2 Big Reasons to Buy Ethereum Before the Second Quarter of 2026

Up 10% to start the year, Ethereum (CRYPTO: ETH) is starting to look like it could have a big year in 2026. In fact, the growing narrative is that Ethereum could be on pace to outperform Bitcoin (CRYPTO: BTC) this year.

The time to buy Ethereum is now, before other investors wake up to its true valuation. Here are two important reasons Ethereum could be headed for a big breakout, perhaps as soon as the second quarter of 2026.

1. A surge in blockchain activity

One big factor is a distinct surge in overall blockchain activity. Since mid-December, transaction activity on Ethereum is up a whopping 31%. That's a positive sign that recent blockchain upgrades -- such as the Fusaka upgrade in December -- are starting to have an impact.

Moreover, Ethereum remains the focal point of two of the biggest trends in the decentralized finance (DeFi) sector: the rise of stablecoins and the emergence of real-world asset (RWA) tokenization. These are both enormous growth catalysts. Consider, for example, that stablecoin market cap grew by a head-spinning 49% in 2025.

Image source: Getty Images.

Asset tokenization, too, is seeing enormous growth now that it has been embraced by some of the biggest names on Wall Street. In fact, Tom Lee of Fundstrat is so enamored of the rise of asset tokenization that he called 2025 a "1971 moment" for Ethereum. That's right -- he's comparing Wall Street's embrace of tokenized digital assets to the decision to go off the gold standard in the 1970s.

Of course, Tom Lee is also the chairman of the world's biggest Ethereum treasury company, so he obviously has some skin in the game. But it's impossible to ignore the fact that top consulting firms are calling asset tokenization a potential multitrillion-dollar market opportunity. If that's the case, then the blockchain that becomes the market leader in asset tokenization will soar in value.

2. A pro-crypto regulatory environment

Another big factor for Ethereum is continued momentum around the pro-crypto agenda of the Trump administration. As long as legislation supportive of crypto continues to be passed, Ethereum is going to be one of the biggest beneficiaries, given its reach into nearly every corner of the blockchain and crypto world.

In 2025, for example, new stablecoin legislation (the Genius Act) led to a surge in investor interest around Ethereum, given its status as the No. 1 blockchain for stablecoins. It also led to the rise of Ethereum treasury companies, which began to buy Ethereum coins at a prodigious clip. The result was a remarkable summer rally for Ethereum that led to a new all-time high of nearly $5,000.

The same phenomenon could happen this year with passage of the Digital Asset Market Clarity Act ("Clarity Act"). This groundbreaking new legislation is going to spell out the rules of the road for the crypto industry, and should lead to a further blurring of the lines between traditional financial and blockchain finance. That augurs well for Ethereum, given its prowess in decentralized finance.

The original goal was to have this legislation signed by the end of 2025. That didn't happen due to the federal government shutdown, so the new goal is to have this legislation signed, sealed, and delivered before the 2026 midterm elections.

What to look for in early 2026

There are several key things to look for heading into the second quarter of the year.

First, I'm looking for a splashy new asset tokenization deal in early 2026 that involves a major Wall Street player. The template for this would be something along the lines of the March 2024 launch of the first tokenized fund for BlackRock on the Ethereum blockchain. A similar launch in 2026 would help to demonstrate that RWA tokenization really does have the potential to be a multitrillion-dollar market opportunity.

And I'm keeping my eyes on what's happening in Washington, with the Digital Asset Market Clarity Act. Early signs are that the new market structure bill may need considerably more work before it's ready for a final signature in the White House. But I'm hopeful that lawmakers on both sides of the aisle can figure out a way to get it done.

If all goes according to plan, Ethereum could outperform Bitcoin this year, making it the one cryptocurrency that you need in your portfolio in 2026.

Dominic Basulto has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool recommends BlackRock. The Motley Fool has a disclosure policy.