Bitwize CIO Memo

Highlights from Tonight's Crypto Update. Smells like OPPORTUNITY

We realize it’s been a rocky start to the year for Crypto, especially over the last few days, and wanted to provide some commentary to you and your clients. Bitwise has weathered these markets before, and has grown as a firm, despite the short term pain. We don’t see any fundamental issues, and there have been positive developments over the past year, yet clearly there is a disconnect.

Why Crypto Is Down And When It Might Bottom

• Why the Market Is Down: The pullback reflects multiple overlapping forces—not a single trigger—including investors front-running the four-year crypto cycle, capital rotating to AI and metals, a major leverage liquidation event, macro risk-off sentiment, hawkish Fed-chair concerns, and lingering fears about quantum computing. Some pressures are easing as long-term selling slows and sentiment hits historical lows.

• Could It Fall Further?: Yes. Historically, bitcoin drawdowns have reached 77–86% and lasted 12–13 months. While crypto is now a more mature asset class—making an extreme collapse less likely—the market could still decline further before a durable bottom forms.

• When It Bottoms & What Drives Recovery: Bottoms tend to form through exhaustion, not headlines. Current conditions resemble prior bear-market lows that later proved strong long-term buying opportunities. Recovery catalysts could include time, improving macro conditions, regulatory clarity, progress on quantum concerns, rate cuts, and new crypto use cases—but fundamentals, not short-term prices, are the long-term driver.

The Depths of Crypto Winter

• State of the Market: We are in a “full-blown crypto winter” that actually began in January 2025, though massive institutional inflows into ETFs and treasuries “papered over” the decline for certain assets for months.

• The Exhaustion Phase: Crypto winters typically last 13 months and end in “exhaustion” rather than excitement; because this winter started earlier than most realize, we are likely “closer to the end than the beginning.”

• Potential Energy: While good news is currently being ignored, regulatory and institutional progress is being stored as “potential energy” that can return with a vengeance once sentiment normalizes and “spring” arrives.

A few additional data points to consider:

1. BTC RSI Below 35 - Has only happened 4 times in Bitcoin’s history (2015, 2018, 2022, 2023). We just crossed 35 to the downside last week. After that cross occurs, on average, we’ve seen +26.7% after 3 months, +94.6% after 6 months, and +109.0% after 12 months.

2. BTC Weekly 200 Moving Average - This moving average has acted as a long-term support in the past. We’ve seen it break below once in Bitcoin’s history, and that was during the FTX collapse in 2022. Currently sitting at ~$58k. Could act as a good support and/or region to accumulate. (note: hit 59k earlier today before huge bounce)

3. BTC ETF Holders remain resilient - Eric Balchunas (ETF Analyst at Bloomberg) shared that since the October highs, the amount of BTC held by ETFs is only down 6.6%. At one point, $GLD fell 40% in 6 months and 33% of the assets left in outflows. Pointing to the fact that 6-7% leaving is phenomenal holding ability, and reflecting stickier assets and long-term holders.

*nothing here is financial advice. Always do your own due diligence.

The selloff we’ve seen since October is barely visible big picture (below). Nothing is broken.

Bitcoin has since bounced of aprox 59k. Close enough? Opportunity Knocks!