In brief
- Market experts say liquidity will concentrate across fewer venues in 2026 as MiCA, Asia regulations, and the U.S. CLARITY Act shift trading behavior.
- October 2025's $19 billion liquidation crisis exposed the fragility of infrastructure and liquidity gaps that institutions cannot tolerate, experts say.
- The regulatory focus is shifting from basic licensing to market structure and governance frameworks needed to bridge traditional finance with digital assets.
Crypto markets are likely to see liquidity concentrate across fewer venues in 2026 as new regulatory frameworks and institutional participation begin to shape how trading actually functions, market participants say.
Algorithmic trading and market-making firm Auros noted in its 2025 annual reflections shared with Decrypt that while decentralized finance has continued to grow, sustaining that momentum will require a fundamental upgrade in how liquidity functions.
"Despite the turbulence, DeFi TVL continues its steady climb, but sustaining it will demand a step-change in on-chain efficiency in 2026," the firm said, calling for "deepening liquidity across key DeFi venues, tightening spreads, and improving execution quality."
SB Seker, Head of APAC at Binance, shared the same sentiment, telling Decrypt that "innovation, regulation, and market infrastructure are increasingly aligned, reshaping global market dynamics.”
The year will test whether markets can support institutional-grade execution standards and absorb volatility without the fragility exposed during October’s liquidity crisis, when over $19 billion in leveraged positions were liquidated in roughly 24 hours, and order book depth evaporated across major venues.
More critically, it will reveal whether regulatory frameworks translate into operational improvements in how venues manage risk, maintain liquidity, and prevent cascading failures that institutional treasuries cannot accommodate.
Regulations align
Europe’s MiCA framework came into force in December 2024, with crypto firms required to secure EU licences and meet stricter security, transparency, and consumer-protection standards by the end of transitional periods that run until mid-2026.
Asia's regulatory scenario is converging around similar themes, as Hong Kong enacted its stablecoin licensing framework last August, with the first licenses expected in early 2026.
Meanwhile, Japan is moving toward reclassifying major cryptos as financial products, with a 20% flat tax starting in 2026.
"While 2025 was a landmark year for establishing virtual asset regulations, 2026 is when the proverbial rubber will hit the road,” Musheer Ahmed, Founder and Managing Director of Finstep Asia, told Decrypt.
"Following the introduction of landmark legislation last year [Genius Act], we anticipate the next phase of regulations to move beyond licensing and defining regulated activities," Ahmed said.
The market will likely see "a divergence in activities," Ahmed said, with one segment catering to "crypto purists who prefer purely decentralized models" while international regulators review these structures for potential frameworks beyond 2027.
For traditional finance to "confidently increase its scale in digital assets," he said, "strong governance and a well-defined market structure are paramount," along with clear rules to bridge the gap in areas like tokenized securities.
US momentum
In the U.S., legislation governing the nation’s crypto market structure continues to advance toward a potential breakthrough.
The Senate Banking Committee has reportedly scheduled a markup for January 15, moving the legislation closer to a floor vote, according to a Crypto America report.
The bill, which passed the House with bipartisan support last July, would establish the first comprehensive federal framework defining regulatory jurisdiction between the SEC and CFTC.
However, tensions remain with Senator Cory Booker, who previously told Decrypt he does not trust White House assurances on appointing Democrats to financial regulators, calling it "a deep concern."
The question facing markets is whether infrastructure can evolve fast enough to support institutional demand now materializing across tokenized assets, stablecoins, and ETF-linked flows, without periodic fragility during stress events that institutional capital cannot tolerate.