Bitwise CIO Outlines 3 Key Hurdles for Sustained Crypto Rally

The first and most immediate hurdle, according to Hougan, is for the market to definitively move past the traumatic liquidation event of October 10, 2025. On that single day, approximately $19 billion in futures positions were erased, marking the largest such event in cryptocurrency history. The scale of the wipeout raised profound concerns about the solvency and operational stability of major market participants, including hedge funds and market makers. Investors feared a cascading effect where these entities would be forced to liquidate other assets to cover losses, creating sustained downward pressure on the entire market.

Hougan, however, strikes a cautiously optimistic note on this front. He argues that if any major firm were on the brink of collapse due to the October event, it likely would have happened by now. The fact that the market has not seen a subsequent major failure suggests the worst of the immediate fallout may be contained. This assessment underpins his view that investor psychology is gradually healing from the shock, a process that contributed to the rally seen at the very start of the new year. Successfully navigating this checkpoint means avoiding a repeat of such a catastrophic, concentrated liquidation.

The second and arguably most crucial checkpoint is legislative. Hougan emphasizes that the passage of the crypto market structure bill, known as the CLARITY Act, is non-negotiable for the long-term viability of cryptocurrencies in the United States. The bill, which is currently navigating Congress with a key markup scheduled for January 15, aims to reconcile drafts from the Senate banking and agriculture committees into a final version for a vote.

However, the path is not smooth. As reported, significant disagreements remain, particularly around how to regulate decentralized finance (DeFi) protocols and stablecoin reward mechanisms. These are complex, foundational issues. Hougan’s central argument is that without this legislative framework, the current pro-innovation stance of U.S. regulators could be reversed by a future administration, plunging the industry back into uncertainty. Passing the CLARITY Act would codify key regulatory principles into law, providing the stable, predictable foundation necessary for institutional capital to commit to the sector with confidence. For Hougan, this regulatory checkpoint is the bridge from a niche, volatile asset class to a mature component of the global financial system.

The final checkpoint exists outside the direct crypto ecosystem but is no less vital: the stability of the broader equity market. While Bitcoin (BTC) and other cryptocurrencies do not move in perfect correlation with stocks, they are still broadly classified as risk assets. Hougan notes that a significant downturn in traditional markets—such as a 20% drop in the S&P 500—would almost certainly dampen investor enthusiasm and capital flows into all speculative assets, including digital currencies.

This external dependency introduces a layer of macroeconomic risk. Hougan also points to concerns about a potential bubble in artificial intelligence (AI) stocks, whose deflation could trigger wider market stress. The current outlook, however, offers some reassurance. Prediction markets are assigning a low probability to a recession in 2026 and an approximately 80% chance of gains for the S&P 500. For a sustained crypto rally to take hold, this generally positive risk-on environment in traditional finance must persist, preventing a flight to safety that would starve crypto of capital and attention.