Bitcoin, Ethereum, Dogecoin Rally: Three Crucial Checkpoints Identified by Bitwise CIO

As the crypto market began 2026 with a promising surge, Bitwise CIO Matt Hougan emphasizes that the next significant rise will depend on three key factors that are less about technical charts and more about market conditions, regulatory developments, and overall risk environment.

Key Takeaways

Bitcoin and Ethereum started 2026 strong, with each up 7%, and Dogecoin surging 29%.
Three critical challenges must be addressed for sustained growth: avoiding systemic market events, passing the CLARITY Act, and maintaining equity market stability.
Successful navigation of these challenges could solidify crypto's momentum for 2026.

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In a memo dated January 6, Hougan reported that Bitcoin and Ethereum had both increased by 7% year-to-date as of January 5, while more volatile assets like Dogecoin saw a remarkable 29% rise during the same period. He questioned whether this initial strength could develop into a sustained upward trend rather than being just a short-lived increase in January.

Key Challenges Facing Bitcoin, Ethereum, and Dogecoin

Hougan's analysis references a severe event that many in the market would prefer to forget: on October 10, 2025, the crypto sector experienced what he described as "the largest liquidation event in its history," resulting in $19 billion in futures positions being wiped out in just one day. While the mechanical fallout was significant, he suggested that the psychological impact could be even more critical. In the ensuing weeks, investors were concerned that this cascade might have severely affected major market players and hedge funds, creating the risk of forced asset sales.

“One reason crypto struggled to recover in Q4 was investor fears that a significant player might have to shut down operations, which usually involves forced selling of assets,” Hougan noted. “These potential sales loomed over the market like a heavy fog.”

His first challenge, therefore, is ensuring there is no repeat of such a catastrophic incident with similar systemic consequences. On this front, he expressed cautious optimism, stating, “The good news is, if another event were likely, it probably would have occurred by now.” He added that while "there's no guarantee," a firm facing difficulties would likely try to resolve matters by the end of the year. In his perspective, part of the early-2026 rally suggests that the market has moved past the events of October 10, which he referred to as a “Green Light.”

The second checkpoint relates to legislation and is largely beyond the market's control: the progress of the crypto market structure bill known as the CLARITY Act. Hougan mentioned that the bill is currently making its way through Congress, with the Senate looking to begin discussing it around January 15. This is the stage where committees align draft versions and aim to push the final bill toward a vote.

However, he did not present this as an easy path. “Hurdles remain,” he stated, highlighting “conflicting visions on regulating DeFi, stablecoin rewards, and political conflicts of interest.” Nonetheless, he sees the markup process as a critical milestone: if the CLARITY Act passes this stage, it would represent “a huge step toward approval.”

Hougan emphasized the importance of this legislation for the future of the crypto market in the U.S. “Passage of the CLARITY Act is essential for the long-term future of crypto in the U.S.,” he argued. He highlighted that without such legislation, the current favorable regulatory environment at agencies like the SEC and CFTC could be reversed under a new administration. The passage of the Act would solidify core principles into law, creating a robust foundation for future growth.

Pointing to insights from both political discussions and prediction markets, he noted that White House crypto czar David Sacks claimed, “we are closer than ever” to passing the bill. Kalshi’s prediction markets place the likelihood of passage at 46% by May and 82% by the end of the year. Hougan summarized his view: “I’m cautiously optimistic,” deeming this challenge a “Yellow Light.”

The third checkpoint involves an aspect crypto traders often overlook—equity market stability. Hougan argued that while a booming stock market isn't necessary to support crypto, significant drops in equity markets can have adverse effects. He acknowledged that crypto isn't highly correlated with stocks but stressed that a broad market decline, such as a 20% drop in the S&P 500, would negatively impact all risk assets, including cryptocurrencies.

He clearly stated his limitations in predicting equity market trends: “I can’t claim any special expertise on the equity markets.” While some investors have voiced concerns over a potential AI bubble, he pointed to prediction markets indicating a low probability of recession in 2026 and an approximately 80% chance of gains in the S&P 500. Like the CLARITY Act, he classified the equity market environment as a “Yellow Light.”

Hougan concluded by stating that the market outlook is positive if these remaining yellow lights turn green. “There’s a lot to be excited about in the crypto space right now,” he wrote, highlighting the increasing institutional adoption, growing real-world applications such as stablecoins and tokenization, and the market beginning to reap the benefits of a pro-crypto regulatory shift that started in January 2025. If these three milestones are achieved, he added, “2026’s early momentum will have real staying power.”

As of the report, Bitcoin was priced at $91,717.

Bitcoin price chart Bitcoin is aiming to conquer the 0.618 Fib level, based on the one-week chart. | Source: BTCUSDT on TradingView.com