MarketsRegulation
|4 min ReadAfter the washout, crypto’s soil looks richer
Maya Chen
Senior Analyst
Published
Jan 16, 2026
A policy shock and a cascade
Late Friday, a Washington jolt hit a market that never sleeps. President Trump threatened a 100 percent tariff on Chinese goods. With stocks closed, crypto took the first punch. Price gaps widened, liquidity thinned, and leverage cracked. Another shock landed when U.S. and U.K. authorities unveiled a sweep against a Cambodia-based fraud network, including custody of roughly $15 billion in Bitcoin. Worries about large off-exchange holdings rose. Risk appetite stayed weak.
The weekend rout erased about 110,000. Ether slipped under $4,000. Altcoins fell harder on thin books. Forced liquidations drove most prints. DeFi activity spiked into the scramble. DEX volumes climbed, and protocol fees jumped. Solana saw two-way flow, rebounding after the weekend while weekly returns stayed negative. These are the fingerprints of funding stress, not broken protocols. That matters for repair once volatility cools. Very important. Very telling.
Data firms called it a record one-day liquidation. Trade headlines tied to tariffs and new port fees pushed de-risking across futures and spot pairs. By Tuesday, bounce attempts met supply. Equity proxies linked to crypto fell in step. “Last Friday, you saw volatility just jump across the board, not only for short-dated, but also for long-dated maturities. The sentiment around short-dated volatility is that more people are worried about downward turns,” said Derive.xyz Head of Research Sean Dawson, according to Reuters.
How traders felt the squeeze
Across desks, the mechanics looked the same. Margin calls. Forced unwinds. Wide spreads. Market makers cut inventory risk. Funding reset across major venues. Open interest fell. Some retail cohorts rotated to stablecoins. ETF flows slowed during the drawdown. Several trading teams framed the shock as a stress test rather than a structural break. On-chain forensics now track the sanctioned network and its wallets, mapping laundering paths and mining links. Tighter screening can improve the free float once the dust settles. When the bad coins get pulled, the remaining supply looks cleaner. That’s how you build back stronger.
Why deleveraging sets up the next phase
Deleveraging removes excess. It lowers the chance of another disorderly cascade near term. In past cycles, steadier advances often followed after funding and basis reset. Three indicators matter now:
Net creations into spot ETFs. Stablecoin issuance growth. Order book depth on top pairs during Asia and Europe sessions. When those lines turn, price repair often follows. It’s not magic. It’s plumbing.
Policy risk still drives swings. Trade headlines can shock liquidity again. Enforcement that removes criminal supply can raise institutional comfort. If tariff rhetoric cools and ETF demand returns, the crash can clear excess, deepen books, and re-anchor valuations in stronger hands. That’s healthy. That’s how you get a durable base. Tremendous, if it sticks.
Rotation map: from majors to throughput and use-cases
Rotations follow a familiar path. Large caps stabilize first. Then come high-throughput chains and DeFi with rising fees and active addresses. After that, themes tied to real-world use can catch a bid: tokenized assets, restaking, DePIN, AI compute, and messenger-driven networks. The key is not stories. It’s cash flows, users, and share gains that show up in the data.
Build a watchlist across BTC, ETH, Solana, TON, and leading RWA names. Track protocol fees, active addresses, DEX share, and the spot-to-perpetual volume mix. When these rise together with calmer funding, you’re seeing base-building, not a dead-cat. It’s simple. It’s measurable. It works.
What matters now, practically
First, respect depth. Thin books punish leverage. If you size like it’s 2021, you will donate. Second, prioritize clean float. Enforcement that drains tainted supply is a feature, not a bug. Third, watch the cross-asset cues. If ETF creations turn positive, stablecoin floats expand, and Asia/Europe depth improves, the stage is set. If they don’t, patience is a position.
Finally, remember what the washout does. It clears weak hands, resets funding, and shifts coins toward holders with time. That’s the soil where the next move grows. Big moves often start when the timeline shortens, the leverage cools, and the data trends turn up. Very big. Very strong. But earned, not gifted.
The weekend was a test. Crypto got a passing grade. Now the rebuild is about discipline: track the plumbing, let depth return, and rotate into the lines where fees, users, and liquidity move together. That’s how you turn a crash into a foundation.
Disclaimer: This document is intended for informational and entertainment purposes only. The views expressed in this document are not, and should not be taken as, investment advice or recommendations. Recipients should do their own due diligence, taking into account their specific financial circumstances, investment objectives and risk tolerance, which are not considered here, before investing. This document is not an offer, or the solicitation of an offer, to buy or sell any of the assets mentioned.