Crypto enters 2026 on a strong footing, but liquidity is the real test

Crypto markets have started 2026 with renewed momentum after a sluggish end to last year, supported by fresh institutional inflows and fading year-end selling pressure. Bitcoin is up more than 7% since 1 January, Ether has gained around 9%, and several large-cap altcoins have posted double-digit weekly advances, indicating a broad-based recovery rather than a single-asset bounce.

Yet beneath the surface, the rally is unfolding in an environment of unusually thin liquidity. With spot volumes near multi-year lows and price sensitivity elevated, early-year strength is being tested by a familiar question for crypto markets: is this the start of a durable trend, or a fragile rebound vulnerable to sharp reversals?

What’s driving the early-2026 crypto rally?

The most important shift has been the return of institutional demand through U.S.-listed spot crypto ETFs. After nearly two months of sustained outflows in late 2025, the 11 approved funds recorded more than $1 billion in net inflows over the first two trading days of 2026, signalling an abrupt end to the recent de-risking phase.

These flows have helped stabilise prices during a period of low liquidity, particularly for Bitcoin and Ether.

Seasonality has reinforced the move. The pressure from tax-loss harvesting, which capped upside through December, has faded, allowing risk appetite to re-emerge as fresh annual allocations come into play. QCP Capital described the shift as a potential regime change, with crypto once again aligning with broader risk assets as policy optionality and macro positioning regain focus. 

Geopolitical developments have added a defensive dimension to the rally. The U.S. military strike on Venezuela triggered a haven bid across hard assets, including gold and Bitcoin, while speculation around increased Venezuelan oil supply under U.S. guidance introduced a disinflationary narrative. Lower oil prices would ease inflation pressure and strengthen the case for faster rate cuts - a macro backdrop that tends to favour both technology stocks and crypto assets.

Why it matters

This early-year strength is significant because it suggests that crypto markets may be emerging from a prolonged corrective phase rather than staging a short-lived relief rally. Price action across large-cap tokens supports that view. XRP surged nearly 29% on the week, Solana gained more than 20%, and Dogecoin rallied sharply, reflecting renewed appetite for higher-beta exposure alongside Bitcoin.

However, confidence remains uneven. Jeff Anderson, head of Asia at STS Digital, noted that the rally reflects a mix of fresh risk budgets, asset rotation, and flows into hard assets driven by geopolitical headlines. That blend of motives makes the recovery more complex - and potentially more fragile - than a pure risk-on surge.

For investors, the message is nuanced. Momentum has improved, but participation is still selective. Without broader conviction across spot markets, price gains remain highly sensitive to incremental flows rather than deep structural demand.

Impact on crypto market structure

One of the clearest consequences of thin liquidity has been amplified price movement. Spot volumes across major exchanges remain at their lowest levels since late 2023, leaving order books shallow and vulnerable to large trades.  In such conditions, relatively modest inflows can push prices sharply higher - but the same dynamic applies in reverse.

Vikram Subburaj, CEO of Giottus exchange, warned that while short-term structure has flipped from weakness to strength, weak volume increases the risk of sharp extensions or abrupt pullbacks. According to Subburaj, the current setup is constructive, but conviction is not yet broad-based.

Derivatives markets are reflecting cautious optimism rather than outright euphoria. Options data from Deribit shows traders accumulating call options around the $98,000–$100,000 range for Bitcoin, alongside bullish positioning in Ether between $3,200 and $3,400. While positioning is directional, volumes remain modest, suggesting traders are hedging upside exposure rather than aggressively chasing it.

Expert outlook

From a technical perspective, the broader crypto market is showing early signs of structural improvement, led by Bitcoin’s breakout above its prior descending channel. That move signals a shift away from persistent sell-side control, but the lack of strong follow-through keeps the rally on probation rather than confirmation.

Key resistance zones - particularly Bitcoin’s $94,000–$96,000 area - will act as a litmus test for broader market strength. Sustained acceptance above these levels, supported by expanding volatility and rising spot participation, would strengthen the case for a more durable uptrend across crypto assets.

Analysts at Bitfinex emphasise that upcoming ETF flow data will be critical. Persistent inflows could anchor prices during low-liquidity conditions, while any slowdown risks exposing the market’s fragile depth. For now, crypto enters 2026 with momentum — but not yet with full conviction.

 Key takeaway

Crypto markets have entered 2026 with renewed momentum, driven by institutional inflows, fading seasonal pressure, and supportive macro narratives. However, thin liquidity remains the defining risk, amplifying both upside and downside moves. Whether this rally evolves into a durable trend will depend on sustained participation and improving market depth. Until then, strength should be respected - but not mistaken for certainty.

BTC technical outlook

Bitcoin is attempting a bullish recovery after defending the $84,700 support zone, with price pushing back toward the $94,000 area and reclaiming the upper half of its recent range. The rebound has been accompanied by expanding Bollinger Bands, signalling a pickup in volatility as buyers step back in. 

Momentum indicators, however, suggest that the move may be entering a more tactical phase: the RSI is rising sharply toward overbought territory, indicating strong short-term momentum but also increasing the risk of near-term profit-taking. 

Structurally, upside remains capped by resistance at $96,000, followed by $106,600 and $114,000, where previous rallies stalled. As long as BTC holds above $84,700, the broader structure remains constructive, but sustained upside will likely require consolidation to absorb overbought conditions before a more durable advance can unfold.