April 2026 Market Commentary

This commentary was written by Jianing Wu, with contributions from Su Lee.

Market Resilience in the Face of Geopolitical Risk

In Q1 we saw a period of fragile stabilization, but April delivered a shift to broad risk-asset recovery. Markets entered the month cautiously, with the geopolitical overhang still unresolved, before pivoting higher as a ceasefire deal and the deal’s subsequent extension opened up risk appetite across equities and crypto. U.S. equities tracked their best month since 2020. BTC posted its first positive month since September, ending a five-month losing streak, though its price remained below 2025 year-end levels.

The dominant macro driver was the Iran-U.S. escalation cycle. Markets turned higher early in the month after the April 7 announcement of a Pakistan-brokered ceasefire agreement temporarily eased fears of a broader regional disruption. Tensions quickly resurfaced as both sides tested the terms of the truce, however. Shipping through the Strait of Hormuz remained severely constrained, and by mid-month the U.S. had imposed a naval blockade on Iranian ports. Brent crude oil climbed back above $100 per barrel as Strait tensions persisted. The ceasefire was later extended, but conditions in the Strait remained unstable, with intermittent attacks, restricted transit, and mounting pressure on global energy flows. Oil prices broke $120 at the end of the month reflecting supply uncertainty.

Despite the energy price shock, equity markets proved remarkably resilient, buoyed by a strong Big Tech earnings cycle. Five of the Magnificent Seven reported in the final week, with Google and Meta raising capex guidance; Google's disclosure that nearly 75% of its new code is AI-generated effectively silenced near-term ROI concern for AI-related investments.

On the monetary policy front, Kevin Warsh cleared the Senate Banking Committee on a party-line vote and looks set to succeed Jerome Powell, whose term as Fed Chair will expire May 15. Warsh has signaled a departure from the post-Bernanke-era policy norm of consistent messaging anchored in the expectation theory of inflation management. The incoming chair favors less scripted communication and a more hawkish reading of the pandemic-era balance sheet expansion, a shift with significant implications for rates and risk assets in the months ahead.

In crypto, the technical and structural backdrop improved materially in April. BTC's early April flush below $66,000 cleared residual leverage and reset positioning, setting the stage for the recovery that followed. The ceasefire announcement on April 7 alone triggered $420 million in short liquidations of perpetual futures. Nine consecutive days of U.S. spot BTC ETF inflows totaling $2 billion in the second half of the month matched the longest streak since BTC's all-time high of $126,000 in October 2025. By early May, BTC's push above $80,000 signaled a constructive backdrop for an opportunity of further price appreciation.

DeFi had a damaging month on the security front. Drift Protocol suffered a $285 million exploit on April 1, the largest DeFi hack of 2026 at the time and the second largest in Solana's history, attributed to an operation linked to North Korea. That record was then eclipsed on April 18 when KelpDAO's LayerZero bridge was drained of approximately $290 million in rsETH, sending shockwaves through the ecosystem and pushing Aave's stablecoin and WETH utilization rates to 100%. By month-end, a coordinated bailout and position unwindings had brought USDC and USDT utilization rates back toward target levels, though WETH’s rate remained elevated.

On the institutional and regulatory fronts, April delivered several notable developments. The Department of Labor proposed a rule on March 30 that would open 401(k) plans to alternatives including crypto, a significant long-term access point if finalized. Morgan Stanley launched its spot Bitcoin ETF (MSBT) on April 8, entering the market with the lowest-fee product available in the U.S. at 14 basis points. Strategy's Michael Saylor acquired 54,235 BTC during the month, pushing total holdings to 818,334 BTC and surpassing BlackRock's IBIT to become the single largest known holder of BTC after Satoshi. And in a striking signal of institutional normalization, a U.S. Navy admiral testified before Congress that the military runs its own Bitcoin node and characterized BTC as an instrument of national power.

001 Morgan Stanley & Goldman Sachs Enter the Crypto Arena

After the blockbuster launches of spot BTC, ETH, and SOL ETFs over the past two years, it would be reasonable to assume the crypto asset management product launch cycle had reached a plateau. However, another wave of ETF launches is coming, and it is marked by stronger distribution, bigger-sized institutional participation, and a broader range of product offerings.

Morgan Stanley Investment Management launching a spot BTC ETF (MSBT) at 14bps, the lowest total expense ratio available, is notable not for the product itself but for the distribution infrastructure it brings. Morgan Stanley’s Wealth Management and Investment Management businesses manage $9.4 trillion in assets and the firm operates the largest advisor-led wealth platform in the U.S. by a considerable margin.

Since its launch on April 8, MSBT has attracted an average of $11 million in daily inflows. The figure compares modestly to BlackRock's IBIT ($134m/day) and Fidelity's FBTC ($10.8m/day), but is drawn mostly from Morgan Stanley’s self-directed platform. The firm’s advisor-led platform, where the real scale resides, has not yet been fully activated. Assuming a modest 10% of its advisory clients whose assets are worth $5.7t follow the 2%–4% allocation to crypto recommended by its own research team, the potential incremental inflow into its BTC ETF is estimated to exceed $10 billion.^[1]Beyond flows, Morgan Stanley has structured its ETF to accept in-kind transactions, a meaningful feature for holders of spot BTC on exchanges or in cold storage who wish to migrate assets into a regulated, custodied product without triggering a taxable sale. This is a deliberate signal to a specific client segment: affluent investors who acquired crypto earlier but have remained outside the regulated perimeter.

Morgan Stanley has simultaneously entered the stablecoin infrastructure market with a reserve fund designed to meet the requirements of the forthcoming GENIUS Act, which prohibits yield distribution to holders and mandates a stable $1 NAV. The fund will be offered through Bank of New York Mellon's Liquidity Direct platform as a tokenized money market fund, built in collaboration with Goldman Sachs's GS DAP blockchain infrastructure. This collaboration underscores how even competing institutions are sharing rails at the plumbing layer. While similar products from BNY Dreyfus and Goldman Sachs exist on the same platform, Morgan Stanley's entry signals its intent to participate across the full digital assets value chain, from client-facing ETFs to back-end stablecoin infrastructure.

Goldman Sachs, Morgan Stanley’s closest rival, which has operated a dedicated digital assets business in its investment bank for more than eight years, is now bringing that expertise into asset management as well. The firm filied for a BTC covered call ETF that would generate income by writing call options on BTC ETFs. If approved, this would mark the first crypto fund launch from Goldman Sachs Asset Management.

Crypto's elevated implied volatility makes option premium generation more attractive than in equities, with similar strategies historically yielding 20%-25%. The actively managed approach provides the flexibility to calibrate option strikes and tenors in response to market conditions, rather than mechanically rolling positions as most equity index call-writing strategies do.

It is worth noting that crypto structured products using notes, certificates, and other wrapped products have existed for years, precisely because high implied volatility makes them economically compelling. Yet total AUM across these strategies remains around $1.3 billion, a fraction of the spot ETFs. Goldman's differentiation will lie its wealth and institutional network, particularly in markets such as the Middle East and Asia where yield-focused structured products enjoy strong appetite.

These crypto fund launches reflect a deliberate institutional entry into digital assets. The product stack now spans spot exposure, income-generating structured products, tokenized money market funds, and stablecoin reserve infrastructure from two of the largest investment banks in the world.

The wealth management channel remains the clearest product-market fit for traditional financial institutions seeking regulated crypto exposure. The core client base – older, wealthier and advisor-reliant – is precisely the segment that has waited for credible institutional providers before allocating. Morgan Stanley and Goldman Sachs are structurally positioned to serve that segment at scale. The remaining constraint is on the trading side. Both firms operate banking licenses, which continue to create friction for proprietary crypto trading out of their investment banking desks. Regulatory clarity is improving, but this remains an area to watch. This much is clear: the question is no longer whether large banks will enter digital assets, but how quickly the full integration of their client networks will accelerate flows into a product suite that, a year ago, barely existed.

002 CLARITY Updates

In January, negotiations around the CLARITY Act effectively broke down following Coinbase’s withdrawal of support and continued opposition from the banking sector, leaving the legislation at an impasse.

The CLARITY Act remains a central pillar of the U.S. regulatory agenda for digital assets, intended to establish a formal market structure framework. However, progress has been constrained by a narrow set of complex and politically sensitive issues. These include the regulatory treatment of DeFi, the extent to which non-custodial developers should be subject to AML and money transmitter requirements, restrictions on stablecoin yield-sharing, Treasury’s sanction authority, and potential conflicts of interest involving public officials. Disagreements across these areas ultimately delayed earlier efforts to advance the bill, underscoring the difficulty of achieving durable bipartisan consensus.

Recent developments suggest a renewed attempt to move the process forward. A markup session is expected in the next two weeks, supported by updated compromise language led by Senators Thom Tillis (R-N.C.) and Angela Alsobrooks (D-Md.). The proposal addresses one of the key points of contention by prohibiting issuers from passing through yield directly to token holders, a provision aimed at mitigating concerns from the banking sector around deposit displacement, but allowing for alternative forms of user rewards tied to activity or network usage.

This revision has not fully bridged the divide. Banks continue to express opposition, while crypto-native firms, including Coinbase, have re-engaged in support of the updated language. (Read Galaxy Research’s new report modeling the long-term macro effects of GENIUS-regulated stablecoins.) Other elements of the bill remain unsettled, suggesting that even if markup proceeds, further negotiation could be required.

The timing to pass the legislation is narrow as the midterm elections approach. According to our Head of Firmwide Research, Alex Thorn, the current legislative window reflects a relatively constructive alignment of political and industry conditions, including a supportive executive branch, favorable committee leadership, and a more coordinated industry presence following the 2024 election cycle. These dynamics may prove difficult to replicate in future sessions.

While passage of the bill could be viewed positively by markets, bear in mind that it is not a prerequisite for continued industry development. Institutional adoption, product innovation, and the integration of crypto within traditional financial infrastructure have continued to advance. In this context, the CLARITY Act would serve less as a catalyst for activity and more as a mechanism to formalize and potentially accelerate trends already underway. Read our Head of Firmwide Research’s report on CLARITY Act here.

003 The Quantum Question

The question of whether quantum computing poses a credible threat to Bitcoin has fueled skepticism of BTC’s value in the past six months. The concern centers on the idea that sufficiently advanced quantum computers could break the cryptographic schemes that secure Bitcoin, specifically the elliptic curve signatures used to authorize transactions. If achieved, this would allow an attacker to derive private keys from exposed public keys and potentially access associated funds.

In practice, however, the risk is more nuanced. It depends on the type of wallet investors use, the timeline for cryptographically relevant quantum computers to emerge that can crack the cryptography at scale, and the development, acceptance, and implementation of solutions on the Bitcoin network.

Bitcoin addresses are not uniformly exposed. Funds held in older address formats, such as pay-to-public-key (P2PK), reveal their public keys and are therefore more vulnerable in a quantum scenario, because a quantum computer is not constrained by time to derive the private keys. This has led to particular focus on early-era coins, including those attributed to Satoshi Nakamoto. By contrast, more modern address formats only reveal public keys at the point of spending, requiring the quantum crack to take place in a limited amount of time, and thus reducing the attack surface under current conditions.

The timeline for when quantum computing could realistically pose such a threat remains highly uncertain. Earlier estimates generally placed the risk decades away, constrained by the significant technical hurdles required to build fault-tolerant quantum systems at scale. More recent developments, including research from Google Quantum AI, Stanford, U.C. Berkeley, and the Ethereum Foundation, have challenged some of these assumptions, suggesting potential pathways to accelerate progress. While this does not imply an imminent threat, it has shortened perceived timelines at the margin.

In parallel, the ecosystem has begun to explore potential mitigation strategies. These range from relatively straightforward approaches, such as encouraging users to migrate funds to quantum-resistant address schemes, to more complex protocol-level upgrades incorporating post-quantum cryptography. Each approach carries trade-offs, including implementation complexity, potential impacts on performance, and the coordination required to achieve network-wide adoption. As a result, most proposals remain in the research and design phase rather than under active consideration for near-term deployment.

Recent discussions within the Bitcoin community, including at industry events, reflect a gradual convergence toward a more measured view of the issue. There is broad agreement that coins held in early address formats, including those associated with Satoshi, present a unique case. While theoretically vulnerable, these holdings are distributed across thousands of addresses rather than concentrated in a single target, complicating the feasibility of large-scale attacks. More importantly, many participants view any attempt to preemptively intervene, such as by modifying the protocol to restrict access to these coins, as fundamentally at odds with Bitcoin’s core principles around property rights and immutability.

At the same time, there is increasing support for continued investment in post-quantum research as a form of long-term risk management. Developing and testing alternative cryptographic schemes, even if not immediately deployed, is generally seen as a prudent step. This “prepare but do not rush” approach acknowledges a low-probability but high-impact risk, while it avoids premature changes that could introduce vulnerabilities or fragment consensus.

From a market perspective, the implications are similarly balanced. A credible quantum breakthrough would likely be disruptive in the near term. However, Bitcoin’s resilience should not be understated. The network has historically adapted to evolving threats, and the ability of markets to absorb large supply dislocations suggests that even adverse scenarios may be manageable over time.

For now, the quantum debate appears more as an emerging tail risk rather than an immediate concern. It is shaping research priorities and prompting constructive debate, but it does not alter the trajectory of adoption or development. Read more about the quantum risk to Bitcoin here.

004 Our Takeaways and Predictions

We enter May with a constructive bias, supported by continued strength in tech and a market that has largely shrugged off recent geopolitical headlines. That resilience, however, remains dependent on stability in U.S.-Iran dynamics, where any escalation could quickly shift sentiment. Inflation is also a growing risk as oil prices remain elevated and there could be second-order effects from potential Strait of Hormuz disruptions impacting chemicals and fertilizers. Globally, the backdrop is supportive, with strength across key emerging markets like Korea, Japan, and Brazil, while AI remains the dominant equity driver.

In crypto, the setup remains favorable. April ETF inflows were strong across BTC ($2b), ETH ($340m), and SOL ($43m), reinforcing continued institutional demand. In the first week of May, BTC has pushed back above $82,000, while positioning data suggests further upside: the market recently exited the longest stretch of negative funding rates this cycle, a historically bullish signal associated with materially higher forward return probabilities.

Key Events to Watch:

• May 11: Circle Q1 Earnings

• May 11: SharpLink Gaming Q1 Earnings

• May 14: Forward Industries Inc Q1 Earnings

Key Macroeconomic Data Releases:

• May 12: CPI

• May 13: PPI

• May 14: Retail Sales

• May 20: FOMC Minutes

To learn more about the topics covered in this month's newsletter, contact our team or reach out to your Galaxy representative.

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