Asset manager Bitwise stated that the current bitcoin bear market appears fundamentally different from previous cycles. Bitwise Senior Investment Strategist Juan Leon explained that the firm's institutional clients have split into two camps: investors with established bitcoin allocations over the past two years are treating the downturn as an opportunity to rebalance and dollar-cost average, while other large pools of capital are waiting for greater regulatory clarity before committing. The current downturn represents bitcoin's 'mildest structural bear market' on record according to Leon, with a 50% drawdown compared to the 78% decline during the 2022 bear market and the 84% drop in 2018. Leon attributed the difference to institutional adoption increasing despite AI investment hype, macroeconomic uncertainty and delays to U.S. crypto legislation.
Leon told The Block that in 2022, clients asked whether crypto would survive, while in 2026 they are asking about entry points and position sizing. He stated, "The floor is rising every cycle, and that's not an accident. It's what happens when an asset matures and the marginal holder shifts from retail speculator to professional allocator." Leon acknowledged that bitcoin could see more downside, especially considering other bear markets lasted roughly 12 to 13 months compared to the current eight months.
Traditional Bottoming Indicators Emerge in Bitcoin Market
Leon identified several traditional bottoming indicators starting to emerge. These include oversold momentum readings, roughly half of bitcoin holders underwater on their investments, renewed accumulation by long-term holders and June's record spot bitcoin ETF outflows. Leon sees these as signs of capitulation. However, he stated that crypto's problems are currently more macro than fundamental.
AI Investment Flows Contrast with Bitcoin ETF Outflows Since April
Leon noted that since April, memory-chip ETFs have attracted roughly $12 billion in inflows while spot bitcoin ETFs have seen more than $4 billion in outflows. He stated, "I'm not going to call AI a bubble," arguing that demand for compute infrastructure is genuine and pointing to bitcoin miners expanding into AI and high-performance computing as evidence. Leon stated that the dynamic would flip over time, saying, "The cyclical path is AI capex expectations get digested, relative valuations compress, and allocators go looking for the asset that's 50% off its high with improving fundamentals."
Leon argued that AI and crypto are becoming more complementary rather than competing investments, with things like agentic AI starting to rely on programmable money, machine-to-machine payments and stablecoin rails.
Bitwise Identifies Macro Factors and Regulatory Delays as Current Challenges
Leon stated that "sticky inflation" has moved expectations toward higher interest rates, geopolitical tensions are adding to uncertainty and enthusiasm around artificial intelligence has siphoned away billions of dollars that might have otherwise flowed into crypto. He pointed to upcoming inflation data and Federal Reserve meetings as key macro events. Leon stated that passage of the Clarity Act would likely bring about more institutional participation, though he does not expect the legislation to clear Congress before the August recess. He said, "What the Clarity Act changes is the permission structure for trillions of dollars of new institutional capital."
Bitwise CIO and Quarterly Report Reach Similar Conclusions
The comments echo Bitwise Chief Investment Officer Matt Hougan's views from last week that crypto is nearing the end of its current bear market. Hougan argued the recent selloff in Strategy's STRC preferred shares mirrors the kind of end-of-cycle deleveraging that has historically preceded new bitcoin bull markets. Bitwise's latest quarterly Crypto Market Review reaches similar conclusions. Despite one of the weakest quarters for crypto prices in recent years, the report cites continued growth in institutional infrastructure, expansion in tokenized real-world assets and adoption by traditional finance firms as signs that the industry's fundamentals are strengthening in the background.
FAQ
What did Bitwise say about the current bitcoin bear market compared to previous cycles?
Bitwise Senior Investment Strategist Juan Leon stated that the current bitcoin bear market is the 'mildest structural bear market' on record, with a 50% drawdown compared to the 78% decline during the 2022 bear market and the 84% drop in 2018. He attributed this to bitcoin maturing as an asset with the marginal holder shifting from retail speculator to professional allocator.
How are Bitwise's institutional clients responding to the bitcoin downturn?
According to Leon, Bitwise's institutional clients have split into two camps. Investors with established bitcoin allocations over the past two years are treating the downturn as an opportunity to rebalance and dollar-cost average, while other large pools of capital are waiting for greater regulatory clarity before committing.
What are the traditional bottoming indicators Bitwise identified in the bitcoin market?
Leon identified several traditional bottoming indicators starting to emerge, including oversold momentum readings, roughly half of bitcoin holders underwater on their investments, renewed accumulation by long-term holders and June's record spot bitcoin ETF outflows, which he sees as signs of capitulation.
