Well, joining us today is Jim Ferraioli, the Director of Crypto Research and Strategy at the Schwab Center for Financial Research.
Great to have you here.
Thank you so much for joining me.
Morning.
Thanks for having me on.
Well, as we kick off June here in 2026, we are looking at red for Bitcoin, and there are a lot of headlines.
So where do you make, what do you make of some of the headlines that are happening in the price action here?
So we're in a classic bear market.
Bear markets exist to flush out leverage from the system.
And that's continued to happen.
So, if you go back to October, um, activity in spot markets had more or less dried up.
Uh, there was still a lot of leverage.
There was high futures open interest, uh, funding rates for perpetual futures were a bit stretched.
And so, uh, as a result of some unexpected tariff announcements, you know, that really kicked off this latest bear market.
Uh, since finding a bottom in February.
Uh, most of the activity has actually been driven through spot markets, uh, but we're seeing some pressure there, uh, specifically from digital asset treasuries and some of the preferreds they've issued.
That has been a big source of spot demand, um, really year to date.
And so with, uh, recent sales, putting the narrative of never selling Bitcoin into question, that's exerting a bit of pressure on the Bitcoin, but then also at the broader crypto market.
But there's another force here at play is, if you think about crypto investors, these are momentum chasers.
They love chasing Bitcoin and cryptocurrencies up when they're rallying.
And on the way down, they are very negative.
In the fall, we saw them shift as crypto started selling off out of cryptocurrencies and chasing the bull market and precious metals.
And now, on the wave of several large IPOs, we're seeing them more selling.
And so the idea there is, if you're going to be chasing IPOs, you need to fund it from somewhere.
Crypto hasn't been performing well, so it's a natural source of funds for the next area of the market to chase.
Yeah, there have been a lot of conversations out there about this rotation that we are seeing away from crypto, but I understand according to your research that you say cheap entry points alone will not revive the crypto winner.
So how critical is regulation in 2026?
Regulation, specifically the passage of the Clarity Act, uh, would be a very important catalyst.
So.
Again, cryptocurrencies are narrative-driven.
They're not necessarily driven by fundamentals.
In the fall, the big narrative was, uh, quantum risk and quantum, you know, how that could impact cryptocurrencies encryption.
Uh, the two years prior to that, the story was institutional adoption.
As, uh, the market bottomed in February, from February till now, you know, we've been back in that institutional adoption narrative.
And so, again, I, I think it's important for a market that's really driven by narratives and momentum.
It is a way to reignite some new momentum into this market.
Yeah, and Jim, you mentioned digital asset treasuries.
That was something that we were watching at the end of last year when we were looking at record highs for Bitcoin.
But another area I want to get your perspective on is Bitcoin mining.
So given that there has been a lot of shift as well as focus away from crypto mining.
Into the artificial intelligence trade.
Give us your perspective right now.
So there's a fear or maybe a narrative that as miners shift some of their operations towards AI, it actually leaves the Bitcoin blockchain less secure.
And the reason for that is it concentrates the validation of that blockchain into a smaller subset of validators.
I disagree with that narrative.
If you think about the mining industry historically, it's a very cyclical industry.
Every 4 years, miners have to do a complete refresh of their tech stack.
And so to fund that, they've had to time Bitcoin sales.
If you can sell at the peak, great, uh, but a lot of the time they would end up selling under pressure during these bear markets.
A lot of them have debt, you have to meet those obligations, and then you have traditional operating, uh, expenses in addition to just debt.
And so by shifting some of your operations towards AI, that actually provides longer term security to the network.
It's more stable revenue inference contracts are awarded through contracts, and so over time it creates a more stable revenue.
Now, crypto investors have often looked at the price of Bitcoin versus the network hash rate.
And those two have typically been correlated.
And now that that has diverged, that miners are now shifting some of their operations towards AI.
And so the question is, will Bitcoin be able to recover to uh prior highs if network cash rate isn't recovering at the same level.
Um, we think this, there's enough of a self-correcting mechanism here with the Bitcoin difficulty adjustment.
Uh, ultimately though, you do need something that's gonna entice miners to rejoin the network.
So the, the relationship between producing Bitcoin, the costs associated with it, and the price, they, they both impact each other, and historically as Bitcoin's price has risen, it's enticed more miners onto the network.
And so again, absent a fundamental catalyst to reignite some momentum, I think it's natural to see some chop back and forth here in Bitcoin.
Yeah, and you mentioned the word correlation, so I want to get your take on what we're seeing when it comes to the correlation between Bitcoin as well as digital assets versus equities, because we have to keep in mind that we've seen quite the record run for the major US stock averages, the Dow, the Nasdaq, the S&P 500, even the Russell, and this does come on.
The earnings expectations as well as tax play for artificial intelligence.
But what is happening when it comes to correlation and liquidity?
So fundamentally, Bitcoin is a low correlation asset to other asset classes, and what makes this a factor for it is every 4 years, regardless of what's going on in the global economy.
The new supply that's rewarded to miners is cut in 50%.
So, the economy could be contracting, the economy could be expanding.
Regardless, every 4 years, there's less Bitcoin.
And so that's really been the root of the where the low correlation comes from.
So on a multi-year time frame.
It has shown, and it still shows to be a low correlation asset.
Now in the short term, it can be correlated with other assets.
And so, uh, the past several years, uh, when there was narrow market leadership and it was predominantly a handful of AI companies, you saw there was a pretty tight correlation between Bitcoin and some of these AI stocks.
More recently, that's broken down.
So I would Take that back to what are Bitcoin's core drivers.
It is fundamentally a monetary asset.
And so if you think the total money supply is going to expand, that should be supported for something like Bitcoin that's supply constrained.
Stocks are different.
They're economically driven.
And there is, uh, obviously a relationship with, as the economy expands, you typically do see, uh, money supply expand, but stocks are fundamentally.
Uh, driven by earnings, which is tied to economic activity.
So there, there are two different underlying factors.
And so, it's a great environment for risk, obviously, you look at the stock market, uh, indexes continue to make all highs, new highs.
You're gonna get a new wave of IPOs coming out.
Um, but that doesn't necessarily translate fundamentally to a positive market for Bitcoin, other than Bitcoin is a risk asset.
Yeah, and speaking of which, I do want to get your take on seasonality, especially when it comes to crypto.
So there are a lot of things here on Wall Street when it comes to the equity market, but give us your perspective on seasonality and crypto, and what does that mean as we head into the second half of 2026?
Sure, so Bitcoin has also seasonally been uh It has also historically been seasonal.
Uh, typically, the summer months are some of the weakest months going back to 2011, June, July, low single digit, uh, returns, which compared to your average month are lower.
August and September are actually historically negative months, which is actually similar with equities.
And so if we think about how that impacts, uh, Bitcoin and investing around it.
Um, year to date, rallies have been sold in the low 80,000s.
Now, fundamentally, that makes sense.
The average owner of a Bitcoin ETF has about an $83,000 cost basis.
And then the average owner for anyone who's acquired Bitcoin in secondary markets, so excluding minors, they have a cost basis of about $78,000.
And so it's.
Natural, if you're an investor who bought Bitcoin maybe a year and a year and a half ago, you saw this euphhoric rise quickly to $126,000.
You quickly saw your investment get cut in half, and then as it made its way back to these levels, you can sell and break even.
So that's been an issue for us that we've flagged that investors may be inclined to sell here.
And then when you put on summer seasonality on top of that, knowing that returns are typically weaker on average in the summer, it's probably not going to entice new investors into it.
And so we've long stated this year that we think there is opportunity for upside, but it's going to be more driven in the second half of the year.
We think the market does need a fundamental catalyst, and that could be the passing of the Clarity Act.
And before I let you go, since you mentioned Bitcoin, I do want to get your take on whether you expect the crypto major to remain range bound this year.
Um.
I would say in the short term to see it range bound between kind of the low 60,000s and, you know, around that $80,000 level makes sense.
So we talked about the cost basis, which is where we get the upper bound there.
The lower bound, if you think about, uh, miners, and the entire framework for how I think about investing in Bitcoin and cryptocurrencies comes down to minor metrics.
If you're a Bitcoin miner with the lowest cost energy and the most, uh, advanced fleet of basics, on average, they produce.
Bitcoin at about $60,000 per Bitcoin.
Historically, that has acted as kind of that lower bound that Bitcoin trades in the bear markets.
And so I think it's reasonable for it to kind of trade range bound in this, you know, between $60,000 and $80,000 until there's, uh, something that can spark some fundamental momentum into it.
Well, Jim, it was great having you on the show today.
I appreciate your thorough overview of what we're seeing in the markets and what we might possibly expect as we head into the second half.
Thank you so much for joining me.
Thanks for having me on.
