Bitwise CIO: Crypto a ‘contrarian bet’ Pending Clarity Act

Matt Hougan, chief investment officer at Bitwise, wrote in a weekly memo on Tuesday that cryptocurrency has become a ‘contrarian bet' as investors shift toward AI-related stocks and the Nasdaq-100's gains while awaiting clearer market rules.

He noted the Nasdaq-100 is up 43% year-over-year and that demand for AI, robotics and other tech opportunities has drawn capital away from digital assets. The memo said the market is moving from a momentum-driven trade to one that requires a longer-term orientation and closer scrutiny of fundamentals.

Hougan described the current downturn as different from past cycles because investors are not rotating into large, safe crypto names such as Bitcoin. Instead, capital has flowed into smaller tokens with distinct use cases and credible fundamentals.

He pointed to recent rallies in niche assets to illustrate the point: Hyperliquid rose 72% in a month, Binance's BNB gained 17%, Zcash climbed 50% and Stellar increased 44%. “When crypto stops being a momentum trade, fundamentals start to matter,” he wrote.

Legal uncertainty tied to proposed market-structure legislation known as the Clarity Act is limiting larger institutional allocations, the memo said. Analysts at Galaxy assign about a 50% probability the bill will pass, while prediction markets put the odds near 55%.

On the timing of a broader market rally, Hougan wrote, “I don't think large-cap crypto assets will see a sustainable rally until we put this uncertainty in the rearview mirror.” He added that contrarian investors may look for opportunities in areas that others are overlooking. “Contrarian bets are won by looking in the places no one is looking and acting in ways that may feel awkward,” he wrote.

The memo concluded that the sector remains active but that valuation drivers and investor behavior have changed, requiring patience and a focus on project-level fundamentals before large institutional flows return.