January 2026 Market Commentary

Volatility Tests Investor Patience

Equities priced optimism, metals priced anxiety, and crypto was forced to confront where it truly sits in the hierarchy of risk.

January was a month of sharp contrasts and broken correlations in financial markets and digital assets. Equity markets pushed to new all-time highs, underpinned by cooling inflation, a labor market that remained firm, and a Federal Reserve content to stay on the sidelines. At the same time, crypto markets suffered one of their most violent drawdowns from all-time highs since January 2024, with selling pressure intensifying into the final weekend of the month. Meanwhile, precious metals stole the spotlight, with gold and silver surging to fresh peaks and extending gains that took years to achieve in a matter of months. However, the metals trade soured in the last weekend of January with gold suffering its worst single-day decline since 2013, while silver experienced the largest one-day down move in its recorded history. Notably, the magnitude of silver’s move exceeded any single-day move in BTC over the past six years.

Much of the divergence of asset performance can be traced back to geopolitics and policy risk. Throughout January, markets grappled with an unusually wide range of political signals: President Trump’s rhetoric on Greenland and Europe reignited trade and tariff concerns; tensions involving Iran surfaced; and global policymakers convened at Davos against a backdrop of rising skepticism about the durability of the global economic order. These forces pushed investors toward assets perceived as defensive or scarce, even as equities continued to benefit from strong earnings expectations.

Monetary policy added another layer of complexity. Speculation early in the month that Kevin Warsh could be nominated as the next Federal Reserve Chair, which did happen on Jan. 30, unsettled markets already sensitive to questions around the future policy path. Before the nomination, the market reflected an unusual mix: a weakening U.S. dollar and a market environment in which risk-on assets like equities and risk-off assets like metals traded near-lockstep. Following Warsh’s nomination, precious metals and crypto sold off sharply, as markets repriced the likelihood of a more hawkish or less accommodative Federal Reserve path.

Crypto sat uncomfortably in the middle of these crosscurrents. Early January saw constructive signals, including a week of strong spot ETF inflows of $2.1billion, which was the best week since October 2025’s liquidation event. But as geopolitical risk intensified and policy uncertainty mounted, crypto prices slid. BTC traded in its own trajectory, not in line with equities’ risk-on mood nor investors’ favorable positioning for defensive assets. BTC’s sideway chop culminated in a sharp late-month selloff that erased January’s gains.

At the same time, January delivered progress on the regulatory front. In Washington, the Senate continued working on comprehensive crypto market structure legislation, but political and stakeholder disagreements narrowed the path to passage. Separately, the SEC took steps to clarify how it views tokenized securities, providing much-needed definitional guidance for a market increasingly focused on bringing traditional assets onchain. These developments did little to arrest short-term price weakness, but they matter for longer-term institutional adoption.

001 A Stress Test for BTC

In an environment marked by rising geopolitical tension, a weakening U.S. dollar, and strong performance from traditional hard assets, BTC faced a stress test of its digital gold narrative. Instead of functioning as a hedge, it traded more like a leveraged risk asset in January, amplifying downside volatility at the very moment its digital gold framing should have been most compelling.

After a roughly 70% rally in 2025, gold extended its gains into January and pushed to new all-time highs. BTC, by contrast, finished 2025 down approximately 6%. While there were early signs of renewed strength in mid-January, as prices briefly climbed above $95,000, that momentum faded. BTC declined sharply into month-end, extending its drawdown from the October 2025 peak to roughly 40%.

Beyond geopolitical uncertainty and concerns around sovereign debt and currency debasement, there are structural buying forces that help explain the divergence. Central banks have continued to accumulate gold in recent months, and separately, Chinese investor demand has also increased, supported by domestic liquidity injections and limited alternative vehicles for capital deployment. Notably, recent gold and silver price action might suggest that part of the move may be increasingly retail-driven, rather than purely defensive. BTC, by contrast, has not yet benefited from comparable store-of-value recognition. Despite the creation of a Strategic Bitcoin Reserve framework in the U.S., no significant sovereign purchases have materialized, and access to BTC remains highly constrained in China, effectively excluding a large potential buyer base.

The final weekend of January saw losses accelerate and culminate in one of the largest liquidation events in bitcoin’s history. Importantly, this move was not driven by a single headline or policy shock, but by a market structure that remained fragile after months of volatility compression and leverage rebuild. BTC fell roughly 10% over the weekend, as forced deleveraging across futures markets pushed prices briefly below several widely watched cost-basis levels, including the U.S. spot ETF average cost basis and Strategy’s average cost basis, leaving nearly half of Bitcoin’s circulating supply held at a loss.

From a positioning perspective, January underscored that BTC remains highly sensitive to liquidity conditions and risk appetite. ETF investors, while relatively resilient, were not meaningfully adding exposure. Two weeks of strong outflows marked the second- and third-largest weekly outflows since the spot ETFs’ launch, though early February has shown signs of renewed buying. At the same time, there was little evidence of aggressive accumulation from large holders during the drawdown.

As detailed in an analysis published by Galaxy’s Head of Firmwide Research, Alex Thorn, there are early signs that the selloff may be helping reset market conditions for the longer term. Long-term holder profit-taking, which dominated much of 2024 and 2025, has begun to abate, and historically this has coincided with the formation of more durable bottoms. If prices continue to drift lower, levels associated with long-term cost bases could represent attractive entry points for patient investors.

For now, BTC is not trading as a reliable debasement hedge or geopolitical insurance, but rather as a high-beta asset closely tied to liquidity, leverage, and investor confidence. As liquidity conditions normalize and accumulation resumes, the value of BTC’s scarcity may once again come into focus.

002 CLARITY Act Updates and SEC’s Tokenization Push

Coming off 2025, one of the most important unresolved regulatory items remains the the CLARITY Act, which would codify crypto market structure rules into U.S. law. While regulators and lawmakers continued to push for progress in January, developments over the month highlighted just how difficult it remains to secure durable bipartisan support and reconcile competing priorities across key stakeholders, including banks and major crypto industry participants such as Coinbase.

On the Senate Banking side, the debate over the Digital Asset Market Clarity Act has narrowed to a handful of outstanding points of contention. They are:

1. How DeFi should be regulated, if at all;

2. The extent to which non-custodial developers can be exempted from anti-money-laundering and money-transmitter requirements;

3. Whether to impose stricter bans on stablecoin issuers sharing yield with token holders;

4. Treasury’s sanction authority over intermediaries, centralized or decentralized; and

5. How to address potential conflicts of interest involving government officials or their families.

Those tensions came to a head as the Senate Banking Committee attempted to move toward a markup. The release of draft language triggered a flood of proposed amendments and sharpened disagreements among lawmakers, regulators, and industry participants. Coinbase’s public withdrawal of support underscored how fragile the emerging consensus had become. In particular, disagreements over whether stablecoin issuers should be allowed to pass rewards to holders proved central to efforts to secure Democratic support and win over holdout Republicans. Compromises such as allowing “activity-based” rewards were viewed by some of the lawmakers as unacceptable, leaving the remaining gaps too politically charged to resolve under time pressure. As a result, the planned markup was postponed.

In parallel, the Senate Agriculture Committee advanced its portion of the broader market structure framework through the Digital Commodity Intermediaries Act (DCIA). Passed on a partisan basis, the Agriculture draft focused on the less controversial elements of market structure: granting the CFTC clear authority over spot digital commodity markets and establishing registration requirements for exchanges, brokers, and dealers. It also introduced a functional definition of DeFi that broadly shields truly decentralized protocols while reserving regulatory authority where centralized control exists. While meaningful, this progress alone is not sufficient to advance the full bill without corresponding action from the Banking Committee.

The legislative path ahead remains complex. For the CLARITY Act to become law, the Senate Banking Committee must still advance its version of the bill, followed by a Senate floor vote, consideration in the House of Representatives, and ultimately presidential approval. The lack of bipartisan alignment in the Senate Banking Committee signaled that this process is likely to be longer and more difficult than initially hoped. That said, negotiations remain ongoing, and the window for progress has not fully closed.

Alongside the legislative process, regulators continued to make incremental progress through administrative channels. The SEC released staff guidance on tokenized securities, clarifying how the Commission distinguishes between issuer-sponsored tokenized securities and third-party “wrapper” models. While largely definitional and not a near-term market catalyst, the guidance signals the SEC’s intent to establish shared language and taxonomy before innovation outpaces enforceable rules. In that sense, it complements congressional efforts while also highlighting the areas where legislation remains necessary.

For markets, passage of comprehensive crypto market structure legislation could still act as a catalyst, particularly by reducing regulatory tail risk and unlocking broader institutional participation. However, that outcome now clearly depends on whether lawmakers can rebuild consensus across the most politically sensitive issues. Until then, regulatory progress is likely to continue in incremental steps rather than through sweeping legislative reform.

003 On the Institutional Front

Despite weak price performance across much of the crypto market in January, institutional engagement further deepened. While risk appetite remained cautious, major financial institutions and public-sector actors continue to expand infrastructure, formalize strategy, and launch onchain products. Here are a few highlights:

• UBS plans to offer crypto trading to select private banking clients, marking a meaningful shift for a firm that has historically taken a cautious stance toward digital assets. This initiative would begin in Switzerland and could eventually expand to the U.S. and Asia-Pacific, reflecting rising demand for digital assets among high-net-worth investors. As we wrote in a previous newsletter, UBS is the last major global wirehouse to open up direct crypto access, aligning it with peers that have gradually adapted to meet client demand.

• Morgan Stanley has appointed veteran executive Amy Oldenburg as its new head of digital asset strategy, formalizing a dedicated leadership role in crypto just weeks after filing to launch BTC and SOL spot ETFs and an Ethereum Trust, as well as announcing plans for a proprietary crypto wallet. This move comes alongside multiple digital-asset job postings at Morgan Stanley, signaling an expansion of the firm’s crypto team is underway.

• Fidelity Investments launched its own U.S. dollar-backed stablecoin, the Fidelity Digital Dollar (FIDD). FIDD is fully backed on a 1:1 basis with U.S. dollars and will be available to retail and institutional investors through Fidelity Digital Assets , Fidelity Crypto, and external exchanges, offering onchain payments and settlement on the Ethereum blockchain.

• Wyoming has launched the Frontier stable token (FRNT), the first U.S. state-issued stablecoin, with $1.5 million in sales shortly after its Jan. 7 public debut as part of a broader effort to position the state as a leader in digital currency innovation. The token is designed to bypass interchange fees charged by credit cards to merchants and is backed 102% by U.S. dollars and short-duration Treasuries held in reserve, with plans to integrate it into state payment systems and private wallets. State officials see FRNT as a public-good project that could streamline payments, generate revenue for public services such as schools, and serve as a model for other states interested in blockchain-native payment solutions.

While market cycles will continue to ebb and flow, institutional adoption is moving in one direction. We noted in our annual investor letter that as infrastructure matures and use cases expand, the convergence between traditional finance and blockchain technology is likely to proceed gradually, driven less by price action and more by practical demand.

004 Our Takeaways and Predictions

January can be summarized simply: equities priced optimism, metals priced anxiety, and crypto was forced to confront where it truly sits in the hierarchy of risk. The nomination of Kevin Warsh proved to be the first domino, triggering a broader repricing across assets that had become crowded trades: precious metals, AI-linked equities, and crypto all retraced sharply as markets reassessed the paths of policy and liquidity.

As we move into February, volatility has already carried over. Fears around an AI bubble have increased, weakness in equities is increasingly spilling into crypto, and labor data suggests a languishing job market. BTC may face pressure and risks ending lower before a more durable rebound takes shape, and the recovery for crypto could take longer than initially hoped. While this phase may test patience, periods of reassessment like this have historically been part of the process through which the next cycle ultimately forms.

• February 10-12: Consensus Hong Kong Conference

• February 18-21: ETHDenver Conference

• February 24-25: Strategy’s Bitcoin for Corporates conference

• February 25: Circle 4Q earnings release

Key Macroeconomic Data Releases:

• February 10: Retail Sales MoM

• February 11: Nonfarm Payrolls, Unemployment Rate

• February 13: Core Inflation Rate, Inflation Rate

• February 18: FOMC Minutes

• February 20: Core PCE, GDP Growth

• February 27: PPI

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

Crypto Performance & Volatility Data