ALTERNATIVE MARKETS UPDATE – MID FEBRUARY 2026

Japan moved into focus following the high-stakes re-election of the lower house – a vote that was seen as politically risky but ultimately stabilising. Pre-election uncertainty had raised concerns about fiscal discipline and the policy coordination with the Bank of Japan, triggering short-term volatility in both equities and the yen. However, the successful re-election delivered continuity, preserving the reform agenda centred on corporate governance improvements, shareholder returns and gradual structural adjustments. For foreign investors, the outcome reduced near-term political tail risk while maintaining policy predictability. With political clarity restored, focus is shifting back to earnings momentum, currency stability and valuation support, bringing renewed attention to the trajectory of the Nikkei 225 and broader global equities.
Equity markets experienced a sharp but ultimately contained bout of volatility over the past two weeks, driven primarily by earnings dispersion rather than a deterioration in the broader macro backdrop. The correction was most acute within high-multiple software names, where listed SaaS companies declined by 32% from recent highs, as shown in Figure 1. While weaker forward guidance, elongating enterprise sales cycles and moderating net revenue retention were important catalysts, a deeper structural concern also emerged. Advances in generative AI may render parts of the traditional SaaS stack partially obsolete. Investors increasingly question whether AI-native platforms – capable of automating workflows end-to-end – could compress pricing power, reduce seat-based revenue models, or disintermediate legacy application-layer providers altogether.

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RESEARCH PERSPECTIVE VOL. 269 February 2026 Alternative Markets Update Japan moved into focus following the high-stakes re-election of the lower house – a vote that was seen as politically risky but ultimately stabilising. Pre-election uncertainty had raised concerns about fiscal discipline and the policy coordination with the Bank of Japan, triggering short-term volatility in both equities and the yen. However, the successful re-election delivered continuity, preserving the reform agenda centred on corporate governance improvements, shareholder returns and gradual structural adjustments. For foreign investors, the outcome reduced near-term political tail risk while maintaining policy predictability. With political clarity restored, focus is shifting back to earnings momentum, currency stability and valuation support, bringing renewed attention to the trajectory of the Nikkei 225 and broader global equities. Equity markets experienced a sharp but ultimately contained bout of volatility over the past two weeks, driven primarily by earnings dispersion rather than a deterioration in the broader macro backdrop. The correction was most acute within high-multiple software names, where listed SaaS companies declined by 32% from recent highs, as shown in Figure 1. While weaker forward guidance, elongating enterprise sales cycles and moderating net revenue retention were important catalysts, a deeper structural concern also emerged. Advances in generative AI may render parts of the traditional SaaS stack partially obsolete. Investors increasingly question whether AI-native platforms – capable of automating workflows end-to-end – could compress pricing power, reduce seat-based revenue models, or disintermediate legacy application-layer providers altogether. Figure 1: Software Sector ETF (iShares Expanded Tech-Software Sector ETF) Drawdowns Since 2000, Source: Charlie Bilello, Creative Planning & YCharts, February 2026 At the same time, rising AI-related infrastructure expenses, including compute, cloud, and data-centre commitments, have pressured near-term margin expectations, challenging the durability of the historically asset-light SaaS model. Importantly, the weakness was highly concentrated. The broader S&P 500 and Nasdaq Composite proved comparatively resilient, supported by continued strength in semiconductors, AI infrastructure providers and select cyclicals. This growing bifurcation within technology highlights a shift in capital allocation. Investors are favouring companies with tangible AI monetisation and defensible moats, while duration-sensitive growth equities face heightened scrutiny. The subsequent rebound suggests positioning and systematic flows amplified both the decline and the recovery, yet the episode reinforces that 2026 equity returns will likely hinge on earnings durability, competitive defensibility and clear AI integration strategies rather than multiple expansion alone. Digital asset markets experienced a sharp deleveraging cycle over the past two weeks, followed by a swift rebound. A broader risk-off move exposed crowded long positioning and elevated derivatives leverage, triggering liquidations that pushed Bitcoin and Ethereum sharply lower, with high-beta altcoins underperforming. The sell-off was largely flow-driven rather than fundamental. As Treasury yields stabilised and ETF inflows resumed, prices recovered quickly, highlighting once again how positioning and liquidity – more than structural shifts – continue to dominate short-term crypto dynamics. Beyond short-term price volatility, the structural institutionalisation trend in digital assets remains firmly intact – most visibly in the rapid expansion of stablecoin usage. As shown in Figure 2, from 2021 to 2025, stablecoin transaction volume increased 17-fold, dramatically outpacing legacy payment networks such as Visa, whose volumes grew by only 1.3x over the same period. By late 2025, stablecoin transaction volume had surpassed $100bn, underscoring their transition from niche crypto liquidity tools to a meaningful layer of global settlement infrastructure. Increasingly, stablecoins are being used for cross-border payments, collateral management, treasury optimisation and on-chain capital markets activity. For institutional participants, this growth signals not speculative excess, but the gradual build-out of a parallel financial rail – one that is faster, programmable and globally interoperable. Figure 2: Payment Rail Transaction Volume of Stablecoins and Visa Since January 2021, Source: Pantera Capital & Artemis, February 2026 A similarly powerful institutional trend is unfolding in real-world asset (RWA) tokenisation. As of January 2026, approximately $22.5bn of assets have been tokenised on-chain across a range of categories, with US Treasuries representing the largest share, as shown in Figure 3. Beyond government debt, more than $1bn has been tokenised across commodities, institutional alternative funds, private credit and corporate bonds, which signals that adoption is no longer confined to pilot programmes but increasingly embedded in institutional workflows. Over the course of 2025 alone, the median increase in tokenised assets reached 5.7x, highlighting the acceleration phase the market has entered. The institutional case is straightforward: Programmable settlement, real-time transparency, and improved collateral efficiency. Importantly, this trajectory is supported by forward-looking projections. McKinsey estimates that tokenised RWAs could reach $2tn by 2030 in its base case, underscoring the potential scale of on-chain capital markets infrastructure in the years ahead. Figure 3: RWA Market Capitalization Since January 2021, Source: Pantera Capital & RWA.xyz, February 2026 Another fast-emerging pillar of on-chain activity is prediction markets, which are increasingly functioning as decentralised information exchanges. At the beginning of the first half of 2025, open interest in crypto-based prediction platforms stood at roughly $100m. By the end of 2025, that figure had surged to a peak of approximately $400m, reflecting growing user engagement and deeper liquidity. Figure 4 provides more insights into the explosive growth of prediction markets. This expansion was driven by heightened political uncertainty, macro event risk, and broader retail participation, but it also attracted more sophisticated capital seeking alternative sentiment and probability signals. For institutional observers, prediction markets represent more than speculative venues, as they also offer real-time, crowd-sourced expectations that can complement traditional polling, options markets and macro indicators, further reinforcing crypto’s evolution into a parallel financial and informational infrastructure layer. Figure 4: 2025 H2 Prediction Market Open Interest Since July 2025, Source: Pantera Capital & Artemis, February 2026 STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, Tallinn in Estonia and Dubai and Umm Al Quwain in United Arab Emirates. 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