Bitwise: “Legislation and market stability are key to a crypto-market recovery this year”

An analysis found that regulatory clarity and market stability must come first for the crypto market to settle into a recovery phase in 2026. Progress on crypto legislation in the U.S. Congress and whether accumulated sources of anxiety can be cleared away after last year’s sharp selloff were cited as key variables.

According to a Cointelegraph report on the 8th (local time), Matt Hougan, chief investment officer (CIO) at Bitwise, wrote in a memo to investors that “the crypto market has started 2026 on a relatively stable footing, but several important conditions must be met for a full-fledged recovery.”

Hougan first said the fallout from a major market shock on Oct. 10 last year needs to be fully resolved. At the time, roughly $19 billion in futures positions were liquidated in a single day, raising the prospect of cascading unwinds by major market makers or hedge funds. “This potential selling pressure weighed on the market through the end of 2025,” he said, adding that “recent price action suggests investors are gradually digesting that shock.”

The second key factor was passage of the CLARITY Act. The U.S. Senate is discussing the bill with the aim of holding committee-level votes in the Banking Committee and the Agriculture Committee on the 15th, after which a final bill is expected to be brought to the floor. “The CLARITY Act is legislation that clarifies the regulatory framework for the U.S. crypto market,” Hougan said, calling it “an institutional foundation for long-term recovery and growth.”

Stability in traditional financial markets was also cited as an important variable in the recovery phase. While crypto does not move in lockstep with equities, he said, “if the stock market is rocked sharply, risk appetite across risk assets could be dampened.” He added that “if legislative progress and market stability materialize together, the 2026 recovery could prove more durable.”

Meanwhile, some market participants say the monetary policy backdrop could also affect the pace of the recovery. Jurrien Timmer, Fidelity’s director of global macro, said that “if fiscal policy combines with a dovish Federal Reserve stance, a more favorable environment for risk assets could be created.” Still, expectations are skewed toward the Federal Reserve holding its policy rate steady at its meeting later this month.