Crypto entered 2026 with a sharp bid, and Bitwise CIO Matt Hougan says the next leg higher hinges 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 January 6 memo, Hougan wrote that Bitcoin and Ethereum were each up 7% year-to-date as of Monday, January 5, while higher-beta names had moved faster, Dogecoin was up 29% over the same window. The question, he argued, is whether that early strength can turn into something sustained rather than a fleeting January pop.

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,” with “$19 billion in futures positions wiped out in a single day.” The mechanical damage mattered, but the psychological overhang may have mattered more. In the weeks that followed, he wrote, investors worried the cascade had “impaired major market makers and/or hedge funds—perhaps fatally,” raising the specter of forced selling as large players unwound.

“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,” Hougan wrote. “These potential sales hung over the market like a heavy fog.”

His first hurdle, then, is simply the absence of another blow-up with similar systemic implications. On that front, he struck a notably confident tone. “The good news: If it were going to happen, it probably would have happened by now,” he wrote, adding that while “there’s no guarantee,” a firm shutting down would likely have tried “to wrap up by year’s end.” In his read, part of the early-2026 rally reflects a market that has “put October 10 in the rearview.” He labeled that hurdle a “Green Light.”

The second checkpoint is legislative, and far less within the market’s control: passage of the crypto market structure bill known as the CLARITY Act. Hougan wrote the bill is “winding its way through Congress,” with the Senate “targeting January 15 for markup,” the stage where committees align drafts and try to move a final bill toward a vote.

He did not present it as a clean glide path. “Hurdles remain,” he wrote, citing “competing visions of how to regulate DeFi, stablecoin rewards, and political conflicts of interest.” Still, he framed markup as a pivotal gate: if CLARITY clears that process, it would be “a huge step toward approval.”

Hougan’s core argument is about durability. “Passage of the CLARITY Act is key to the long-term future of crypto in the U.S.,” he wrote. “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.”

He pointed to signals from both politics and 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 odds at 46% by May and 82% by year’s end. Hougan’s own takeaway: “I’m cautiously optimistic.” He tagged this hurdle “Yellow Light.”

The third checkpoint is the one crypto traders often prefer to dismiss, until it matters: equity-market stability. Hougan argued the market doesn’t need a roaring stock rally to support crypto, noting “crypto is not highly correlated with stocks.” But he drew a hard line around drawdowns 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 of all risk assets in the short term, crypto included,” he wrote.

Here, he was explicit about limits: “I can’t claim any special expertise on the equity markets.” While he noted some investors are worried about an AI bubble, he pointed to prediction markets that “see a relatively low probability of a recession in 2026 and a roughly 80% probability of S&P 500 gains.” Like the CLARITY Act, he labeled the equity backdrop a “Yellow Light.”

Hougan closed by arguing the setup is constructive if those remaining yellows turn green. “There is a lot to like in the crypto market right now,” he wrote, pointing to growing institutional adoption, surging real-world use cases “like stablecoins and tokenization,” and the market “starting to feel the benefits of the pro-crypto regulatory push that started in January 2025.” If the three milestones fall into place, he added, “2026’s early momentum will have some serious legs.”

At press time, Bitcoin traded at $91,717.

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