The cryptocurrency market has kicked off 2026 with renewed optimism, but sustaining the momentum toward new all-time highs will depend on passing a few critical tests, according to leading digital asset manager Bitwise.
In a recent market outlook, Bitwise highlighted three major conditions that must align for crypto’s early-year rally to evolve into a full-scale bull run: reduced systemic risk, progress on U.S. crypto legislation, and a stable global equity market.
So far, the signs are encouraging, but not without lingering uncertainties.
Bitcoin and Ethereum Gain Early Momentum in 2026
Bitcoin and Ethereum have both started the year on a positive note. As of early January:
Bitcoin (BTC) is up roughly 7% year-to-date, trading near the $93,000 mark
Ethereum (ETH) has also gained around 7%, hovering above $3,200
Risk appetite appears to be returning to the market, with speculative assets outperforming. Dogecoin (DOGE), for example, has surged nearly 30% in just the first few days of the year, often seen as a signal that traders are willing to take on more risk.
According to Bitwise, this early strength suggests that crypto markets may have moved past the heavy overhang that defined much of late 2025.
Test One: The Shadow of Forced Liquidations Is Fading
The first, and perhaps most important, test may already be behind the market.
Bitwise Chief Investment Officer Matt Houganpointed to the absence of another shock similar to the October 10, 2025 liquidation event, when approximately $19 billion in crypto futures positions were wiped out in a single day.
In the aftermath, investors feared that large hedge funds and market makers could be forced to unwind positions over an extended period, creating persistent selling pressure. However, Hougan believes that risk has largely dissipated.
“If major forced wind-downs were going to happen, they likely would have occurred before the end of last year,” Bitwise noted, adding that the market’s resilience in early 2026 suggests investors have already priced in those risks.
Test Two: U.S. Crypto Legislation Remains the Biggest Unknown
The second, and most unresolved, test lies in Washington, D.C.
Proposed U.S. crypto market structure legislation is currently making its way through Congress, with a key Senate Banking Committee markup expected in mid-January. While this step does not guarantee passage, Bitwise views it as a critical milestone.
Clear legislation could:
Provide long-term regulatory certainty
Protect the industry from abrupt policy reversals
Encourage deeper institutional participation
However, disagreements remain around DeFi oversight, stablecoin incentives, and broader political considerations. Without new laws, Bitwise warns that today’s relatively supportive regulatory climate could easily shift under a future administration.
For now, the firm describes the outlook as “cautiously optimistic, but still unresolved.”
Test Three: Equity Market Stability Is Crucial
The final test has little to do with crypto itself, and everything to do with traditional markets.
While cryptocurrencies are not perfectly correlated with equities, Bitwise cautions that a sharp stock market downturn could still derail crypto’s momentum. A decline of 20% or more in the S&P 500, for example, would likely pressure all risk assets in the short term.
At present, prediction markets suggest low odds of a recession in 2026, with expectations tilted toward continued equity gains. Still, Bitwise notes that macroeconomic shocks remain an external risk that crypto investors should not ignore.
A Constructive Setup for Crypto
Despite these open questions, Bitwise believes the broader environment for crypto remains favorable.
Key tailwinds include:
Growing institutional adoption
Increased use of stablecoins for payments and settlements
Expanding tokenization of real-world assets
The delayed benefits of a more supportive regulatory tone that began in early 2025
If policymakers deliver meaningful progress and global markets remain relatively calm, Bitwise argues that crypto’s strong start to 2026 could prove more than just a short-lived rally.
