Bitwise Sees Bottom Forming in Bitcoin Bear Market

Bitwise Asset Management is optimistic about Bitcoin's prospects despite ongoing challenges. According to Juan Leon, Bitwise Senior Investment Strategist, the current bear market is fundamentally different from previous cycles.

The firm has seen institutional clients split into two camps: those who have established Bitcoin allocations over the past two years and are treating the downturn as an opportunity to rebalance and dollar-cost average; and others waiting for greater regulatory clarity before committing.

The current downturn is considered bitcoin's 'mildest structural bear market' on record, with a 50% drawdown compared to the 78% swing during the 2022 bear market and the 84% drop in 2018. A rising Bitcoin floor is attributed to the asset maturing and marginal holders shifting from retail speculators to professional allocators.

The firm sees several traditional bottoming indicators emerging, including oversold momentum readings, half of Bitcoin holders underwater on their investments, renewed accumulation by long-term holders, and June's record spot Bitcoin ETF outflows as signs of capitulation. However, Leon believes crypto problems are more macro than fundamental, citing sticky inflation, geopolitical tensions, and enthusiasm around artificial intelligence.

The firm also notes that AI has siphoned away billions of dollars from crypto, but sees this dynamic flipping over time as allocators seek assets with improving fundamentals.