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Global markets are heading into a turbulent year, according to Fundstrat Global Advisors’ head of research Tom Lee, who is warning investors to brace for a Crypto market drop in 2026 before conditions improve toward the end of the year.
Speaking in January, Lee said mounting geopolitical tensions, tariff risks, and political fragmentation could weigh heavily on both equities and digital assets, triggering a sharp mid-year sell-off before a recovery takes hold.
Lee’s outlook comes as investors assess the post-2025 environment, marked by lingering deleveraging in crypto markets and shifting expectations around US monetary policy. While the strategist remains constructive on the long-term prospects of blockchain and artificial intelligence, he cautioned that near-term risks could dominate market sentiment for much of the year.
According to Lee, the anticipated Crypto market drop is part of a broader risk-off phase that could affect multiple asset classes simultaneously. He told The Master Investor Podcast with Wilfred Frost that markets may experience a sharp and “painful” decline before stabilizing later in the year.
The Fundstrat strategist compared the potential trajectory of 2026 to the previous year, noting that structural growth drivers remain intact but are unlikely to prevent interim drawdowns.
Lee estimates that US equities could fall by as much as 15% to 20% during the correction, a move he views as significant but not unusual within a late-cycle environment.
He attributed much of the pressure to external shocks rather than deteriorating fundamentals, highlighting geopolitics and trade policy as key sources of uncertainty. Despite these risks, Lee maintained that the underlying investment case for technology-driven sectors has not materially weakened.
While the mid-year Crypto market drop could test investor confidence, Lee believes monetary conditions may ultimately support a rebound. He pointed to expectations of a more dovish US Federal Reserve and the conclusion of quantitative tightening in 2025 as factors that could ease financial conditions later in the cycle. In his view, these shifts could help markets regain footing after the anticipated correction.
Policy decisions from the White House may also play a decisive role in shaping performance across sectors. Lee suggested that tariffs and industrial policy priorities could favor areas such as energy and basic materials, even as risk assets struggle earlier in the year.
The combination of fiscal direction and monetary easing, he argued, creates the conditions for markets to finish 2026 on a stronger note than they begin.
For Bitcoin, Lee remains optimistic beyond the immediate Crypto market drop, saying he still expects the cryptocurrency to reach a new all-time high in 2026.
Although he did not repeat his earlier $250,000 price target, he emphasized that a fresh record would signal the market’s recovery from the Oct. 10 crash. He described that episode as a major disruption to liquidity, noting that it impaired crypto market makers he referred to as the “central bank of crypto.”
Lee explained that Bitcoin’s recent underperformance relative to gold reflects recurring deleveraging cycles that continue to undermine confidence. Until the asset class achieves broader mainstream adoption and deeper institutional participation, he warned, similar shocks could recur.
These dynamics, he said, are central to understanding why a Crypto market drop can be so abrupt and destabilizing compared with traditional markets.
Other market observers broadly agree with parts of Lee’s assessment of a Crypto market drop followed by eventual recovery. Benjamin Cowen, CEO of Into The Cryptoverse, has noted that metals outperformed crypto in 2025 and are likely to do so again in 2026.
However, Cowen also expects metals to face a significant correction later in the year, a move that could coincide with an even steeper decline in digital assets.
Taken together, these views suggest that investors may need to navigate months of volatility before clearer trends emerge. While long-term narratives around AI, blockchain, and institutional adoption remain intact, the path through 2026 is unlikely to be smooth.
As Lee’s warning underscores, the coming Crypto market drop may prove to be a defining test of resilience for both traditional and digital markets.
