The three major challenges in the 2026 crypto market: from liquidation risk to policy uncertainty

The cryptocurrency market looks promising at the start of 2026, with Bitcoin and Ethereum both up about 7% since the beginning of the year, and speculative assets like Dogecoin experiencing even larger gains. However, Matt Hougan, Chief Investment Officer at Bitwise, has recently voiced a different perspective: whether this rally can continue depends on whether the market can cross three hurdles. His analytical framework is very practical, directly highlighting the key risk points to watch in 2026.

The First Hurdle: Large-Scale Liquidation Risk Has Subsided

This obstacle has, in a sense, been cleared. On October 10 of last year, the crypto market experienced a major crash, with at least $20 billion in futures positions liquidated that day. The event peaked fears that major market makers or hedge funds might be forced to close positions, and this panic directly suppressed prices.

But as 2025 drew to a close, these concerns gradually diminished. Hougan believes that from this perspective, the market has passed its most dangerous period. This also explains why the start of the new year has been relatively stable—systemic liquidation risk is no longer hanging over the market.

The Second Hurdle: Uncertainty in U.S. Legislation

This is the real variable. Hougan emphasized a crypto market structure bill called the “Clarity Act,” which is currently advancing in Congress. According to the latest news, the Senate is expected to revise the bill on January 15.

While the bill appears highly technical, it actually involves several sensitive issues:

• How to define the regulatory framework for DeFi
• Whether reward mechanisms for stablecoins are permitted
• Political balancing among different interest groups

The existence of these disagreements means there is significant uncertainty about the final form of the bill. If legislation progresses favorably, it could be positive for the market; conversely, it could introduce new risks. The Senate revision on January 15 will be an important window for observation.

The Third Hurdle: Systemic Risk in the Stock Market

This is the most difficult variable to control. Hougan candidly states that cryptocurrency performance does not need to depend on stock market prosperity. However, he also warns that if the stock market crashes, it could drag down all risk assets—including cryptocurrencies—in the short term.

In other words, the crypto market might be forced to follow the downturn, even though fundamentally such correlation shouldn’t exist. This risk stems from investors’ asset allocation adjustments—when risk assets broadly decline, institutional investors may simultaneously reduce multiple positions to cut losses.

Current Market Signals

Recent information indicates that institutional attitudes toward the crypto market are shifting. U.S. banks are allowing wealth managers to recommend clients allocate up to 4% of their portfolios to Bitcoin; Morgan Stanley plans to launch Bitcoin and Solana ETFs. These are signals of traditional finance moving closer to the crypto space. The Solana spot ETF has seen the largest single-day inflow since its listing ($16.8 million), and Bitwise’s Solana ETF (BSOL) has surpassed $600 million in assets.

These data suggest that despite challenges, the trend of institutional capital entering the market is clear. The first hurdle has been crossed, the second is about to become clearer, and the third is systemic risk.

Summary

The performance of the crypto market in 2026 depends on whether these three hurdles are overcome. The first obstacle (liquidation risk) has already receded, providing a foundation for continued growth. The second obstacle (legislation) will be clarified around mid-January, representing a key risk point. The third obstacle (stock market risk) is an uncontrollable systemic factor.

Overall, Hougan’s analytical framework is very clear: the crypto market is not simply bullish or bearish, but involves multiple dimensions of obstacles to overcome. Institutional inflows are a positive sign; however, policy and systemic risks still exist and warrant caution. Key upcoming dates include the Senate revision on January 15 and broader macroeconomic data releases.