- Bitwise identifies the AI bubble collapse and a regulatory reversal as top bear market risks.
- CIO Matt Hougan reckons a regulatory reversal would have devastating consequences.
- Bitwise assigns a 20% chance that US crypto regulatory progress reverses before 2026 elections.
As Bitcoin price tries to catch its footing above $93,000, investors are starting to ask themselves, what will it take to plunge Bitcoin into yet another bitter crypto winter?
For Bitwise, there are two scenarios that pose the biggest threats to the current crypto cycle. One is a collapse in AI stocks while the second is a regulatory reversal in Washington, D.C.
In a December 3 presentation with investors, Bitwise CIO Matt Hougan and European head of research André Dragosch laid out what needs to happen for Bitcoin to enter another bear market.
“My biggest worry is on the regulatory side in the US,” said Hougan. “We still haven’t inked the market structure act, and there are growing worries we won’t before the 2026 elections, meaning some of the regulatory progress could be reversed.”
Meanwhile, Dragosch’s fears stem from the AI trade. “We have seen excessive valuations in AI stocks,” he said when asked by an audience member what will signal whether Bitcoin’s bull market has any horns left.
Bitwise’s analysis — which comes as Bitcoin has lost more than 20% of its value in the past two months, a figure that in equity markets would already place it in a bear market — means Bitcoin’s fate largely clings to an external risk that escapes crypto’s control.
Indeed, the AI bubble represents a macro shock that would crush risk assets broadly, and would probably configure a cascading effect that brings large swathes of equities down.
A second factor, albeit closely tied to crypto, is regulatory backsliding.
AI bubble
AI stocks have soared on promises of transformative productivity gains and new business models.
But Dragosch argues valuations have disconnected from fundamentals.
“Some [stock prices] might be justified, but based on pure quantitative valuation, we’re way too high,” he said.
Bitcoin could get hit particularly hard if the AI bubble pops. Crypto tends to move in tandem with high-growth tech stocks, particularly during risk-off events. When Nvidia and other AI darlings crashed earlier this quarter, Bitcoin followed, tumbling more than 30% from its October highs.
And the correlation isn’t coincidental. Both crypto and AI stocks attract the same investor base seeking exposure to transformative technology. When that capital gets scared, it exits both asset classes simultaneously.
Regulatory reversal
Bitwise’s second concern comes from Washington.
Despite progress on crypto-friendly legislation, including the landmark Genius Act, the firm sees meaningful risk that momentum stalls or reverses.
Right now, the Clarity Act, which looks to establish the rules for crypto by defining categories of assets and assigning them to regulatory agencies, has been stalled until next year. And even then, nothing is set in stone.
“The Democrats have been stalling and stalling and stalling because they don’t want President Trump to make America the crypto capital of the world,” Republican Senator Tim Scott said back in mid November.
Hougan places odds of a regulatory reversal at 20%.
Pedro Solimano is DL News’ Buenos Aires-based markets correspondent. Got a tip? Email him atpsolimano@dlnews.com.