Can the 2026 crypto market reach new heights again? Bitwise reveals three key challenges

The cryptocurrency market experienced a rapid rise in early 2026, followed by pressure for correction. According to the latest data, Bitcoin and Ethereum have respectively fallen 6.35% and 8.25% over the past 7 days, with Dogecoin dropping even more by 10.81%. This oscillating market performance perfectly validates the core view in the recent report by crypto asset management firm Bitwise: whether the market can continue to rise and reach new highs depends on passing “three major tests.”

Bitwise Chief Investment Officer Matt Hougan straightforwardly states in the report that despite strong buying momentum at the beginning of the year and investors’ risk appetite seemingly returning to normal, whether this rally can sustain long-term growth still hinges on the market’s ability to successfully address three critical challenges. Surprisingly, the first hurdle appears to have been cleared smoothly.

Hidden Risks Resolved? Bitwise’s First Test: Can Systemic Risks Be Absorbed?

The first major challenge highlighted by Bitwise concerns whether there are still unexposed systemic shocks lurking in the market. Looking back to October 2025, the crypto market experienced an epic liquidation wave, with a single-day futures contract liquidation reaching $19 billion.

This liquidation once sparked fears that large market makers and hedge funds might be forced to sell assets to realize gains, creating ongoing selling pressure. However, Hougan’s analysis suggests these concerns have gradually dissipated. Logically, if there had been a large-scale structural liquidation pressure, it would have fully erupted by the end of last year, not delayed until this year.

The market’s resilience in early 2026 indicates that investors have gradually absorbed last year’s trauma. This also implies that the probability of systemic risks re-emerging in the short term is relatively low. Bitwise believes the market has successfully passed the first test.

Policy Winds: Bitwise Focuses on U.S. Cryptocurrency Legislation Progress

The second challenge stems from the political and regulatory environment in the United States. Bitwise emphasizes that the U.S. crypto market structure bill is now under review in Congress. The Senate Banking Committee is expected to conduct a clause review in mid-January, which will be a critical moment for the bill’s passage.

Although disagreements remain between Democrats and Republicans on issues like DeFi regulation and stablecoin incentives, political struggles are unpredictable. Hougan stresses that once the bill passes smoothly, it will mark a historic milestone. The crypto industry has long operated in regulatory vacuum, and formal legislation will bring a systematic framework to the ecosystem.

However, risks of setbacks should not be ignored. If the bill ultimately fails to advance, the currently relatively friendly regulatory environment could reverse with changes in political power. Bitwise’s assessment is “cautiously optimistic but with uncertainties,” and the market should closely monitor congressional developments.

External Factors: U.S. Stock Market Stability as an External Variable

The final hurdle relates to the overall stability of risk assets. Bitwise states plainly that cryptocurrencies need a “relatively stable” stock market backdrop to continue rising.

While the correlation between cryptocurrencies and stock markets has loosened compared to previous years, a 20% correction in the S&P 500 would still likely drag down all risk assets in the short term. Current market forecasts suggest that the probability of a U.S. recession this year is low, and the chances of stock market gains are higher, which is favorable for the crypto market.

Nevertheless, the movement of the U.S. stock market remains an external variable beyond crypto’s control. How to maintain confidence in risk asset allocation amid global economic uncertainties will be a key challenge throughout 2026.

Conclusion: Structural Bullish Factors and Institutional Support

In summary, Bitwise’s outlook indicates that the development prospects for the crypto market remain solid. With ongoing institutional investment, expanding stablecoin and tokenization applications, and the gradually unfolding effects of a more friendly regulatory environment since early 2025, the market has strong long-term support.

The key is that as long as legislative progress continues and the global market environment does not experience severe disruptions, Bitwise believes the strong momentum seen at the start of the year can be sustained. The current market correction can instead be viewed as a re-examination of fundamentals rather than a change in development direction.