Something unusual is happening in the current bitcoin bear market — and it has less to do with price charts than with who is actually holding the asset. According to Bitwise Senior Investment Strategist Juan Leon, this downturn is structurally the mildest bitcoin has ever seen, and the reasons why point to a fundamental shift in how the market works.
Summary
Key takeaways
- The current bitcoin drawdown of 50% is significantly smaller than the 78% swing in 2022 and the 84% drop in 2018, making it bitcoin’s mildest structural bear market on record.
- Institutional clients are split: some are dollar-cost averaging into the dip, while others are waiting for regulatory clarity before committing capital.
- Since April, spot bitcoin ETFs have seen over $4 billion in outflows, while memory-chip ETFs attracted roughly $12 billion in inflows — a gap Bitwise expects to reverse.
- The Clarity Act, if passed, would unlock what Leon calls a new “permission structure for trillions of dollars of new institutional capital.”
- Crypto market fundamentals are quietly strengthening through institutional infrastructure growth and expanding adoption of tokenized real-world assets.
Bitcoin’s Current Bear Market Is Structurally Milder
The numbers tell a clear story. A 50% drawdown sounds painful — and for anyone who bought near the top, it is. But framed against prior cycles, it represents a meaningful shift. The 2022 bear market saw a 78% swing. The 2018 collapse reached 84%. By those standards, what the market is living through now is historically restrained.
Leon, speaking to The Block, called it bitcoin’s “mildest structural bear market” on record. The distinction matters not just as a data point but as a signal about who is selling, who is holding, and how the asset’s investor base has evolved.
Comparative Drawdowns With 2018 and 2022
Past bear markets were largely driven by retail capitulation — waves of new buyers who entered during euphoric peaks and sold in panic as prices collapsed. That dynamic is less dominant now. The current cycle has lasted roughly eight months, while previous bear markets ran approximately 12 to 13 months. Whether that compressed timeline holds depends heavily on macro conditions, but the depth of the drawdown already separates this downturn from its predecessors in a meaningful way.
Onchain data from Glassnode reinforces the picture. Bitcoin has traded below its True Market Mean and Short-Term Holder Cost Basis for five consecutive months — one of the longest deep-value stretches in the asset’s history. Long-term holder loss realization recently peaked at $280 million per day, the highest since December 2022, and now accounts for 43% of total realized value onchain, up from 15% in early February. These are signs of stress, but also of a market working through late-stage distribution rather than broad-based panic.
Institutional Client Sentiments and Behavior
The shift in client conversations at Bitwise is telling. “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.”
Institutional clients have split into two distinct camps. Those who built bitcoin allocations over the past two years are “treating the downturn as a gift” — using it to rebalance portfolios and dollar-cost average at lower prices. A second group, representing large pools of capital that never fully committed, is standing back and waiting for greater regulatory clarity before moving.
That split is itself a sign of maturity. The question is no longer whether bitcoin survives; it’s how much to buy and at what price.
Rising Bitcoin Price Floor Reflects Asset Holder Maturation
One of the most analytically interesting arguments from Bitwise is structural rather than cyclical: bitcoin’s price floor is rising with each successive bear market, and the reason is who holds it.
Shift from Retail to Professional Allocators
“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.”
Professional allocators — pension funds, asset managers, family offices — don’t panic-sell the way retail buyers do. They have mandates, investment theses, and longer time horizons. As they replace retail speculators as the dominant holders, the base of the market becomes sturdier. Each cycle’s bottom lands higher than the last because the hands holding bitcoin are stronger.
Emerging Bottoming Indicators and ETF Dynamics
Several classic bottoming signals are surfacing. Leon pointed to oversold momentum readings, roughly half of bitcoin holders currently underwater on their investments, and renewed accumulation by long-term holders. June’s record spot bitcoin ETF outflows — which Leon reads as capitulation rather than abandonment — also fit the pattern.
Glassnode’s data adds texture here. The 30-day average of spot bitcoin ETF net flows shifted into a monthly outflow regime in mid-May, peaked at negative $193 million per day in early June, and has since eased to around negative $89 million per day. Daily ETF trading volume of $650 million to $950 million remains roughly 80% below the $4.4 billion peak recorded in October 2025. QCP Capital noted that ETF flows had already swung from a low of negative $691.7 million on June 25 to positive $265.7 million on July 6 — a volatile but potentially directional shift.
None of these indicators individually confirms a bottom. Glassnode said further cooling in long-term holder capitulation, stabilization in institutional flows, and a sustained reclaim of the True Market Mean remain preconditions before the odds of a regime shift can be weighted constructively. But the convergence of signals is notable.
Impact of AI Boom and Regulatory Delays on Bitcoin and Crypto Markets
The bitcoin bear market isn’t playing out in a vacuum. Two external forces — the artificial intelligence investment surge and stalled U.S. crypto legislation — are shaping the capital flows that would otherwise support a faster recovery.
AI Diverts Capital but Spurs Miner Diversification
Leon was direct about the competitive dynamic: “Enthusiasm around artificial intelligence has siphoned away billions of dollars that might have otherwise flowed into crypto.” The ETF flow data makes this concrete. Since April, memory-chip ETFs have attracted roughly $12 billion in inflows while spot bitcoin ETFs have seen more than $4 billion in outflows. The same allocators choosing between growth-oriented assets have been systematically favoring AI-adjacent infrastructure over digital assets.
But Leon stopped short of framing AI as simply a threat. “I’m not going to call AI a bubble,” he said, pointing to bitcoin miners expanding into AI and high-performance computing as evidence that demand for compute infrastructure is real. The longer-term view from Bitwise is that AI and crypto will become more complementary — with agentic AI systems starting to rely on programmable money, machine-to-machine payments, and stablecoin rails — rather than competing for the same capital indefinitely.
The cyclical logic Leon laid out is straightforward: once AI capital expenditure expectations get fully digested and relative valuations compress, allocators will rotate toward assets that are 50% off their highs with improving fundamentals. Bitcoin fits that profile.
Regulatory Uncertainty and the Clarity Act’s Potential Effect
The second external drag is legislative. The Clarity Act — the U.S. regulatory framework that would define how digital assets are classified and traded — remains stalled, with Leon saying he does not expect it to clear Congress before the August recess.
The stakes are significant. “What the Clarity Act changes is the permission structure for trillions of dollars of new institutional capital,” Leon said. Large institutional investors — endowments, sovereign wealth funds, major asset managers — often operate under mandates that require regulatory certainty before they can allocate to new asset classes. Without clear rules, that capital sits on the sidelines regardless of price. Passage of the Clarity Act wouldn’t just signal legitimacy; it would structurally open gates that are currently closed.
Crypto Market Fundamentals Strengthening Amid Macroeconomic Uncertainty
Bitwise Chief Investment Officer Matt Hougan framed a similar view last week, arguing that crypto is nearing the end of its current bear market. Hougan pointed to the selloff in Strategy’s STRC preferred shares as mirroring the kind of end-of-cycle deleveraging that has historically preceded new bitcoin bull markets.
Growth in Institutional Infrastructure and Tokenized Assets
Bitwise’s latest quarterly Crypto Market Review lands on the same conclusion through a different lens. Despite one of the weakest quarters for crypto prices in recent years, the report identifies continued growth in institutional infrastructure, expansion in tokenized real-world assets, and adoption by traditional finance firms as evidence that the industry’s underlying fundamentals are quietly gaining strength.
That separation between price and fundamentals is analytically important. Bear markets often mask genuine structural progress. The infrastructure being built — ETF products, custody solutions, tokenization frameworks — doesn’t pause because bitcoin’s price is under pressure. When sentiment eventually turns, the architecture to support institutional-scale capital flows will be more developed than it was at any prior cycle bottom.
Key Macroeconomic Events Influencing Outlook
The near-term picture is complicated by macro headwinds that have little to do with crypto specifically. “Sticky inflation” has pushed rate expectations higher. Geopolitical tensions — including recent events in the Middle East that rattled broader risk assets — are adding uncertainty. The July 14 CPI print and upcoming Federal Reserve meetings represent the key data points Leon flagged as likely to influence the macro backdrop for crypto in the weeks ahead.
What makes this bear market genuinely different from prior ones is that the fundamental case for bitcoin isn’t eroding alongside the price. The holders are more professional, the infrastructure is deeper, the regulatory framework is closer to resolution, and the asset is increasingly embedded in institutional portfolios at a scale that didn’t exist in 2018 or even 2022. The question isn’t whether the floor is rising — the data suggests it is. The question is how much patience the market requires before that floor becomes the launch pad.
FAQ
Why is the current bitcoin bear market considered milder than previous ones?
The current drawdown stands at 50%, which is significantly less severe than the 78% swing in 2022 and the 84% drop in 2018. Bitwise’s Juan Leon describes it as bitcoin’s “mildest structural bear market” on record, reflecting a more mature and professionally dominated holder base.
How are institutional investors responding to the current bitcoin downturn?
Institutional clients are split into two groups. Those with established bitcoin allocations over the past two years are using the dip to rebalance and dollar-cost average, treating it as a buying opportunity. Others — representing large pools of capital without existing positions — are waiting for greater regulatory clarity before committing.
What factors are causing the bitcoin price floor to rise?
The maturation of bitcoin’s holder base is the primary driver. As the asset shifts from retail speculators to professional allocators — who are less likely to panic-sell — each successive bear market finds its bottom at a higher level than the previous cycle.
How has the AI boom impacted crypto investment flows?
AI enthusiasm has diverted significant capital away from crypto. Since April, memory-chip ETFs attracted roughly $12 billion in inflows while spot bitcoin ETFs saw over $4 billion in outflows. Bitwise expects this dynamic to reverse as AI capital expenditure expectations normalize and allocators look for undervalued assets with improving fundamentals.
Article produced with the assistance of artificial intelligence and reviewed by the editorial team.
