Crypto Is No Longer the ‘Belle of the Ball,’ Warns Bitwise’s Matt Hougan

Crypto winter looks different this cycle as capital rotates toward smaller assets with credible fundamentals instead.

Bitwise Chief Investment Officer Matt Hougan said the “brutal” cryptocurrency market is no longer the “belle of the ball,” as digital assets are increasingly becoming a contrarian investment.

In his latest memo, Hougan flagged three factors influencing the market, beginning with crypto’s struggle to attract investor enthusiasm as prices remain under pressure and momentum fades.

On Contrarian Bet and Clarity

Bitcoin is down 24% this year, while Ethereum has fallen 36%, Solana 40%, and XRP 32%. At the same time, exchange-traded funds have recorded outflows and spot trading volumes have dropped to their lowest levels in years. Hougan attributed part of the weakness to investors’ growing preference for artificial intelligence-related opportunities, including AI stocks, robotics companies, and private firms such as SpaceX, while noting that the Nasdaq-100 has gained 43% year-over-year.

According to the Bitwise exec, the dominance of the AI trade has forced crypto to evolve from a momentum investment fueled by excitement into a “contrarian” bet that requires patience, a long-term perspective, and a focus on fundamentals. He said this pivot helps explain why investors are paying greater attention to revenues and favoring projects with clear fundamentals, such as Hyperliquid.

Hougan said that crypto is not disappearing but is changing the types of investors and projects it rewards. The second factor weighing on the market, he said, is uncertainty surrounding the Clarity Act, a proposed market structure bill designed to establish a comprehensive regulatory framework for cryptocurrencies in the United States. Although the legislation recently cleared a hurdle in the Senate, the Bitwise exec noted that prediction market Polymarket currently assigns only a 55% probability that it will be approved before year-end.

The D.C. insiders he recently spoke to estimated the chances of passage between 5% and 30%. Hougan said this ambiguity is discouraging institutional investors, who can either allocate capital to rapidly rising AI-related assets or invest in crypto while facing the possibility of a major regulatory setback. He even argued that large-cap crypto assets are unlikely to experience a sustainable rally until this uncertainty is resolved, and added that the resolution itself is more important than the outcome because crypto can adapt whether the legislation passes or fails but struggles to thrive while uncertainty continues.

Crypto Winter Nearing an End?

Zooming out, Hougan also observed that the current downturn differs from previous crypto bear markets. Rather than rotating into Bitcoin, investors are moving toward smaller, less established cryptocurrencies with “credible fundamentals.” He pointed to one-month gains of 73% for Hyperliquid, 50% for Zcash, and 44% for Stellar, despite declines in larger assets.

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Hougan said this rotation demonstrates that fundamentals are becoming more important as crypto moves away from momentum-driven trading and suggested that it may indicate that the market is “closer to the end of this winter than the beginning,” while acknowledging that the coming weeks could remain “painful.”

However, not all analysts share Hougan’s view. Analyst Doctor Profit has repeatedly warned that the worst could still lie ahead. He expects Bitcoin to enter a capitulation phase below $60,000 and ultimately bottom in the $40,000-$50,000 range between September and October 2026.

CryptoQuant CEO Ki Young Ju, on the other hand, cautioned that the current bear market could extend into early 2027.