Crypto entered 2026 at a sharp bid, and Bitwise CIO Matt Hougan says the next move higher depends on three checkpoints that have less to do with chart patterns and more to do with market plumbing, Washington and the broader risk backdrop.
In a Jan. 6 memo, Hougan said wrote that Bitcoin and Ethereum are up 7% year to date as of Monday, January 5, while higher beta names have risen faster, Dogecoin is up 29% over the same period. The question, he argued, is whether that early strength can turn into something lasting rather than a fleeting January pop.
Three hurdles to overcome for Bitcoin, ETH and Dogecoin
Hougan’s framework starts with a memory the market would rather bury: October 10, 2025, when crypto saw what he called “the largest liquidation event in its history,” wiping out “$19 billion of futures positions in a single day.” The mechanical damage was important, but the psychological overhang was perhaps even more important. In the weeks that followed, he wrote, investors worried that the cascade had “hurt major market makers and/or hedge funds – perhaps fatally,” raising the specter of forced selling as the big players pulled out.
“One of the reasons why crypto struggled to recover in the fourth quarter was that investors were concerned that one of these major players would have to shut down operations, a process that typically requires the forced sale of assets,” Hougan wrote. “These potential sales hung like a thick fog over the market.”
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So its first hurdle is simply the absence of another eruption with similar systemic implications. On that front, he struck a remarkably confident tone. “The good news: If it was going to happen, it would probably have happened by now,” he wrote, adding that while “there is no guarantee,” a business closure would likely have been attempted “to be completed by the end of the year.” He said part of the early 2026 rally reflects a market that has “put October 10th in the rearview mirror.” He called that hurdle a “green light.”
The second checkpoint is legislative, much less within the control of the market: the passage of the Crypto Market Structure Act known as the CLARITY Act. Hougan wrote that the bill is “working its way through Congress,” with the Senate “targeting Jan. 15 for markup,” the stage when committees align drafts and try to move a final bill toward a vote.
He didn’t present it as a clean glide path. “Barriers remain,” he wrote, citing “competing views on how to regulate DeFi, stablecoin rewards, and political conflicts of interest.” Still, he viewed markup as a crucial gateway: If CLARITY cleans up that process, it would be “a huge step toward approval.”
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Hougan’s core argument is about sustainability. “Passing the CLARITY Act is key to the long-term future of crypto in the US,” he wrote. “Without legislation, current pro-crypto regulations at the SEC, CFTC and other agencies could reverse under a new administration. Passage of the bill would enshrine core principles in law and provide a strong foundation for future growth.”
He pointed to signals from both politics and the prediction markets. White House crypto czar David Sacks, Hougan wrote, says “we are closer than ever” to passing the bill. Kalshi, he added, puts the chances at 46% by May and 82% by the end of the year. Hougan’s own conclusion: “I’m cautiously optimistic.” He called this obstacle ‘Yellow Light’.
The third benchmark is the one that crypto traders often prefer to put aside until it really matters: stock market stability. Hougan argued that the market doesn’t need a roaring stock rally to support crypto, noting that “crypto is not highly correlated with stocks.” But he drew a hard line around credit downturns that force broad deleveraging and risk-off positioning. “A sharp collapse — say, a 20% pullback in the S&P 500 — would take the shine off all risky assets in the short term, including cryptocurrencies,” he wrote.
Here he was explicit about the limits: “I cannot claim any special expertise in the stock markets.” While noting that some investors are concerned about an AI bubble, he pointed to prediction markets that see “a relatively low chance of a recession in 2026 and a roughly 80% probability of S&P 500 gains.” Like the CLARITY Act, he labeled the stock market a “yellow light.”
Hougan concluded by arguing that the lineup is constructive if the remaining yellows turn green. “There’s a lot of fun going on in the crypto market right now,” he wrote, pointing to increasing institutional adoption, increasing real-world use cases “such as stablecoins and tokenization,” and the market “beginning to feel the benefits of the pro-crypto regulations that began in January 2025.” If the three milestones fall into place, he added, “the early momentum of 2026 will have serious consequences.”
At the time of writing, Bitcoin was trading at $91,717.
Featured image created with DALL.E, chart from TradingView.com