"DeFi could lead the market out of crypto winter," say Bitwise CIO

Matt Hougan via RIA Channel

Decentralized finance can be the key to the next breakout stage of crypto.

That is what Matt Hougan, Chief Investment Officer at Bitwise Asset Management, recently argued, who suggested that DeFi might be the industry that gets the rest of the market to come out of this currently experienced crypto winter.

Although speculative tokens and meme-based rallies have died down, Hougan thinks the next recovery can be fuelled not by hype but by actual usefulness and on-chain financial infrastructure.

What Is Crypto Winter and Why It Matters.

Crypto winter via coingeek

Crypto winter:

• Prolonged periods of

• Declining token prices

• Reduced trading volumes

• Reduced activity in venture capital.

• Weak retail participation

In such recessions, there will be a reduction of speculative projects, and capital will run dry. However, in the past, weak periods have served as clean-up acts too - enabling better-performing sectors to come up with more sustainable foundations.

According to Hougan, DeFi might now be in a position to assume that role.

Why DeFi stands out, according to Bitwise CIO

DeFi via Rootstrap

Decentralized finance (DeFi) allows users to:

• Bankless lending and borrowing.

• unscheduled exchange of trade assets.

• Make profits through liquidity provision.

• On-chain access derivatives and structured products.

Compared to speculative tokens, DeFi protocols produce actual transaction volume, a stream of yields, and quantifiable usage data.

This is because, according to Hougan, markets will eventually reward:

• Cash flows

• Adoption

• Infrastructure value

And DeFi, more than most other crypto industries, has all three.

The institutional capital is keeping an eye.

Retail yield hunters dominated DeFi in previous cycles. In 2026, it is another environment.

The institutional investors are growing to be:

• Examining tokenized real-world assets (RWAs).

• Settlement layers based on stablecoins.

• Adding DeFi rails to cross-border payments.

When institutions start betting on DeFi protocols, whether through direct investments or through formal exposure, it may offer long-term liquidity as opposed to speculation.

It is that structural demand which might assist in getting the market out of stagnation.

A Big Mover of Tokenization.

Asset Tokenization via Kaleido

Asset tokenization in the real world is one of the key stories behind the thesis of Hougan.

• The DeFi protocols are becoming:

• Housing tokenized treasury bills.

• Allowing on-chain privatized credit.

• Investing in covenantal stablecoins.

Should the migration of traditional finance assets on-chain at scale occur, DeFi is not a niche of crypto anymore; it is a backbone of the financial layer.

That would radically alter the valuation strategies of the industry.

Lessons Learned in the Past Cycles.

Photo of a NFT via The New Yorker

Historically:

• Speculation of ICOs was a phenomenon in 2017.

• 20202021 was fed on NFTs and retail leverage.

• The corrections and structural failures were sharp in 20222023.

• Every cycle developed the market.

• The Crypto winters tend to clear bad projects and empower infrastructure.

The implication of the argument by Hougan is that the next step will not be initiated by the hype cycles, but by the protocols with revenue, compliance pathways, and institutional matchmaking. Risks Remain: DeFi is not risk-free.

Challenges include:

• Vulnerabilities of smart contracts.

• Regulatory uncertainty

• Liquidity fragmentation

• The over-dependence on stablecoins.

But in comparison to the previous stages of the experiment, the current DeFi environment is:

• More audited

• More capitalized

• More in line with regulatory structures.

That experience could make it the most competitive to be the head of recovery. The Implications of This to the Market.

If DeFi leads the rebound:

• Capital can circulate into infrastructural tokens.

• Toll-taking protocols might be better.

• The exchangeization of market discourses could be transformed into on-chain productivity rather than price speculation.

• A recovery with the involvement of DeFi would also be indicative that crypto is becoming a financial system, rather than a trading arena.

Bottom Line

Bitwise CIO Matt Hougan believes that DeFi can be the sector that can help the wider crypto market emerge out of winter. Decentralized finance has the potential to afford the structural underpinning of the next bull cycle with real revenue models, increased institutional interest, and tokenized expansion of assets.

Whether crypto will recover is no longer a question. It’s what sector will lead it.

And perhaps Hougan is correct, and the answer can be DeFi.

Want more crypto insights? Follow The ScreenLight for the latest updates and explainers.