Why is TAO dropping? What’s Next for Bittensor

$TAO, the much-hyped token of Bittensor lost >20% and despite the entire crypto market having a relief rally right now, TAO keeps falling. Traders are asking if this is just a panic sell or the start of a governance meltdown.
The battle between developer credibility and network trust feels like a tug‑of‑war, draining short‑term liquidity as confidence fractures.

What Happened: The Covenant AI Exit

On April 10, 2026, Covenant AI, one of Bittensor’s most influential subnet operators and the team behind a flagship 72 billion parameter model, so its exit has outsized signaling power. Founder Sam Dare publicly claimed Bittensor’s governance is “decentralisation theatre”, alleging that Jacob Steeves could suspend subnet emissions, revoke moderation rights, deprecate subnets, and use large token sales as “punitive” pressure, all without a transparent community process. In response, Steeves has called the exit a “deep betrayal” and denies some of the control claims, framing the conflict as a personal and governance dispute rather than proof the protocol is centralised.

The Dump…

Following the announcement, Covenant AI reportedly liquidated approximately 37,000 TAO (worth over $10 million). This massive sell-off triggered a cascade of nearly $9 million in long liquidations, causing the price to plunge from roughly $338 to $253 in a matter of hours.

What This Means for Investors

The current situation represents a fundamental “stress test” for the Bittensor narrative.

The Bear Case (Risks)

Centralization Concerns: The core value proposition of TAO is a permissionless, decentralized AI network. If builders believe the project is centrally managed, they may exit or choose other protocols, devaluing the network.
Technical Damage: The price fell below its 200-day Moving Average, which often signals a shift from a bullish to a bearish long-term trend.

The Bull Case (Recovery Outlook)

Oversold Bounce: Many analysts, including Michaël van de Poppe, have suggested the move is “overstretched” and driven by short-term panic rather than long-term weakness.
Strong Support: TAO is currently hovering around the $250–$260 zone, which aligns with its 50-day moving average and has historically acted as a strong demand zone.
Upcoming Catalysts: The planned expansion to 256 subnets and the ongoing interest from Grayscale (who recently filed for a TAO-based ETF) provide significant long-term structural support that remains unchanged by this drama.

As of right now, TAO is on a downward trend, so I expect to see lower support being tested and I’m waiting to get lower entries. Still not rushing into it, but I am getting ready to open positions.

For a recovery to stick, TAO needs to reclaim the $300 level to prove that the governance crisis hasn’t permanently damaged investor trust. If it fails to hold $250, the next major support level sits significantly lower, near $220.

Structural logic: After Covenant AI’s exit shattered confidence, long positions unwound and retail risk appetite shrank. Weak rebound pressure limited follow‑through above 260 USDT.

Capital exodus: Four consecutive days of negative inflow totalling over $70 million  confirm that funds are leaving the network. With derivatives funding rates slightly negative and long ratios shrinking among elites, leveraged capital is cutting exposure, pressing spot prices lower.

Sentiment deterioration: Community discussions shifted from enthusiasm about AI growth to fear of systemic failure. Twitter FUD around the staking‑lock proposal triggered defensive positioning; even with 80 % long dominance, conviction weakened into inertia.
Technical pressure: On the daily chart, MACD stays below zero and KDJ turns down from 60, signalling waning momentum.
The next structural support sits at $160. Breaking it could open a test of $150. Staying above maintains hope for consolidation around $200.

What I want to point out is that the decentralisation issues TAO is accused of is nothing new to altcoins. I have argued for a really long time now that no altcoin project is truly decentralised, so I’m surprised that this debacle caused such a mass exodus from TAO. Decentralised networks do not arrive finished. They get assembled in public, under load, with real money on the line and real people disagreeing about what the thing is supposed to be.
The plane gets built while it is flying, and sometimes turbulence hits hard enough, and the crew has to keep welding through it.

Bittensor is in that phase right now.

No matter how decentralised a protocol is, the founder will always have influence. When Vitalik says something, everyone follows… you can fork, and many forks happened, but none were successful. That’s what’s so genius about Bitcoin and the Satoshi “no founder” effect.

Covenant leaving is a stress test. One team left loudly, and the protocol kept running. The other subnets kept running. Blocks kept producing.
Once the dust settles, what people will remember is what was already true before this week. Bittensor has traction.

In my 10+ years in crypto I’ve seen many a rug-pull and many a good project being run to the ground by rogue actors and I don’t see Bittensor being in this category.

If you’re scared of further downside for TAO (which is still possible), you might want to get out of your positions and wait until the dust settles. It will. And in a few months from now we will be looking at its recovery and talk about this event as nothing else but temporary FUD.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. The content of this post reflects solely my own opinions. Purchasing cryptocurrencies poses considerable risk of losses.

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