Small-cap stock index hits a new high again. Will the historically predicted crypto bull market arrive this time?

Author: Deep Tide TechFlow

Original Title: US Small Cap Stock Index Hits Record Highs, A Neglected Crypto Cycle Signal?

In the first three weeks of 2026, the Russell 2000 index has risen 9%, breaking through 2700 points.

This US small-cap stock index has been sideways for three years since its previous high at the end of 2021, only breaking through for the first time last November, and is now entering the “price discovery” phase. There are no historical resistance levels to reference.

Recently, I came across a viewpoint: in 2016 and 2020, when the Russell 2000 broke out, BTC was also initiating a bull market, and both times it hit the mark. Now that it has broken through again, could crypto follow suit?

I looked at the data, and it indeed resembles a preconditioned signal, at least historically it has been validated.

The Russell 2000 tracks the 2000 smallest companies by market cap in the US stock market, with a median market cap just over $1 billion. Compared to flagship stocks like Apple and Microsoft in the S&P 500, these small companies share a common trait: they mainly rely on bank loans for financing, not bonds.

When interest rates rise, their financing costs become unsustainable; when rates fall, they benefit first.

Therefore, traders like to use the Russell 2000 as a “risk appetite thermometer.” When it hits new highs, it indicates the market is willing to allocate more funds to high-risk assets.

There’s another layer of logic. Small-cap stocks are concentrated domestically in the US, unlike globalized giants like Apple and Microsoft. When the Russell 2000 rises, it somewhat reflects the domestic economic sentiment in the US.

2016 and 2020, the small-cap index broke out twice, and BTC took off twice

Let’s look at the data.

In 2016, the Federal Reserve’s rate hike cycle was nearing its end, and Trump’s election brought expectations of tax cuts, boosting risk appetite. BTC had just completed its halving, supply contraction coincided with demand recovery, leading to the 2017 bull run.

In 2020, the situation was even more intense. The pandemic caused a huge downturn, the Fed launched massive money printing, and interest rates were pushed to the floor. Large institutions entered the market en masse, with MicroStrategy and Tesla scooping up BTC, pushing it from over $10,000 to $69,000.

The timing of the two Russell 2000 breakthroughs and BTC’s bull markets indeed align.

But in reality, there are only two historical samples.

Looking ahead to November 2024, the Russell 2000 first broke above its pre-2021 high, while BTC was already near $100,000.

Since the Bitcoin halving in April 2024, BTC has risen from $63,000 to around $90,000, an increase of about 50%. That sounds good, but compared to the 5x and 27x increases in the previous two cycles, the gap is obvious.

Several possible reasons.

First, institutional entry has suppressed volatility. After the ETF approval in January 2024, giants like BlackRock and Fidelity entered the market, with ETF inflows reaching hundreds of billions of dollars. Institutional money doesn’t chase after every price move like retail investors, smoothing out volatility. The benefit is less severe dips, but the cost is that it can’t produce the vertical surges seen in 2017.

Second, the marginal effect of the halving is diminishing. After the fourth halving, BTC’s annual inflation rate dropped from 1.7% to 0.85%. It sounds like a halving, but 94% of BTC has already been mined. The new supply’s dilution effect on the existing stock is decreasing, and each halving’s “supply shock” is weaker than the last.

Third, BTC broke its previous high in March 2024. It was the first time in history that a new high was reached before the halving. Expectations for ETFs released early, boosting demand ahead of time, so when the halving actually arrived, most of the positive impact was already priced in.

Coincidence, or the same liquidity logic?

The Russell 2000 and BTC, one is a small-cap US stock index, the other a leading crypto asset—why would they synchronize?

My understanding is that they are both sensitive to the same macro signals.

When the Federal Reserve signals easing, capital flows along the risk curve. First into government bonds, then blue-chip stocks, then small caps, and finally into high-beta assets like crypto.

A breakthrough in the Russell 2000 is like a green light in the middle of the chain.

JPMorgan’s research last year indicated that BTC and Russell 2000 small-cap tech stocks have the highest correlation. The reason is that crypto projects depend on VC funding, and blockchain innovation is concentrated in small companies rather than large tech giants. In plain terms, investors in small caps and crypto share similar risk appetites.

But I’m hesitant to treat this as a causal relationship. With only two samples, the statistics don’t support it.

Moreover, BTC itself has halving cycles in 2016, 2020, and 2024; the Russell 2000 might just be another macro signal that coincides with these periods, not necessarily leading or lagging.

Additionally, an interesting phenomenon: although the Russell index has been rising, money is flowing out.

In 2025, the Russell 2000 rose over 40%, but US small-cap stock ETFs saw nearly $20 billion in net outflows for the year. This contrasts sharply with past bull markets—when the index rose, funds typically flowed in.

(Source: etf.com)

Another data point: about 40% of companies in the Russell 2000 reported negative earnings in Q3 2025, approaching the highest level in history. This ratio has more than doubled since 2007.

While the index hit new highs, the fundamentals are worrying, and funds are still withdrawing.

How to interpret this? One possibility is that a few stocks are pulling the index higher, while passive funds are rebalancing. But regardless of the explanation, the narrative of “risk appetite returning” is somewhat diminished.

Recently, if you follow macro and broad financial content, you’ll notice an increasing number of voices—on investment-focused YouTube channels and crypto Twitter—saying that “Russell 2000 breakout is a preconditioned signal for BTC rise.”

Indeed, the Russell 2000 breakout was a signal before the 2016 and 2020 crypto bull markets, and it’s happening again now. It’s a valuable observation window, but my view is that it shouldn’t be used as a trading signal.

Two samples don’t establish causality, and this cycle has several variables different from previous ones: ETF has changed the capital structure, volatility has been smoothed by institutions, and the halving effect is diminishing. Old scripts may not apply straightforwardly.

The “resonance” between Russell 2000 and BTC might only be clear after this cycle concludes.

Note:

Data sources: Yahoo Finance, TradingEconomics, JPMorgan Research, BeInCrypto. As of January 2026.