In previous memos, I usually focused on the most critical event in the market. However, with the current complex industry variables, it is difficult to focus on a single logic. This article interprets the market from three dimensions.
1) Crypto Assets Become a Contrarian Investment Choice
The current crypto market sentiment is bleak. Bitcoin is down 21% year-to-date, while major coins like Ethereum, Solana, and XRP have seen even deeper losses, with drops of 33%, 37%, and 31% respectively. Crypto ETFs continue to face net outflows, and spot trading volume has dropped to multi-year lows.
The key reason for the market downturn is that crypto is no longer the darling of the capital markets. Stocks related to artificial intelligence, robotic companies, SpaceX, and other assets are shining, with the Nasdaq 100 index surging 43% year-to-date. Naturally, funds are no longer interested in the crypto track.
In an environment where the AI sector is attracting funds from the entire market, the crypto industry is undergoing painful transformation: from following hot trends to contrarian positioning of assets.
This is a key turning point that is influencing the industry's direction. Trend-following investment follows the market's momentum and performs well during uptrends, while contrarian investment is a long and arduous journey that tests investors' patience, long-term thinking, and fundamental analysis skills, with intermittent profit realization.
This also explains why crypto funds are now paying more attention to project revenue, and protocols with solid fundamentals like Hyperliquid are highly favored. The market has not abandoned the crypto track, but under the contrarian investment logic, funds are abandoning emotional speculation and turning to assets with strong fundamentals.
The crypto industry will not disappear; it is just that the types of investors and projects rewarded by the market have fundamentally changed. Understanding this point is key to seizing profitable opportunities in the next bull market.
2) The Market Awaits Regulatory Clarity, But the CLARITY Act Likely Faces Challenges
The second major reason for the weakness in the crypto market is the significant regulatory uncertainty brought about by the CLARITY Act.
This act is the core framework legislation in the U.S. crypto field, currently being pushed through Congress, aiming to establish unified crypto regulatory rules across the U.S. Although the bill recently passed a hurdle in the Senate, predicted market data from Polymarket shows that the probability of it being approved this year is only 55%. My personal view is even more pessimistic: recent assessments from Washington insiders suggest that the Republican estimate is as low as 30%. Whether the probability is 5%, 30%, or 50%, the passage of the bill is by no means certain.
Uncertainty is causing institutional funds to continue to watch from the sidelines. From the perspective of large institutional investors, they are faced with a dilemma:
· Invest in AI stocks, whose prices have been hitting all-time highs;
· Allocate to cryptocurrencies, but there is a nearly 50% downside risk in the next two months if the legislation goes through.
The latter is finding it hard to attract funds.
Based on this assessment, it is difficult for the top cryptocurrencies to break out of a sustained bull market until regulatory uncertainties are resolved. Compared to the eventual passage or failure of the legislation, removing uncertainty itself is more crucial. If the legislation passes, crypto will see an uptrend; if the legislation fails, the industry can slowly digest the downside; only during the undecided tug-of-war phase, the market struggles to strengthen.
3) Funds Shift to Next-Generation Fundamental Assets
This bear market cycle is fundamentally different from the previous crypto winter: in the past bear markets, funds collectively sought refuge in Bitcoin, causing altcoins to collapse across the board; but in this cycle, funds are no longer flocking to safe-haven assets, instead, they are positioning themselves in smaller-scale, fundamentally sound emerging assets.
Monthly returns data for major cryptocurrencies in May 2026: the most noteworthy aspect on the market is not the widespread decline, but the strong performance of contrarian assets. Bitcoin, Ethereum, and Solana all declined simultaneously, while Hyperliquid surged by 72% in a month, Zcash by 50%, and XLM by 44%. These are not large-cap coins, but by virtue of their unique fundamentals, they have attracted capital.
This is a concrete manifestation of the "contrarian investment logic" mentioned earlier: as crypto bids farewell to trend speculation, and fundamentals become the core pricing factor, the fund transition has already taken place.
At the same time, the contrarian gains of specific assets also indicate that this bear market cycle has entered the middle-to-late stage. In the depths of a bear market, the entire market usually experiences a downturn. When a group of assets achieves independent price hikes based on real fundamentals, it signals that the market cycle is about to shift.
Conclusion
To be frank, the market will still be under pressure in the short term. The CLARITY Act approval process continues to see-saw, SpaceX is about to IPO, Anthropic has filed for its IPO, and AI-themed topics continue to dominate financial headlines. Increasing exposure to crypto assets at this moment will likely not yield a good experience. However, the essence of contrarian investment lies in strategically positioning in overlooked areas and making counterintuitive decisions.
Today's crypto market is exactly like this; patience and discipline are the keys to success. Anchoring on fundamentals and exploring the value of quality assets will lead to significant long-term returns.
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