Crypto markets are entering a transformative phase, where the focus on activity concentration is becoming increasingly vital, overshadowing traditional narratives, as outlined in a recent outlook from Coinbase Institutional. The report suggests that the year 2026 will serve as a crucial test to determine if core crypto markets can effectively scale under more disciplined conditions.
Authored by David Duong, Coinbase’s global head of research, and research associate Colin Basco, the report posits that the conventional crypto cycle models—historically driven by retail speculation, token launches, and specific protocol catalysts—are becoming less reliable. This shift is attributed to the growing influence of institutional participation and refined market mechanics, which are now significantly shaping price behavior.
One of the key observations made in the report is the increasing importance of perpetual futures in crypto market activity. Coinbase underscores that derivatives currently represent the majority of trading volume across major exchanges, indicating a shift in price formation dynamics. Recent trends show that price discovery is now more dependent on factors such as positioning, funding rates, and liquidity conditions, in contrast to the past reliance on retail-driven momentum.
The report notes that leverage in the market experienced a significant reduction following a series of liquidation events in late 2025. However, Coinbase reframes this drawdown as a structural reset rather than a retreat. The firm argues that while speculative excess has been curbed, participation in perpetual futures has remained resilient. Improved margin practices and risk controls are also highlighted as factors contributing to markets that can absorb shocks more efficiently, underscoring the continuing dominance of derivatives in providing liquidity.
Turning its attention to prediction markets, Coinbase points out a notable evolution from early experimentation to a more robust financial infrastructure. The report observes rising notional volumes and enhanced liquidity as indicators of these markets being utilized more effectively for information discovery and risk transfer. Fragmentation among prediction platforms is creating demand for aggregation solutions, further attracting sophisticated participants and expanding user engagement beyond the typical crypto-native traders, especially as regulatory clarity improves in various jurisdictions.
The report also emphasizes the critical role of stablecoins and payment systems as the most consistent sources of practical usage within the crypto ecosystem. Duong and Basco observe that transaction volumes for stablecoins are witnessing growth through settlement activities, cross-border transfers, and liquidity management—factors that are inherently tied to real-world applications rather than speculative trading. They note that payment activity is increasingly integrated with various facets of the ecosystem, including automated trading strategies and rising AI-driven applications.
In the context of these developments, Coinbase believes that 2026 will serve as a definitive test of whether these markets can scale effectively while managing risks under more stringent conditions. The outcomes of this testing phase are expected to have long-lasting repercussions for the crypto industry, influencing its future trajectory well beyond the next price cycle.
