Schrödinger's Cat: The 2025 Crypto Market Crash and 2026 Outlook

Author: Momir

Translation: Shan Ou Ba, Jinse Finance

Bitcoin

Looking Back at 2025 Outlook

A year ago, I outlined two divergent paths for Bitcoin: the “Survival Perspective,” where institutional adoption and government attention would drive its development; and the “Obsolescence Perspective,” where failure to reach certain milestones could trigger bearish sentiment and potential crises.

Entering 2026, reality lies between these extremes but leans more toward the pessimistic side.

Bitcoin Cools Down: The Actual Trajectory of 2025

Government Actions (Partial Results): The US government’s stance was more passive than expected. While generally supportive of the crypto industry, it explicitly stated it would not use taxpayer funds to buy Bitcoin, relying instead on confiscated BTC to build reserves. Trump’s re-election brought friendly crypto rhetoric and regulatory optimism, but actual government purchases remain wishful thinking — the promise to “innovatively expand reserves” has yet to translate into concrete actions.

Central Banks and Sovereign Wealth Funds (Mixed Feelings): Major central banks among the top 20 economies mostly remain on the sidelines, with few exceptions; sovereign wealth funds have begun allocating to Bitcoin, but the scale of purchases is hard to assess.

Corporate Adoption (Mixed Feelings): MicroStrategy continued aggressive accumulation for most of 2025, temporarily boosting prices. However, the narrative has shifted: MicroStrategy publicly stated it would sell BTC under certain conditions, moving from pure accumulation to a “BTC-like credit instrument” role. The former driver of growth is now gradually becoming a potential selling pressure and burden. In contrast, Bitcoin ETFs performed well, with continuous fund inflows in 2025, indicating strong demand from traditional financial institutions and retail investors for compliant Bitcoin exposure, making it one of the most reliable demand sources of the year.

Bitcoin 2026 Outlook: Macro-Dependent, Lacking Catalysts

Exhaustion of Unique Catalysts: The current cycle was driven by a series of Bitcoin-specific strong catalysts — Silicon Valley Bank’s collapse and USDC de-pegging crisis, ETF hype in 2023, MicroStrategy’s ongoing purchases, spot ETF listing in early 2024, and Trump’s victory — each bringing clear Bitcoin-directed buying.

Looking ahead to 2026, few positive Bitcoin-specific catalysts remain: government stance is clear, unlikely to become major buyers in the short term; central banks won’t quickly change their risk assessment of BTC; MicroStrategy has exhausted large-scale buying capacity and shifted toward potential sales; ETFs, though successful, the initial wave of adoption has passed.

Bitcoin’s strength in 2026 will almost entirely depend on macro factors, with clear priorities:

1. AI Stocks and Risk Appetite: Bitcoin increasingly follows hot assets in each cycle. In the previous cycle, it synchronized with Tesla’s lows and highs; this cycle, it shows similar patterns with NVIDIA — its performance is deeply linked to high-beta tech stocks and AI enthusiasm.

2. Federal Reserve Policies and Liquidity: Whether the Fed continues easing and expands its balance sheet remains key to overall liquidity. Historically, liquidity has been one of the most important factors influencing Bitcoin prices. In 2025, the Fed cut rates three times; in 2026, monetary policy direction will significantly impact Bitcoin’s ability to sustain buying.

Emerging Risks in 2026

While unique positive catalysts are scarce, Bitcoin-specific negative catalysts pose more prominent risks:

MicroStrategy (also known as Strategy) selling pressure, which previously drove Bitcoin higher, could become a burden in 2026. The shift from “perpetual holding” to “considering sales under specific conditions” is a fundamental change — the defined “specific conditions” are when the market cap net asset value (mNAV) drops below 1, requiring BTC sales to repay creditors. Notably, Strategy’s model is starting to resemble a Ponzi scheme, but short-term risks are unlikely to materialize: it has accumulated cash reserves sufficient to cover debt obligations for the next three years.

Four-Year Cycle Paradox

According to cycle theory, we may already be in a Bitcoin bear market. This theory suggests Bitcoin’s market follows a four-year cycle, with peaks typically in Q4 — 2025 Q4 should be the price top, and Bitcoin did reach $125,000 at that time, possibly marking the cycle’s peak. However, the validity of this theory is increasingly questionable: we believe the cycle theory is more coincidental, overlapping with macro cycles rather than an intrinsic Bitcoin law. Bitcoin’s weak performance in Q4 2025, aside from AI bubble concerns and safe-haven sentiment, was mainly due to long-term holders rebalancing positions based on the cycle theory, leading to continued selling.

Self-Fulfilling Prophecy Risks: Cycle theory creates a dangerous feedback loop:

Long-term holders expect a top in Q4 and sell

Selling pressure suppresses prices during the period when it should be strongest

Weak performance “confirms” the cycle theory

More holders adopt this framework, amplifying future selling pressure.

Breaking the Cycle: If macro conditions remain stable, Bitcoin could eventually break through the cycle constraints and resume upward movement. The first break from the cycle might serve as an unpriced positive catalyst.

Technical Risks Enter the Discussion

Bitcoin faces two long-term challenges: quantum computing vulnerabilities and doubts about economic and security models. The latter has not yet entered mainstream discussion, but quantum risks are gaining public attention — more credible voices are raising concerns about Bitcoin’s quantum resistance, potentially weakening its narrative as a “secure, immutable store of value.” However, the Bitcoin community prefers early discussion to allow time for solutions.

2026 Bitcoin Conclusion

Bitcoin entering 2026 is less driven by crypto-specific narratives and more as a macro-sensitive asset, mainly following overall risk markets:

Catalyst Exhaustion: Major Bitcoin-specific positive catalysts are mostly exhausted or have been realized (government stance is clear, MicroStrategy’s capacity is peaked, initial ETF adoption wave has ended).

Emerging Selling Pressures: Concerns related to MicroStrategy, cycle theory, and quantum risks are entering public discourse. Mainstream worries could lead to re-pricing — but these risks are unlikely to materialize within the next 12 months: Strategy’s cash reserves can cover three years of debt; macro cycle continuation will eventually disprove cycle theory; quantum risks are less likely to influence mainstream perception.

Macro-Dependent: Performance will follow AI stocks (especially NVIDIA) and Federal Reserve policies.

Ethereum

Looking Back at 2025 Outlook

Survival Perspective (Partially Realized):

Reviewing the 2025 outlook, some potential advantages of Ethereum have begun to manifest but have not yet fully taken off:

Institutional Feasibility (Significantly Successful): This has been proven correct. Ethereum’s dominance in stablecoins (with new issuance reaching $45-50 billion since the GENIUS Act) indicates that institutions choosing blockchain infrastructure will continue to see Ethereum as the most trusted ledger. This is also reflected in the institutional buyer market, with ETH DAT successfully raising substantial funds from key players like Bitmine.

Developer Ecosystem and Diversified Leadership (Significantly Successful): Predictions that platforms like Base, Arbitrum, and other L2s would promote Ethereum’s adoption have become reality. Base, in particular, has become a major growth driver in crypto consumption, while Arbitrum has made notable institutional contributions by integrating Robinhood into the broader Ethereum ecosystem.

ETH as the Sole Alternative to BTC (Timing Misjudged): The two core long-term risks facing BTC — quantum vulnerabilities and security/economics — are areas where ETH has advantages and greater future adaptability. ETH remains the only asset that can serve as a substitute for BTC as a store of value. However, until these concerns are more fully validated in mainstream BTC discussions, the ETH/BTC price trend is unlikely to benefit from this positioning.

Mitigating Single-Entity Risks (Significantly Successful): As MicroStrategy shifts from accumulation to potential burden, lacking similar strategies becomes a significant advantage. Although most DATs may have shorter lifespans, those holding large amounts of ETH have more robust ownership structures than Strategy, with fewer conditions.

Obsolescence Perspective — Basic Avoidance:

The negative scenarios I previously outlined for Ethereum did not occur as severely as feared:

Leadership Deficit (Resolved): Long-standing lack of strong figures to defend Ethereum’s position in the broader crypto space. Vitalik’s attention is spread across many areas, and he is not the opportunistic CEO type focused on price performance. Until recently, Ethereum had advocates like Michael Saylor, which was one of the main reasons its price briefly fell below $1,500 earlier this year. Later, Tom Lee largely filled this gap, becoming Ethereum’s main evangelist and advocate. He has the right credentials: excellent sales skills, a reputable figure in finance, and aligned with Ethereum’s price appreciation goals.

Cultural Challenges (“Awakening” vs “Realism”) (Improving): Last year, I wrote: “Compared to other ecosystems, Ethereum’s culture is often seen as more ‘woke,’ emphasizing inclusivity, political correctness, and community-driven moral discussions. While these values can promote cooperation and diversity, they sometimes lead to challenges like communication issues, moral scrutiny, and hesitation in taking bold, decisive actions.” Fortunately, the Ethereum Foundation has brought in new leadership focused on performance, capable of strengthening organizational management for greater efficiency and influence. Subjectively, I also sense a shift in community atmosphere to better adapt to current conditions.

Ethereum 2026 Outlook: Driven by Exclusivity as a Positive for ETH/BTC

Ethereum shares macro risk characteristics with Bitcoin — sensitivity to AI stocks, fiscal policy, and Fed liquidity. But in terms of exclusive factors, Ethereum’s positioning in 2026 is clearly superior to Bitcoin.

Advantages of Ethereum over Bitcoin:

No Major Selling Pressure: Ethereum lacks the structural risks affecting Bitcoin, most importantly, it does not have leveraged entities like MicroStrategy — potential sales could destabilize the market. DATs holding large ETH positions have lower leverage than Strategy.

ETH as the Only Alternative to BTC: We misjudged the timing last year, but if Bitcoin’s exclusive risks (quantum vulnerabilities, economic/security risks) become focal points, it would favor the ETH/BTC ratio.

Unique Catalysts: Dominance of Stablecoins and DeFi

Perhaps most importantly, Ethereum possesses some unique positive catalysts that are just beginning to emerge. After years as one of the “least favored assets” in crypto — suffering severe pressure and volatility from 2023 to 2025 — Ethereum’s recovery is gradually gaining momentum.

Unquestioned Stablecoin Leadership: Data clearly shows Ethereum dominates the stablecoin market. This is reflected in several aspects:

Asset Balance: Ethereum accounts for nearly 60% of total stablecoin market cap, demonstrating strong network effects and market preference.

Fund Flows: Since the GENIUS Act announcement, Ethereum has absorbed $45-50 billion in new stablecoin issuance. This indicates that when new stablecoin demand arises, funds disproportionately flow into Ethereum.

Decade-Long Reliability: Over the past ten years, Ethereum has experienced no major performance issues or outages. This excellent operational record is irreplaceable and vital to its status as a global liquidity infrastructure cornerstone. When traditional finance considers blockchain integration, Ethereum’s history of securely managing hundreds of billions of dollars lends it unmatched credibility.

DeFi as Ethereum’s Moat: Ethereum’s DeFi ecosystem may be its most critical competitive advantage. It is the only blockchain capable of efficiently utilizing hundreds of billions of dollars through proven smart contracts:

Time-Tested Security: The total value locked in smart contracts like Aave, Morpho, and Uniswap exceeds billions of dollars and has operated stably for years without major security breaches. Despite being attractive targets for hackers, these contracts have demonstrated strong resilience.

Deep Liquidity, Composability, and Capital Efficiency: The ability to combine different DeFi protocols creates network effects difficult for competitors to replicate. By integrating existing foundational components, complex financial products can be built — requiring both technical infrastructure and deep liquidity. The composability of Ethena, Aave, and Pendle exemplifies this. This makes the Ethereum mainnet the only platform capable of supporting capital-intensive applications.

Regulatory Clarity: Positive regulatory policies around crypto are likely to facilitate further integration of traditional finance and crypto. Macro timing, regulatory clarity, and institutional adoption make Ethereum the primary beneficiary of traditional finance’s entry into crypto. Its strong blockchain development record and mature DeFi infrastructure capable of securely managing hundreds of billions of dollars provide unmatched security, liquidity, and transparency.

After years of underperformance and market skepticism, Ethereum may be on the verge of an emotional reversal. Once fundamentals improve significantly, markets tend to reward assets once considered “dead.” Improvements in infrastructure, stablecoin dominance, and efforts to attract institutional investors could lead to a valuation re-rating in 2026.

2026 Ethereum Risks: Asset Perception Battle

Despite a strong fundamental outlook for Ethereum in 2026, risks remain that could weaken its performance — most notably ongoing debates about ETH as an asset.

Asset Classification Dispute

Core controversy: Bitcoin is relatively clearly recognized as “digital gold” and a monetary asset, while Ethereum is still in the exploration phase of market perception. This ambiguity makes it vulnerable to attacks from skeptics and conflicting interest groups.

Two Competing Narratives:

Monetary Asset Perspective (Bullish): Supporters within the Ethereum community, including Tom Lee, promote the “digital oil” metaphor, positioning ETH as a productive, practical monetary asset. This view has gained broad acceptance, supporting Ethereum’s valuation and giving it a currency premium similar to Bitcoin.

Cash Flow Asset Perspective (Bearish): A significant portion of the market — including Bitcoin advocates and traditional finance skeptics — attempt to fundamentally distinguish Ethereum from Bitcoin. They believe ETH valuation should be similar to:

BlackRock: valuation should only represent a small portion of managed assets.

Nasdaq or exchange operators: use a discounted cash flow (DCF) model based on fee revenue rather than currency premium.

Cognitive Manipulation: Ethereum is particularly susceptible to narrative attacks because its value proposition is more complex than Bitcoin’s simple “digital gold” story. Past cycles show skeptics wield disproportionate influence, negatively impacting perception of ETH as an asset.

Why Ethereum is More Vulnerable:

Newer Asset: Compared to Bitcoin’s 15+ years of history, market consensus on ETH is not yet fully established.

More Complex Narrative: Programmability, DeFi, stablecoins, Layer 2 — these concepts are harder to distill into simple stories.

Decentralized Leadership: Multiple voices and interests create confusion and make it easier for opponents to spread misinformation.

Layer 2 Disputes

As Ethereum’s Layer 2 ecosystem (Base, Arbitrum, etc.) flourishes, questions about value accumulation arise:

Does Layer 2 enhance or weaken Ethereum’s value? If most transactions and fees stay on Layer 2, can the mainnet reflect its true value?

Liquidity Fragmentation: Multiple Layer 2s could weaken rather than strengthen Ethereum’s network effects.

Earlier this year, I wrote about this topic:

Layer 2 Fragmentation Solutions:

Market dynamics (natural selection) may organically consolidate the ecosystem, leaving 2-3 dominant general Layer 2 providers that maintain significant activity, while others fade or shift to stack-based solutions — serving specific use cases.

Establishing strong interoperability standards can reduce friction across the ecosystem, lowering the chance of any single solution dominating.

Ethereum should actively promote this scenario, enforcing interoperability standards while it still controls Layer 2. However, this control is waning; the longer Ethereum delays, the less effective this strategy becomes. Building a unified Layer 2 ecosystem can restore the composability advantage that once sustained the mainnet, improving user experience and strengthening its competitive edge against monolithic blockchains.

Current Assessment: Despite ongoing debates about Layer 2 fragmentation, Ethereum mainnet has successfully maintained its dominance in large capital deployments. No Layer 2 currently has enough influence to threaten its value growth. However, continued development without sufficient interoperability standards could pose risks.

2026 Ethereum Conclusion

Ethereum in 2026, despite sharing macro sensitivities with Bitcoin, has a stronger exclusive positioning:

Stablecoin Dominance: 60% of stablecoin market cap, with $45-50 billion new issuance post-GENIUS Act, showing clear institutional preference, likely to benefit from further stablecoin market growth.

DeFi Moat: The only blockchain capable of efficiently operating hundreds of billions of dollars via proven protocols (Aave, Morpho, Uniswap), with a multi-year safety record.

Institutional Positioning: With regulatory clarity, operational track record, and deep liquidity, Ethereum is the best choice for traditional finance capital entering crypto.

No Major Selling Pressure: No leveraged entities like MicroStrategy that could cause potential sell-offs; better at resisting single-entity risks.

Sentiment Reversal Potential: After years as one of the “most criticized assets,” fundamentals have improved significantly, creating conditions for revaluation.

Main Risks: Ongoing debates over asset classification and narrative manipulation remain primary valuation threats.

Layer 2 Monitoring: Fragmentation concerns exist, but the mainnet retains large-cap dominance — large capital focuses on security; Ethereum’s gas costs and transaction scale are disproportionately low for large holders; DeFi moat remains hard to breach.

Solana

Looking Back at 2025 Outlook

Reviewing the potential paths outlined for Solana in 2025, the reality is a mix of two scenarios, leaning more toward the negative.

“From Hunter to Prey” (Fully Realized): This trend has fully manifested. The rise of Hyperliquid dealt a severe blow to Solana’s narrative — after years claiming to be the highest scalability chain optimized for centralized limit order books (CLOB), it has now been thoroughly surpassed in this use case.

Overexposure to MEME Culture (Absolutely Accurate): This concern has been fully validated. The short-lived nature of MEME-driven growth is now obvious — hindsight shows that over 98% of MEME casino users lost money, with platforms like Pump.fun, insiders controlling Solana’s block space, and many project teams profiting from the trading.

Legal Challenges: Recent lawsuits target Pump.fun and Solana itself, accusing them of facilitating unfair gambling activities.

Brand Risks: Short-term success (high trading volume, wallet creation, attention) could become liabilities — the “crypto casino” narrative may hinder institutional adoption and regulatory goodwill. As the MEME cycle exhausts, Solana faces the challenge of shedding this label.

Centralization is Inevitable

Solana’s integrated high-throughput architecture aims to support global-scale applications with minimal latency. But this design increasingly exposes centralization concerns.

The blockchain industry has clarified: either build performance-optimized centralized solutions or opt for more decentralized modular paths. Solana chose the former — prioritizing scalability and speed via centralized physical infrastructure. While achieving impressive throughput, this fundamentally limits Solana’s credibility in applications requiring true decentralization and censorship resistance. If the Double Zero project succeeds, it could further concentrate physical infrastructure around a handful of high-bandwidth fiber providers.

Can Solana Maintain “Unified” Status?

Despite not shying away from centralization trade-offs, a key question remains: to what extent does Solana defend the premise of an “integrated chain”? At the edge of Solana Breakpoint, many discussions revolve around whether Solana can support more complex smart contract logic and heavier computation, or if it is mainly designed to maximize throughput for relatively simple transaction logic.

Complex applications require fragmented state: developers building complex apps on Solana are increasingly leaving the main state:

Jupiter’s Choice: Solana’s flagship DeFi protocol Jupiter plans to launch JupNet (an independent environment competing with Hyperliquid) instead of building on the mainnet. This admits that Solana’s global state cannot fully support certain application needs.

“Network Expansion”: Projects like Neon Labs are building “Solana extensions,” similar to Layer 2 solutions. These fragment Solana’s state, allowing developers to control their own block space and execution environment — essentially acknowledging the limitations of a monolithic global state. The argument is: theoretically, Solana can support any logic, but in practice, heavier computations often need cross-block execution, which the platform cannot control, risking logical integrity. These “extensions” are promoted as maintaining a unified state while expanding capabilities, but in reality, they are more fragmented — developers need performance-predictable isolated environments, pushing architecture toward a more modular, Ethereum-like path.

Competitive Positioning

Uncomfortable Middle Ground: Solana now finds itself between two dominant forces. Ethereum, with its proven infrastructure, leads in liquidity, stablecoins, and DeFi narratives; Hyperliquid has dominated Solana’s high-performance order book narrative for years. Solana must demonstrate a competitive advantage in at least one area or risk being seen as neither sufficiently decentralized nor maximally scalable.

Before Hyperliquid, Solana had a relatively unique positioning — a somewhat centralized but highly scalable integrated chain, actively promoted as suitable for global order books and high-frequency trading. Now, that narrative is awkward: no competing order book on Solana matches Hyperliquid’s volume and performance.

Drift might be one of the leading perpetual contracts protocols on Solana, but it still cannot compete with Hyperliquid. Despite five years of claiming to be the most scalable chain, Solana’s advanced order book is not competitive; activity is mainly driven by MEME coins lacking sustainable dynamics.

This situation is similar to Ethereum 18 months ago — then caught between Bitcoin and Solana: Bitcoin retained activity as a clear store of value, while Solana gained some activity but lacked a dominant narrative. Now, Solana is caught between Ethereum (liquidity/DeFi/stablecoins) and Hyperliquid (order books/CLOB perpetuals), both lacking clear competitive advantages. Without choosing and winning one, its future narrative could suffer greatly.

Path Forward: Proven Adaptability and Survival

Professional Execution: Solana remains one of the most professionally operated blockchains. The Solana Foundation demonstrates attention to detail and rapid execution — this should not be underestimated: it has repeatedly shown the ability to identify opportunities and pivot effectively.

Distance from Casinos: Recent efforts show Solana is trying to distance itself from the “crypto casino” narrative, seeking more sustainable use cases. This was evident at the recent Solana Breakpoint — the event had a more fintech-oriented atmosphere rather than speculative focus.

Challenges: Solana must successfully expand in at least one of two directions to maintain its competitive stance:

Capture Liquidity and DeFi: Build a robust DeFi ecosystem capable of competing with Ethereum’s maturity and liquidity depth. This is a tough battle, considering Ethereum’s DeFi moat. But Solana appears to be taking the right steps, such as listing non-Solana assets on-chain like centralized exchanges do, providing more options for traders — I strongly support this move, which was also part of my governance proposal to Arbitrum over a year ago to accelerate its DeFi positioning.

Capture Order Book Trading: Develop competing CLOB perpetual trading platforms challenging Hyperliquid’s dominance. Unfortunately, Solana seems to lack such competitors — Lighter, Aster, and other Hyperliquid rivals are outside the Solana ecosystem.

2026 Solana Conclusion

Solana in 2026 faces more risks than opportunities:

MEME Cycle Exhaustion: The recent activity driven by unsustainable MEME casino cycles is ending, with over 98% user loss and brand damage.

Legal and Brand Challenges: Lawsuits alleging unfair gambling threaten regulatory goodwill and institutional adoption prospects.

Competitive Substitutes and Awkward Positioning: Hyperliquid’s dominance in CLOB/order book trading weakens Solana’s core narrative as a scalable chain for that use case. Caught between Ethereum (liquidity/DeFi/stablecoins) and Hyperliquid (order books), lacking clear advantages in both directions.

Integration Issues: Major projects (Jupiter, Neon Labs) are shifting toward fragmented solutions, indicating limitations of global state support for complex applications.

Hope: A professionally operated organization with proven adaptability; capable of identifying new narratives but must succeed in DeFi or order book trading to avoid being stuck in an irrelevant middle ground.

Summary: The 2026 Crypto Landscape

Macro-Dependent Dominance: The three major cryptocurrencies (Bitcoin, Ethereum, Solana) all share macro sensitivities to AI stocks, Fed policies, and fiscal spending, but differ greatly in their exclusive positioning.

Bitcoin: By 2026, primarily a macro beta asset, with crypto-specific catalysts exhausted — but the market’s overemphasis on potential negative catalysts could itself lead to positive outcomes.

Ethereum: Best positioned among the three, with active positive drivers (stablecoin dominance, DeFi moat, institutional preference). As off-chain and on-chain finance continue to integrate, it could outperform even in neutral macro environments. The main risks remain in asset perception and consensus on ETH’s classification.

Solana: Facing the most challenging exclusive landscape — MEME cycle ending, brand concerns, substitutes — despite strong organizational execution, it must successfully capture DeFi or order book markets to avoid being stuck in an insignificant middle ground.