Crypto is off to a good start in 2026. As I write this memo on Monday, January 5, both Bitcoin and Ethereum are up 7% year-to-date. Speculative altcoins are up even more: Dogecoin, for instance, is up 29%.
Can the rally continue?
I spent much of the holiday thinking about what needs to happen for crypto to see a sustained rally in 2026. I believe there are three big hurdles standing between us and new all-time highs. Fortunately, we’ve already cleared one.
On October 10, 2025, crypto experienced the largest liquidation event in its history, with $19 billion in futures positions wiped out in a single day. In the aftermath, many worried that the event had impaired major market makers and/or hedge funds—perhaps fatally.
One of the reasons crypto struggled to rally in Q4 was that investors worried one of these big players might have to wind down operations, a process that typically requires the forced sale of assets. These potential sales hung over the market like a heavy fog.
The good news: If it were going to happen, it probably would have happened by now. While there’s no guarantee, any firm winding down operations would most likely have tried to wrap up by year’s end. One of the reasons I think we’ve rallied to start this year is that investors have put October 10 in the rearview.
Status: Green Light
The crypto market structure bill, known as the “CLARITY Act,” is currently winding its way through Congress. The Senate is targeting January 15 for markup, a process that involves aligning drafts in the Senate banking and agriculture committees and pushing the final bill to a vote. Hurdles remain, including competing visions of how to regulate DeFi, stablecoin rewards, and political conflicts of interest. But if the bill can make it through markup, it would represent a huge step toward approval.
Passage of the CLARITY Act is key to the long-term future of crypto in the U.S. Without legislation, the current pro-crypto regulatory tilt at the SEC, CFTC, and other agencies could reverse under a new administration. Passage of the Act would enshrine core principles into law and provide a strong foundation for future growth.
White House crypto czar David Sacks says “we are closer than ever” to passing the bill. Kalshi puts the odds at 46% by May and 82% by year’s end. I’m cautiously optimistic.
Status: Yellow Light
The final piece of the puzzle is for the broader equity market to stay intact. We don’t need a raging bull market; crypto is not highly correlated with stocks. But a sharp collapse—say, a 20% pullback in the S&P 500—would take the shine off of all risk assets in the short term, crypto included.
I can’t claim any special expertise on the equity markets. Some are worried about an AI bubble, but prediction markets currently see a relatively low probability of a recession in 2026 and a roughly 80% probability of S&P 500 gains.
Status: Yellow Light
There is a lot to like in the crypto market right now. Institutional adoption is growing, real-world use cases like stablecoins and tokenization continue to surge, and we’re just starting to feel the benefits of the pro-crypto regulatory push that started in January 2025. If we hit the three milestones above, I think 2026’s early momentum will have some serious legs.
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Crypto assets are digital representations of value that function as a medium of exchange, a unit of account, or a store of value, but they do not have legal tender status. Crypto assets are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not currently backed nor supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies, stocks, or bonds.
Trading in crypto assets comes with significant risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks and risk of losing principal or all of your investment. In addition, crypto asset markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing.
Crypto asset trading requires knowledge of crypto asset markets. In attempting to profit through crypto asset trading, you must compete with traders worldwide. You should have appropriate knowledge and experience before engaging in substantial crypto asset trading. Crypto asset trading can lead to large and immediate financial losses. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price.
The opinions expressed represent an assessment of the market environment at a specific time and are not intended to be a forecast of future events, or a guarantee of future results, and are subject to further discussion, completion and amendment. The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice, or investment recommendations. You should consult your accounting, legal, tax or other advisors about the matters discussed herein.
