Key Takeaways:

• Crypto’s 2026 rally hinges on three conditions, for Bitwise CIO Matt Hougan.
• The main risk has already faded, as fears of forced liquidations have subsided.
• A significant stock market drawdown would likely pressure crypto.

Crypto markets have opened 2026 with renewed momentum, but whether the rally can sustain itself depends on a small set of critical conditions.

That is the view of Matt Hougan, Chief Investment Officer at Bitwise, who outlined three key hurdles that must be cleared for digital assets to reach new all-time highs this year.

In a recent memo, Hougan noted that Bitcoin and Ethereum were already up roughly 7% year-to-date as of early January, while speculative assets such as Dogecoin surged nearly 30%. Still, he cautioned that early strength alone does not guarantee a durable bull market.

According to Hougan, crypto’s outlook for 2026 hinges on market stability, regulatory progress, and a supportive broader risk environment.

No repeat of October’s $19B liquidation shock

The first hurdle is already behind the market. On 10 October, 2025, crypto suffered its largest liquidation event on record, with roughly $19 billion in futures positions wiped out in a single day.

The scale of the unwind rattled confidence, as investors feared that significant hedge funds or market makers could be forced to liquidate assets over the following months.

Those concerns weighed on prices throughout the fourth quarter. Hougan argues that the risk has now faded. If large players were going to unwind, they likely would have done so by year-end.

The absence of further forced selling has helped restore confidence and contributed to the rebound in early 2026.

Hougan considers this hurdle cleared.

However, the first test for crypto comes on 9 January, 2025, as the US Supreme Court is set to issue a ruling regarding the constitutionality of the Trump administration’s tariff policy.

Market Structure legislation as the key regulatory catalyst

The second trigger is regulatory clarity. The US crypto market structure bill, commonly referred to as the CLARITY Act, is moving through Congress, with Senate markup targeted for mid-January.

Hougan stressed that the passage would be a significant milestone. While US regulators have recently taken a more constructive stance toward crypto, those positions could change under future administrations without legislation in place.

A finalized bill would anchor core principles into law, providing long-term certainty for institutions and builders.

That said, challenges remain. Debates around DeFi oversight, stablecoin incentives, and political conflicts of interest could delay progress. Hougan described this hurdle as unresolved but trending in the right direction.

Equities stability and the role of efficient markets

The final condition lies outside crypto itself: equities. Hougan does not believe stocks need to surge for crypto to perform well, noting that correlations are imperfect.

However, a sharp equity drawdown, such as a 20% decline in the S&P 500, would likely pressure all risk assets, including Bitcoin.

Here, the Efficient Market Hypothesis (EMH) enters the game. EMH suggests that asset prices quickly reflect publicly available information. When significant news breaks, whether regulatory, macroeconomic, or geopolitical, markets tend to reprice rapidly rather than gradually.

This applies to both equities and Bitcoin. If recession risk or systemic stress becomes widely accepted, prices often react immediately. Conversely, if conditions remain stable, risk assets can continue to trend higher even without perfect economic clarity.

Prediction markets currently assign a low probability to a US recession in 2026 and a 30% chance that equities finish the year higher, which Hougan views as cautiously supportive.