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The first quarter of 2026 proved challenging for crypto. The Nasdaq CME CryptoTM Index finished the first quarter down 24.1% and at its lowest point, the drawdown approached 45%.
But looking back at Q1 with clear eyes, three things stand out to me that help inform where this market is going in the coming months—lessons about what this asset class is, how it behaves, and why the long-term case remains intact.
What happened? The Q1 selloff in three acts
The most important thing to understand about Q1 is that the drawdown had identifiable, explainable causes, and none of them were structural failures of crypto itself. As we describe in our Q1 Market Pulse, released today, the quarter unfolded in three distinct acts. The first act was the escalating US-Iran tensions in mid-January which triggered a classic risk-off rotation. Crypto sold off as a risk asset—exactly as it should in that environment—while gold and silver played their traditional safe-haven role.
Act two was Kevin Warsh’s nomination as Fed Chair catching markets off guard. Warsh has a hawkish reputation and his emergence as the leading candidate to replace Chair Powell effectively dismantled the monetary easing thesis that had quietly been supporting a range of liquidity-sensitive assets: crypto, gold, and silver alike. The probability of his nomination went from 29% to 97% in less than a week, meaning that markets had no time to adjust gradually. What followed was a forced unwind of crowded, leveraged positions. In that compressed window, crypto fell more than 31%, amplified by over $11 billion in liquidations.
Act three was the quarter's most counterintuitive episode. When the US campaign against Iran started on February 28, the traditional hedges (i.e., gold and silver) fell sharply. Crypto, by contrast, held its ground and recovered. The reason: precious metals had accumulated their own leverage through the prior period and were fragile heading into the shock. Crypto, having already been through its own deleveraging, entered the conflict with cleaner positioning and more resilient structure.
Geopolitical stress and monetary policy uncertainty shaped performance
Past performance does not guarantee future results. It is not possible to invest in an index and funds have other costs that impact final performance. Elaborated by Hashdex Asset Management with data from Bloomberg.
By March, the Crypto Fear & Greed Index had fallen to readings as low as 8 (on a scale of 100). The last time it was that low was after the Terra-Luna collapse in mid-2022, when a major protocol had imploded, contagion was spreading through the industry, and the broader macro environment was deteriorating with inflation running hot and rates rising fast.
Today's context is categorically different. There are no protocol failures, no massive fraud scandals, no systemic liquidity crises—but the fear readings are similar. That gap between sentiment and what the data actually shows is not a reason for concern. It is precisely the kind of dislocation that creates asymmetric opportunity for investors with a long-term horizon.
The most telling evidence is what was happening beneath the price surface during the same period of peak fear. Institutional holders nearly tripled their share of Bitcoin's long-term supply in two years, from 8.4% in December 2023 to 23.9% by December 2025. That accumulation didn't pause during Q1's volatility. As retail investors reduced exposure, ETFs, sovereign entities, corporations, and other institutional allocators absorbed the supply. The investor base is being rebuilt from the ground up, and the buyers stepping in at lower prices are precisely those with the frameworks, mandates, and time horizons to stay.
Institutions have nearly tripled their share of Bitcoin’s long-term supply since ETF approvals in 2024
Percentage of the LTH is calculated by dividing the whole LTH supply by the 5-month lagged institutional supply minus the outflow that happened in this period. Elaborated by Hashdex Asset Management with data from Bitcoin Treasuries and Bitcoin Magazine (from July 31, 2023 to March 31, 2026).
Our long-term valuation model captures this dynamic quantitatively. At quarter-end, crypto's market cap had fallen below the lower band of the model—a more extreme reading than either of the two prior instances that approached it. Those prior instances, in November 2022 and June 2023, were followed by 12-month returns of 318% and 177%, respectively. While past performance offers no guarantees, and this is not a call on timing, the pattern matters: historically, the zones of maximum fear in crypto, absent a structural crisis, have been the zones of opportunity. Q1 created that zone again.
Across major geopolitical events since 2022, disciplined investors have been rewarded
Past performance does not guarantee future results. It is not possible to invest in an index, and funds have other costs that impact the final performance. Elaborated with data from CF Benchmarks and Bloomberg (from December 31, 2025 to March 31, 2026). [1] The 60 Days after performance is calculated from February 28, 2026 until March 31, 2026.
A strengthening foundation
Here is what I find most important about Q1: the price action and the structural picture moved in opposite directions. Prices fell sharply even as the regulatory and institutional foundation of crypto strengthened materially. That divergence is not noise, it’s the investment case strengthening in real time, while most investors were focused on the wrong signal.
The regulatory milestones of the past twelve months represent a genuine shift in the legal architecture of this asset class. The GENIUS Act signed into law, creating a framework in the US for stablecoins, and in-kind creations and redemptions were approved for crypto ETFs. And just last month, the SEC and CFTC issued joint guidance establishing the first comprehensive taxonomy for digital assets in the US, moving the regulatory posture from enforcement by ambiguity to classification by definition. Most crypto assets are now formally recognized as non-securities. The legal gray zone that has long been the primary barrier to institutional participation at scale is being systematically dismantled.
Additionally, the CLARITY Act—digital asset market structure legislation that Congress is currently considering—would provide the kind of legislative permanence that executive branch actions cannot. That permanence is what will help large allocators build full institutional infrastructure around crypto: custody frameworks, compliance programs, board-level mandates.
Why does regulatory clarity translate so directly into investment case strength? In the two years following bitcoin ETF approvals, cumulative flows into US crypto ETFs surpassed $70 billion. New investor types entered and institutional adoption accelerated. The rest of the asset class—including smart contract platforms, decentralized infrastructure, and tokenized finance—is earlier in that journey, with more potential institutional capital yet to enter.
Looking ahead: Q2 and beyond
There is a version of Q1 that reads as a warning: crypto fell nearly 25% in a quarter when equities barely moved, sentiment collapsed to crisis-era lows, and the asset class seemed to behave in ways that defied its own narratives. I understand why some investors read it that way.
But there is another reading I think is more accurate and more actionable: Q1 systematically cleared the conditions that had made the market fragile and brought valuations to levels that historically precede strong forward returns.
At the same time, the fundamentals kept moving in the right direction. Institutional accumulation continued and the regulatory framework advanced more in twelve months than in the prior four years combined. The investor base is growing more sophisticated and more durable.
Stress events in crypto have historically looked like failures in the moment and like entry points in hindsight. Q1 had real causes and a real impact. It also left the investment case structurally stronger than it was at the start of the year. That is the signal worth holding onto.
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Effective January 20, 2026, the index changed its name from Nasdaq CryptoTM Index (NCI) to Nasdaq CME CryptoTM Index.
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