Bitcoin down 20% since May as Strategy fallout spooks investors

Worries over Strategy and interest rates have pressured crypto, but Bitwise’s Matt Hougan argues the shakeout is setting up a new rally.

Bitcoin is tanking. Despite a modest rebound in the past day, the price of the world’s largest cryptocurrency is down about 5% over the past week and 20% since May, according to data from CoinGecko. Ethereum, the world’s second-largest cryptocurrency, has seen comparable declines, and the total crypto market capitalization has dropped 36% in a year to now just over $2 trillion. 

The market rout comes amid declining confidence in the Bitcoin-amassing giant Strategy, which currently holds almost $51 billion in the cryptocurrency, or roughly 4% of the world’s total supply, according to the company’s own data.

The company’s stock almost halved over the past month to now around $85. And STRC, a form of Strategy stock that executive chairman Michael Saylor has repeatedly touted, has broken its $100 peg. Now, the asset, which is designed to pay holders a rich monthly dividend, is trading at slightly above $75.

“People are worried that [STRC’s downturn] is going to force Strategy to sell Bitcoin to raise cash in the market, and that’s creating a negative psychological environment,” Matt Hougan, chief investment officer at the crypto asset manager Bitwise, told Fortune. 

The crypto downturn also comes as consumers grow increasingly concerned about a potential interest rate hike, after Federal Reserve Chair Kevin Warsh recently emphasized the need to rein in inflation. Increased interest rates usually prompt investors to flee from riskier assets like crypto.

On Friday, the S&P 500 rose slightly while the Nasdaq dropped 0.6%. Meanwhile, the Dow Jones was essentially flat. 

Hougan sees the recent slide across crypto as a sign the current downtrend is nearing its end, especially as digital asset treasuries unwind. Over the past year, a wave of Strategy copycats began to inject public companies with cryptocurrencies with the hopes of seeing their stocks pop, but that trade has fallen out of favor. “Those got over their skis, and the market is sort of squeezing that excess capital out,” added Hougan. 

Still, the Bitwise executive predicts that the market will stabilize when and if Congress passes long-awaited crypto legislation. Once that uncertainty clears, he expects a rebound in the second half of the year as Wall Street firms continue to invest in blockchain technology.

This story was originally featured on Fortune.com