A shift in monetary policy expectations is creating headwinds for Bitcoin, touching on a key concern for cryptocurrency investors: the availability of liquidity in the financial system. The recent price weakness stems from more than a technical correction; it reflects a reassessment of the Federal Reserve’s future actions. This analysis explores the sources of the selling pressure and the pronounced reactions across derivative and exchange-traded fund markets.
ETF Outflows Compound Selling Pressure
Significant pressure is emerging from the fund sector. According to data from SoSoValue reported by Yahoo Finance, the twelve US-listed spot Bitcoin ETFs recorded net outflows of $1.6 billion in January 2026. This marked the third consecutive month of negative flows. Cumulatively, outflows over this three-month period reached approximately $6 billion, representing the longest withdrawal streak since these products were approved in January 2024.
These outflows are more than a sentiment indicator; they represent actual capital being withdrawn at the ETF level, which can directly weigh on the spot market.
A Fed Nomination Acts as a Catalyst
The pace of selling accelerated following US President Donald Trump’s Friday nomination of Kevin Warsh as a candidate for Fed Chair. Warsh is viewed as an advocate for a smaller Federal Reserve balance sheet. This perception strikes a nerve: many market participants interpret a reduced Fed balance sheet as leading to less liquidity circulating within the financial system.
Historically, this liquidity has served as a crucial tailwind for risk assets, with cryptocurrencies often among the primary beneficiaries. Economist Brian Jacobsen of Annex Wealth Management noted to Reuters that liquidity, due to a combination of a large Fed balance sheet and strict bank regulation, had been “trapped on Wall Street.” A reversal in this environment can accelerate price adjustments, especially given the tendency for crypto market movements to quickly reinforce themselves.
For context: On Friday, Bitcoin declined by -5.15%, hitting a 52-week low in the available price data.
Derivatives Signal a Shift Toward Hedging
The options market is sending a concurrent signal: investors are increasingly seeking protection. On Deribit, the notional open interest for put options with a $75,000 strike price has risen to $1.159 billion. This brings it nearly level with the open interest for bullish $100,000 call options, which stands at $1.168 billion.
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This denotes a noticeable shift in sentiment compared to the period following Trump’s election victory, when higher call strikes were in high demand. The substantial purchase of puts over the prior 48 hours suggests, as reported by CoinDesk, that options traders and hedge funds had at least factored in the possibility of a move toward these price levels.
Key Developments at a Glance:
* Warsh’s nomination fuels concerns over declining market liquidity.
* Put demand rises: $75,000 puts nearly match $100,000 calls.
* The ETF market contributes additional selling pressure via sustained outflows.
Regulatory Progress Continues Amid Risk-Off Sentiment
Despite the price correction, legislative processes in Washington advance. On January 29, the Senate Agriculture Committee voted (12–11) to advance the Digital Commodity Intermediaries Act. This marks the first time a major crypto market structure bill has moved beyond a Senate committee stage. Furthermore, Reuters reported a January 27 meeting at the White House involving bank and crypto executives to explore a compromise on pending regulation.
In the short term, however, a “risk-off” environment dominates. Parallel events, such as the sharp sell-off in silver on January 30 (described by CNBC as its largest single-day drop since 1980), have further dampened risk appetite among many investors.
Bitcoin has shown relative stability within this climate. With a dominance of roughly 57.3% of the total crypto market (per CoinGecko), BTC has held up better than many alternative coins during this correction.
The market dynamics ultimately converge on a central theme: as long as fears over liquidity, hedging pressure in derivatives, and ETF outflows persist concurrently, Bitcoin remains vulnerable to further periods of weakness—even as regulatory developments may prove constructive over the longer term.
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