Bitwise believes that the cryptocurrency market may be nearing the end of the 'crypto winter' that began in January 2025, thanks to the cyclical nature of previous downturns and continued buying pressure from institutions for major assets.
After a lackluster 2025 and a gloomy early 2026, Bitwise CIO Matt Hougan believes that market conditions could improve in 2026. He argues that the recent downturn obscures many positive signals such as legal progress and the trend of institutional adoption.
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Bitwise assesses that the "crypto winter" since January 2025 may be nearing a historical cycle bottom.
Institutional flows through Crypto ETFs and digital asset treasuries are believed to have "supported" the large-cap asset group.
Market sentiment has fallen into extreme fear, but some stabilization indicators and the liquidity story for 2026 are noted.
The total crypto market capitalization has sharply declined and sentiment has shifted to extreme fear.
The cryptocurrency market capitalization has decreased from $3 trillion to about $2.5 trillion, while the Fear & Greed Index has fallen to 15 after reaching 54 in mid-January.
The negative developments at the beginning of the year indicate widespread selling, not tied to a single event. The sentiment index dropping into the "extreme fear" zone often reflects investors' defensive state and a broad contraction in risk appetite.
During the same period, Bitcoin dropped over 12% in a week and at one point fell below $76,000 on Monday, the first time since 2024. Many investors are concerned that breaking through important support levels could lead to a deeper drop as the market enters a technically sensitive phase.
Bitwise states that crypto has been in a bear market since January 2025.
Bitwise CIO Matt Hougan believes that despite a new peak in 2025, the cryptocurrency market has essentially been in a "bear market" since January 2025 due to excessive leverage and widespread profit-taking.
In a blog post published on Monday, Hougan cited two main headwinds: excessive leverage and profit-taking by early investors. According to him, these factors weaken the bullish structure, making any decrease in volatility potentially more widespread when liquidity conditions are not strong enough.
He also points out the significant drop compared to the peak: Bitcoin has decreased nearly 40% from the October 2025 peak, while Ethereum has dropped over 50%. Such deep declines often accompany dispersion, with assets supported by institutional capital performing better than altcoins lacking sustainable buying pressure.
Institutional flows through Crypto ETFs and digital asset treasuries are viewed as support for the large-cap group.
Hougan believes that institutional buying in 2025 through Crypto ETFs and Digital Asset Treasuries (DATs) has created a "mirage" of a bull market for retail investors.
Bitwise cites a chart of yields from 10 large-cap crypto assets to illustrate the degree of dispersion from January 2025 to January 2026, see Bitwise's chart. The central argument is that institutional capital flows focusing on a few key assets can maintain better price levels, creating a sense that "the market is still fine" despite the rest weakening.
According to the description, the 10 assets are divided into 3 groups: group 1 includes Bitcoin, Ethereum, and XRP; group 2 includes Solana, Litecoin, and Link; group 3 includes Cardano, AVAX, and Sui. This grouping aims to clarify the correlation between the level of institutional capital access and the adjustment range for each basket.
The results stated in the article: group 2 decreased by 37–47% and group 3 decreased by 60–75%, while group 1 "held up better" due to widespread institutional participation. Hougan emphasizes that group 3 stands out because it lacks institutional coverage in 2025 like the other two groups, implying that without institutional buying pressure, the Bitcoin and crypto markets could have entered a more pronounced downtrend during this period.
Bitwise expects the "crypto winter" cycle to be nearing its end.
Hougan noted that historically, "crypto winters" typically last about 13 months; if the pattern repeats, conditions could start to improve from March of this year.
He believes that the recent drop and negative sentiment have obscured a lot of good news. This argument is based on a common observation in bear markets: positive catalysts may not immediately reflect in prices as investors prioritize risk reduction, while liquidity and leverage contract.
Hougan also mentioned legal progress in the U.S. with the CLARITY and GENIUS Acts, along with institutional acceptance as a "major factor" for the industry. In his view, the benefits from structural changes like legal frameworks and access channels for institutions often come slowly and may only become evident when sentiment and liquidity reverse.
U.S. liquidity is mentioned as an important variable for the crypto market in this cycle.
Some industry leaders believe the market shows signs of stabilization, and Raoul Pal notes that U.S. liquidity (USTLI) is playing a more dominant role in this cycle but is currently "drained," at around 3% compared to the peak of 30% in 2021.
The article states that selling pressure from long-term holders has slowed, while fundamentals continue to improve, seen as a relatively stabilizing signal amid volatility. In this context, the liquidity story becomes a factor explaining why prices are still struggling to recover despite some positive news.
Raoul Pal wrote on X that global liquidity was once a driver for previous bull cycles, but this time U.S. liquidity stands out more. See Raoul Pal's post on X.
Pal believes that resolving the situation of the U.S. government shutdown could be a catalyst for liquidity to return to the crypto market. He expects factors such as interest rate cuts under Trump's Fed chair nominee Kevin Warsh, Treasury cash (TGA) being pumped back into the market, and fiscal stimulus before the U.S. midterm elections could set the stage for a "liquidity wave" in 2026.
Frequently Asked Questions
What does Bitwise say about the "crypto winter" and when might conditions improve?
Bitwise CIO Matt Hougan believes that the market has been in a "crypto winter" state since January 2025, and historically, these periods typically last about 13 months, so conditions could start to improve around March of this year, with potential shifts in 2026.
Why do investors still feel there is a "bull market" despite Bitwise calling it a bear market?
Hougan argues that institutional flows buying large assets in 2025 through Crypto ETFs and Digital Asset Treasuries (DATs) have supported the large-cap group, creating a positive impression, while many altcoins are declining in a bear market fashion or dropping significantly.
What does a Fear & Greed Index drop to 15 signify?
A level of 15 reflects an "extreme fear" sentiment, often coinciding with a period of strong risk reduction by investors and increased volatility. However, this index is a measure of sentiment, not a definitive signal of a bottom or peak.
What factors could impact crypto prices, according to Raoul Pal?
He emphasizes the role of U.S. liquidity (USTLI) in the current cycle and believes that when conditions such as the end of the U.S. government shutdown, interest rate cuts, TGA spending, and fiscal stimulus emerge, liquidity could return and support crypto prices in 2026.