Crypto Becomes a Contrarian Bet

Three thoughts on the unusual state of the crypto market.

Usually in these weekly memos, I aim to focus on the single most important thing happening in the market. But there is so much going on right now that I can’t single-thread this one.

I see three things worth commenting on today.

1) Crypto Is Becoming a Contrarian Bet

The crypto market is brutal right now. Bitcoin is down -21% this year, while other majors like Ethereum (-33%), Solana (-37%), and XRP (-31%) are down worse. Meanwhile, ETFs are seeing outflows and spot trading volumes are at their lowest levels in years.

One major reason is that crypto is no longer the belle of the ball. AI stocks, robotics companies, SpaceX … who needs crypto when the Nasdaq-100 is up 43% year-over-year?

With AI sucking all the oxygen out of the room, crypto is being forced to go through a painful metamorphosis: from momentum trade to contrarian bet.

This is an important development.

Contrarian bets can be great investments, but their payoff pattern is usually spotty. Momentum investments are fun. They surf along waves of excitement. Contrarian bets, by comparison, are a grind, requiring patience, a long-term orientation, and a focus on fundamentals.

This is one reason why crypto investors are increasingly focused on revenues and enthusiastic about protocols like Hyperliquid that have clear fundamentals. Investors still believe in crypto, but now that it’s a contrarian bet, they favor fundamentals over vibes.

Crypto isn't going away. It's just changing the kind of investor (and project) it rewards. Knowing this will help you navigate the next potential bull market profitably.

2) Crypto Is Waiting on Clarity (Which Will Probably Fail)

The second reason crypto is trading poorly right now is that it is facing a huge amount of uncertainty in the form of the Clarity Act.

The Clarity Act is the core market structure legislation that is trying to make its way through Congress. It aims to provide a comprehensive framework for how crypto will be regulated.

And while Clarity recently cleared one hurdle in the Senate, Polymarket currently puts the odds of its approval by year-end at just 55%. My own view is less optimistic: The last few D.C. insiders I spoke with put the odds at 5% (from a Democrat) to 30% (from a Republican). But whether the odds are 5%, 30%, or 50%, one thing is certain: It’s far from a shoo-in.

This is keeping investors on the sidelines, for obvious reasons. Imagine you’re an institutional investor today. You can either:

a) Invest in AI stocks, which seem to set a new all-time high every day; or

b) Invest in crypto, knowing there’s an almost 50% chance of a major regulatory setback in the next two months.

Option B is a tough sell.

For that reason, I don’t think large-cap crypto assets will see a sustainable rally until we put this uncertainty in the rearview mirror. In fact, resolving this uncertainty is more important than how it resolves.

Crypto can survive Clarity failing or rally if Clarity passes. But it can’t thrive in the in-between. 

3) Searching for the Next-Generation Asset

The third thing I'm seeing is that this bear market doesn't look like past ones. In previous crypto winters, the trade was to hide in bitcoin. Risk-off, alts dead. This winter, it's the opposite. The rotation isn't into safety. It's into the assets that are smaller and less established—with credible fundamentals.

Here's a one-month heatmap of the largest crypto assets:

Crypto Asset Returns: May 2026

Source: CoinGecko.

What stands out isn't the red. It's the green.

Sure, Bitcoin, Ethereum, and Solana are down. But Hyperliquid is up 72% in a month. BNB is up 17%. Zcash is up 50%. Stellar is up 44%. None of them are macro names. All of them have idiosyncratic stories the market is rewarding.

This is how the contrarian bet I mentioned above is playing out. When crypto stops being a momentum trade, fundamentals start to matter—and this rotation is proof it's already underway.

I’d also argue it’s a sign that we're closer to the end of this winter than the beginning. In the heart of a crypto winter, everything's red. When the green starts to look like real growth, the season is changing.

Conclusion

I’ll be honest: The next few weeks could be painful. Clarity will drag on, SpaceX is going public, Anthropic just filed its S-1, and the AI trade seems to dominate every headline.

It’s probably not going to feel good to add crypto exposure. But that’s the thing about contrarian investing. Contrarian bets are won by looking in the places no one is looking and acting in ways that may feel awkward.

That’s the crypto market we’re in today. It’s a place that rewards patience and a healthy supply of grit. If you can find the right opportunities—focusing on fundamentals and value—it can be very rewarding indeed.

Risks and Important Information

No Advice on Investment; Risk of Loss: Prior to making any investment decision, each investor must undertake its own independent examination and investigation, including the merits and risks involved in an investment, and must base its investment decision—including a determination whether the investment would be a suitable investment for the investor—on such examination and investigation.

Crypto assets are digital representations of value that function as a medium of exchange, a unit of account, or a store of value, but they do not have legal tender status. Crypto assets are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not currently backed nor supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies, stocks, or bonds.

Trading in crypto assets comes with significant risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks and risk of losing principal or all of your investment. In addition, crypto asset markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing.

Crypto asset trading requires knowledge of crypto asset markets. In attempting to profit through crypto asset trading, you must compete with traders worldwide. You should have appropriate knowledge and experience before engaging in substantial crypto asset trading. Crypto asset trading can lead to large and immediate financial losses. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price.

The opinions expressed represent an assessment of the market environment at a specific time and are not intended to be a forecast of future events, or a guarantee of future results, and are subject to further discussion, completion and amendment. The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice, or investment recommendations. You should consult your accounting, legal, tax or other advisors about the matters discussed herein.