Bitwise says bitcoin's 'floor is rising' despite AI boom and regulatory delays

The current bitcoin bear market looks fundamentally different from previous cycles, according to asset manager Bitwise, which sees institutional adoption ramping up against a backdrop of AI hype, macroeconomic uncertainty and delays to U.S. crypto legislation.

Bitwise Senior Investment Strategist Juan Leon told The Block that the firm's institutional clients have mostly split into two camps. 

Investors with established bitcoin allocations over the past two years are "treating the downturn as a gift" to rebalance and dollar-cost average, while other large pools of capital are waiting for greater regulatory clarity before committing. 

"In 2022, clients asked whether crypto would survive," Leon said. "In 2026, they're asking about entry points and position sizing. That's a different conversation entirely."

It has made the current downturn bitcoin's "mildest structural bear market" on record, Leon argued, comparing the current 50% drawdown to the 78% swing during the 2022 bear market and the 84% drop in 2018. 

A rising bitcoin floor

"The floor is rising every cycle, and that's not an accident," Leon said. "It's what happens when an asset matures and the marginal holder shifts from retail speculator to professional allocator."

Still, he acknowledged that bitcoin could see more downside, especially considering other bear markets lasted roughly 12 to 13 months compared to the current eight months.

Several traditional bottoming indicators are 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. 

But for now, Leon believes crypto's problems are more macro than fundamental. 

"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. 

"I'm not going to call AI a bubble," Leon said, arguing that demand for compute infrastructure is genuine and pointing to bitcoin miners expanding into AI and high-performance computing as evidence of that.

On the ETF front, he 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. 

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But Leon sees that dynamic flipping over time.

"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," he said.

On top of that, 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. 

He also pointed to upcoming inflation data and Federal Reserve meetings as key macro events, while saying passage of the Clarity Act would likely bring about more institutional participation even though he does not expect the legislation to clear Congress before the August recess.

"What the Clarity Act changes is the permission structure for trillions of dollars of new institutional capital," Leon said.

Bitcoin bear market bottom

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.