The 2026 Crypto Market Divergence: The Arrival of the Institutional Era and the End of Cycle Theory

Introduction: Markets Heading Toward a Historic Turning Point

2026 will be recorded as a pivotal year for the cryptocurrency market. The previously dominant narrative driven by retail investor sentiment and the simple cyclical logic of Bitcoin’s four-year halving mechanism (Halving) is gradually losing its influence. The numerous research reports recently published by eight major crypto institutions point to a clear signal — the era of institutional investors has officially arrived.

With moves by sovereign nations like Brazil and Kyrgyzstan to legalize cryptocurrencies, along with the entry of traditional asset management firms, the market structure is fundamentally changing. The conventional “4-year cycle theory” is no longer valid, and a new paradigm is emerging.

First Change: The Disappearance of Cyclical Patterns and Asset Maturation

Diminishing Halving Effect and Demand Structure Shift

Major institutions such as Bitwise, Fidelity, and Grayscale agree on one point: Bitcoin’s four-year cycle has effectively ceased to function. 21Shares explicitly states that “Bitcoin’s four-year cycle has broken down (Broken).”

The reason is straightforward. The introduction of spot physical ETFs has dramatically altered the demand structure in the market. Previously, supply-side factors (such as reduced supply from miner halts) dominated, but now demand-side factors (ongoing allocations by institutions like BlackRock and Fidelity) have become the market’s main drivers. In an environment where hundreds of millions of dollars flow into institutional funds quarterly, the impact of halving events every four years diminishes proportionally.

Reduced Volatility and Shift Toward Safe-Haven Assets

The forecast presented by Bitwise symbolizes a qualitative change in the market. By 2026, Bitcoin’s volatility will fall below that of technology stocks like Nvidia for the first time.

This is not just a numerical change but suggests an intrinsic transformation of Bitcoin. Once regarded as a “high-beta technology asset,” Bitcoin is evolving into a “mature safe-haven asset.” Against the backdrop of global debt increases and declining fiat currency values, Bitcoin will lose correlation with tech stocks and begin functioning as an independent “global inflation hedge tool.”

Second Change: New Directions for Capital Inflows

In areas where institutional consensus is forming, three clear routes for capital inflow are emerging.

Stablecoins: Replacing Financial Infrastructure

If Bitcoin is “digital gold,” then stablecoins are “digital payment currencies.” Institutions predict that stablecoins will no longer stay within the crypto ecosystem but will become a direct challenge to traditional financial systems.

21Shares forecasts that the total market cap of stablecoins will surpass $1 trillion in 2026. Furthermore, Galaxy Digital predicts that on-chain trading volume of stablecoins will exceed that of the US ACH (Automated Clearing House) network, indicating a potential replacement of traditional interbank settlement systems.

Coinbase looks even further ahead, estimating stablecoin market cap will reach $1.2 trillion by 2028. Meanwhile, a16z envisions stablecoins evolving into the “core payment layer” of the internet, heralding the era of PayFi (Payment Finance). Cross-border payments are expected to become as cheap and instant as sending an email.

AI Payments and KYA: Next-Generation Commercial Civilization

The most significant technological variables both a16z and Coinbase focus on are the rapid maturation of AI payment infrastructure.

Coinbase emphasizes the Google Agentic Payments Protocol (AP2) standard. Their developed x402 protocol extends this AP2, enabling AI agents to execute micro-payments directly via HTTP protocols. This will realize a closed loop in AI-driven business transactions.

a16z introduces the concept of KYA (Know Your Agent), which is gaining attention. They point out that within on-chain transaction entities, the ratio of “non-human” to “human” participants has already reached 96:1. Traditional KYC (Know Your Customer) must evolve into KYA. AI agents can hold crypto wallets without bank accounts and continuously purchase data, computing power, and storage through micro-payments, 24/7.

Market Predictions: Emergence of New Information Sources

Multiple institutions identify prediction markets as a field of explosive growth in 2026.

Bitwise predicts that the open interest in decentralized prediction markets like Polymarket will hit record highs and become a “source of truth” alongside traditional news media. 21Shares provides specific figures, estimating annual trading volume in prediction markets will exceed $100 billion.

An interesting perspective comes from Coinbase: they suggest that new US tax laws (limiting gambling losses deductions) will inadvertently promote prediction markets among users. Since prediction markets are classified as “derivatives” and not “gambling” for tax purposes, they hold a tax advantage.

Third Change: Diverging Consensus Among Institutions

While consensus often gets priced into markets, differing opinions are the source of excess returns (Alpha) and potential risks.

The Fate of DAT Companies: Liquidation or Survival

Regarding the “public company Bitcoin holding” model initiated by MicroStrategy, opinions among institutions are sharply divided.

Galaxy Digital and 21Shares advocate for “liquidation,” emphasizing that although the total digital asset treasury (DAT) size reaches $250 billion, “only a few will survive.” 21Shares predicts that small DAT firms trading below their net asset value (NAV) long-term will be forced to liquidate. Galaxy Digital further states that “at least five DAT companies will face asset sales, acquisitions, or direct bankruptcy.”

Conversely, Grayscale adopts a “disregard” stance. They believe that despite media coverage, DATs are constrained by accounting standards and the disappearance of premiums, and will not be a core driver of market price formation in 2026.

The Future of Layer 2: Matthäus Effect and淘汰

21Shares predicts a large-scale “zombification” of Layer 2 (L2) sectors. Most Ethereum Layer 2s will fail to surpass 2026, leading to concentration of liquidity and developer resources.

This phenomenon exemplifies the Matthäus Effect: the tendency for resources and wealth to concentrate among the already dominant. Ultimately, liquidity will flow into top-tier chains like Base, Arbitrum, Optimism, and high-performance chains like Solana. Galaxy Digital forecasts that “the ratio of application layer revenue to L1/L2 network layer revenue will double by 2026,” supporting the “Fat App” theory — value shifting from infrastructure to user-centric super apps.

Quantum Computing Threat: Critical Concern or Overblown?

Coinbase’s cautious stance dedicates a chapter to the “quantum threat,” warning that immediate migration to post-quantum cryptography standards and updates to foundational signature algorithms are essential.

Meanwhile, Grayscale remains calm, believing that within the 2026 investment cycle, the likelihood of quantum computers cracking elliptic curve cryptography is zero, and investors need not pay a “fear premium.”

Fourth Change: “Unpopular” Areas Gaining Institutional Attention

Beyond mainstream consensus, institutions’ unique perspectives should not be overlooked.

Galaxy Digital and Grayscale are optimistic about privacy tracks, predicting that the total market cap of privacy tokens will surpass $100 billion. They specifically mention Zcash ($ZEC), noting a rebound and re-evaluation of privacy from “crime tool” to “institutional necessity.”

21Shares focuses on the revival of “regulated ICOs,” expecting that with clearer legal frameworks, regulated token sales will re-emerge as legitimate capital market fundraising methods.

Bitwise predicts that stocks related to mining companies, Coinbase, and Galaxy Digital will outperform the “Magnificent 7” tech giants.

Conclusion: Investment Survival Strategies for 2026

Synthesizing the perspectives of these eight institutions, the market logic of 2026 can be summarized into three dimensions:

1. Prioritize leadership and tangible benefits. In the harsh淘汰 of L2 and DAT companies, liquidity and capital structure are survival indicators. Focus on protocols generating positive cash flow.

2. Understand technological infrastructure upgrades. From Google’s AP2 standard to KYA, the evolution of new tech infrastructure will generate alpha. Keep an eye on the implementation of protocols like x402.

3. Beware of false narratives. For institutions, not only golden opportunities but also “red herrings” (misleading topics) are visible. Long-term trends like stablecoin ACH replacements and short-term speculative targets are key to success in 2026.

( This article is based on institutional reports and analytical insights and does not constitute investment advice.