Bitcoin, Ethereum, and Dogecoin: Can the 2026 Rally Sustain? 3 Key Catalysts to Watch
The cryptocurrency market kicked off 2026 with a significant bullish surge, prompting analysts to assess the sustainability of this momentum. Bitwise CIO Matt Hougan identifies three crucial checkpoints – beyond technical analysis – that will determine whether this early strength evolves into a lasting uptrend. These checkpoints revolve around market infrastructure, regulatory clarity in Washington, and the overall health of the broader financial risk environment. As of January 5th, Bitcoin and Ethereum had already risen 7% year-to-date, while higher-beta assets like Dogecoin experienced an even more substantial 29% increase. The question now is: can this initial enthusiasm translate into a sustained rally, or will it prove to be a fleeting January phenomenon?
The Lingering Shadow of October 10, 2025
Hougan’s analysis begins with a stark reminder of October 10, 2025 – a day he describes as witnessing “the largest liquidation event in crypto history,” with a staggering $19 billion in futures positions wiped out in a single day. While the immediate financial damage was substantial, the psychological impact on the market proved equally significant. Investors became concerned about the potential failure of major market makers and hedge funds, fearing forced asset sales and further market instability.
“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 explained. “These potential sales hung over the market like a heavy fog.”
A "Green Light": Systemic Risk Appears Contained
Fortunately, Hougan believes this systemic risk has largely subsided. “The good news: If it were going to happen, it probably would have happened by now,” he stated, suggesting that any firms facing existential threats likely attempted to resolve their issues by year-end. He attributes part of the early 2026 rally to the market finally “putting October 10 in the rearview.” This represents the first “Green Light” – the absence of another catastrophic market event.
The CLARITY Act: A Regulatory Turning Point
The second critical checkpoint lies in the legislative arena, specifically the passage of the CLARITY Act – a bill designed to establish a clear regulatory framework for the cryptocurrency market. Currently, the bill is progressing through Congress, with the Senate aiming for a markup session by January 15th. This markup phase is crucial, as committees will refine the draft and work towards a final version for a vote.
However, the path to passage isn’t without obstacles. “Hurdles remain,” Hougan acknowledges, citing ongoing debates surrounding the regulation of Decentralized Finance (DeFi), stablecoin rewards, and potential conflicts of interest. Despite these challenges, a successful markup would be a significant step forward.
"Yellow Light": Legislative Uncertainty Remains
Hougan emphasizes the long-term importance of the CLARITY Act. “Passage of the CLARITY Act is key to the long-term future of crypto in the U.S.,” he argues. “Without legislation, the current pro-crypto regulatory tilt at the SEC, CFTC, and other agencies could reverse under a new administration.” The Act would solidify core principles into law, providing a stable foundation for future growth.
Signals from Washington and prediction markets offer cautious optimism. White House crypto czar David Sacks believes the bill is closer to passage than ever before. Kalshi, a prediction market, estimates a 46% probability of passage by May and an 82% probability by year-end. Hougan himself remains “cautiously optimistic,” labeling this checkpoint a “Yellow Light.”
The Equity Market Backdrop: A Potential Headwind
The third checkpoint, often downplayed by crypto enthusiasts, concerns the stability of the broader equity market. While Hougan notes that crypto isn’t strongly correlated with stocks, a significant downturn in equities could still negatively impact the market. “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 warns.
He acknowledges the potential for an AI bubble but points to prediction markets indicating a relatively low probability of a recession in 2026 and an 80% probability of S&P 500 gains. Like the CLARITY Act, he categorizes the equity market as a “Yellow Light.”
Risk-Off Sentiment and Crypto's Vulnerability
A broader risk-off sentiment, triggered by economic uncertainty or geopolitical events, could lead to deleveraging across all asset classes, including crypto. This deleveraging would likely result in selling pressure and a temporary setback for the market. Therefore, maintaining stability in the equity markets is crucial for sustaining the current crypto rally.
Looking Ahead: A Constructive Setup with Remaining Hurdles
Hougan concludes that the current setup is constructive, provided the remaining “Yellow Lights” turn “Green.” “There is a lot to like in the crypto market right now,” he asserts, highlighting growing institutional adoption, increasing real-world use cases – particularly in areas like stablecoins and tokenization – and the positive impact of the pro-crypto regulatory push that began in January 2025.
If these three milestones – the absence of systemic risk, the passage of the CLARITY Act, and equity market stability – are achieved, Hougan believes the early 2026 momentum will have a solid foundation for continued growth. The future of the crypto market in 2026 hinges on navigating these key challenges and capitalizing on the emerging opportunities.
At press time, Bitcoin traded at $91,717.
Bitcoin needs to overcome the 0.618 Fib, 1-week chart | Source: BTCUSDT on TradingView.com
Featured image created with DALL.E, chart from TradingView.com