of whether the probability is 5%, 30%, or 50%, the passage of the Act is by no means a sure thing.

The uncertainty keeps institutional funds on the sidelines. From the perspective of large institutional investors, there is a choice between two options:

• Invest in AI stocks, which are continuously hitting historical highs;
• Allocate to cryptocurrency assets, but face nearly a 50% risk of negative outcomes from the Act’s passage in the next two months.

The latter is unlikely to attract capital favor.

Thus, it can be judged that before regulatory clarity, leading cryptocurrencies are unlikely to enter a sustained bull market. Compared to the results of the Act's eventual passage or failure, eliminating uncertainty itself is more crucial. If the Act passes, the cryptocurrency market will experience an upturn; if it fails, the industry can also gradually digest the negative impacts; only in the undecided tug-of-war phase is the market difficult to strengthen.

3) Funds Turning to New Generation Strong Fundamental Targets

This bear market is distinctly different from previous cryptocurrency winters: in past bear markets, funds flocked to Bitcoin for safety while altcoins suffered widespread failure; however, in this round, funds are no longer clustering in safe-haven assets but are shifting to smaller, fundamentally sound emerging targets.

May 2026 monthly returns data for various cryptocurrencies: what stands out is not the widespread decline, but rather the targets that are performing strongly against the trend. Bitcoin, Ethereum, and Solana have weakened concurrently, but Hyperliquid surged 72% in a month, Zcash increased by 50%, and XLM rose by 44%. These are not super large-cap coins but have attracted funds based on their unique fundamental logic.

This is the concrete manifestation of the "counter-trend investment logic" mentioned earlier: when cryptocurrency bids farewell to trend speculation, fundamentals become the core of pricing, and the capital switch has already taken place.

At the same time, some targets profit against the trend also indicate that this bear market has entered its mid-to-late stage. In a deep bear market phase where the entire market suffers, when a number of targets rely on real fundamentals to create independent upward trends, it signifies that the market cycle is about to shift.

Conclusion

To be honest, the market will still be under pressure in the short term. The tug-of-war over the CLARITY Act's approval continues, SpaceX is about to go public, and Anthropic has submitted a prospectus, with AI topics dominating financial headlines. Currently, adding to cryptocurrency assets is likely to experience dissatisfaction, but the essence of counter-trend investment lies in making decisions in areas that no one is paying attention to, making counter-intuitive moves.

The current cryptocurrency market is precisely like this; patience and resilience are the key to success. Anchoring in fundamentals and value to discover quality targets, long-term returns will be very promising.