MarketsBitcoin
|10 min ReadBitcoin ETFs Cool As Leverage Resets And Liquidity Thins
Lucca Menezes
Senior Analyst
Published
Jan 16, 2026
Alpha Briefing: Bitcoin has dropped about 4.9 billion in net outflows, and leverage across futures and DeFi has been flushed, yet spot liquidity for BTC, ETH, SOL and most altcoins remains 30 to 40 percent below earlier levels. Demand from ETFs and digital asset treasuries has softened at the same time that macro has turned risk-off. The system is cleaner and less levered, but until flows and liquidity recover, price action stays fragile and easy to push around.
Crypto wanted an easy “Uptober” victory lap. Instead, the market hit a wall. Bitcoin ripped to new highs, then suffered a violent flash crash that knocked confidence out of the room. Since that break, BTC is down about 3 trillion.
The strange part is this happened in a year full of positive headlines. Spot ETFs, big institutional moves, stronger infrastructure, better regulation. Yet price and sentiment have split. What we are seeing now is not just one bad week. It is a full reset, shaped by a risk-off macro backdrop, weaker ETF and treasury demand, and a deep deleveraging across futures and DeFi. On top of that, spot liquidity is still thin, which means every shock hits harder.
Tanay Ved from Coin Metrics walks through the picture: soft flows from ETFs and digital asset treasuries, leverage pulled out of the system, and order books that still have big holes. The market is at a crossroads. Cleaner than before, yes, but also more exposed to the next big move.
Macro Turns Risk Off And Bitcoin Loses Its Shine
Macro stopped playing nice. Gold has surged with year-to-date returns above 50 percent, powered by central bank buying and trade tensions. At the same time, high-flying technology stocks, including the AI darlings on the Nasdaq, have lost momentum as traders rethink how many rate cuts are coming and how much growth is already priced in.
Coin Metrics’ earlier research shows that Bitcoin tends to oscillate between behaving like risk-on tech and like safe-haven gold, depending on the regime. That makes BTC very sensitive to shocks, both inside and outside crypto. The flash crash earlier in the season and the latest bout of risk-off macro sentiment hit at the same time, and the result has been ugly for prices.
Since Bitcoin still anchors the entire digital asset complex, its drawdown has spilled over into everything else. Most large-cap coins still move tightly in step with BTC, even if short themes like privacy enjoy brief bursts of outperformance. When the anchor drops, the fleet follows.
ETFs And DATs Stop Absorbing The Selling
One reason this slide has felt so heavy is that the big absorption channels have cooled.
For most of the last cycle, spot ETFs and digital asset treasuries behaved like giant sponges. They soaked up supply as it hit the market. That support has weakened. Spot Bitcoin ETFs have now logged several weeks of net outflows totaling about 75,000 before the “Liberation Day” tariff headlines.
Despite those outflows, on-chain ETF holdings are still trending higher overall. BlackRock’s IBIT ETF alone holds roughly 780,000 BTC, around 60 percent of the entire spot ETF stack. A turn back to sustained inflows would be a strong signal that this channel is stabilizing again. Historically, renewed ETF demand has acted as a powerful absorber of supply whenever risk appetite improves.
Digital asset treasuries tell a similar story. As prices drop, the value of their shares and underlying crypto holdings compresses. That squeezes the premium to NAV that powers their growth flywheel. With a weaker premium, these vehicles struggle to raise fresh capital through equity or debt, which limits how much new BTC they can stack per share.
Strategy, the largest DAT, currently holds 649,870 BTC, about 3.2 percent of Bitcoin’s supply, at an average cost of $74,333. Its BTC accumulation ramped up aggressively while prices were rising and its stock valuation was strong, then slowed sharply as market conditions turned. It has not become a major net seller, and it still sits on unrealized gains with cost basis below spot. But the easy mode of aggressive accumulation is on pause.
On-chain profitability backs this up. Short-term holder SOPR, for coins younger than 155 days, has sunk into realized losses of about 23 percent. That is a classic sign of capitulation pressure among the most price-sensitive wallets. Long-term holders are still in profit on average, but their SOPR shows a slight uptick in distribution, which means some profit-taking at the margin. For a healthier picture, you want to see STH SOPR climb back above 1.0 and LTH distribution slow, telling you weak hands are done and strong hands are tightening supply again.
Leverage Gets Flushed From Perps And DeFi
The sharp liquidation wave earlier this season was not just a dramatic chart. It kicked off a full deleveraging cycle that is still shaping the market.
In perpetual futures, forced unwinds hit at a historic scale in just a few hours, wiping out more than 30 percent of open interest that had been building for months. The pain was worst in altcoins and on retail-heavy venues like Hyperliquid, Binance and Bybit, exactly where leverage had piled up the fastest. Even today, aggregate open interest sits well below the pre-crash highs above $90 billion and has drifted lower since. That is a clear sign that a big chunk of leverage has been washed out of the system.
Funding rates tell the same story. BTC funding has cooled to neutral or slightly negative levels, showing that long-side aggression has faded and the market still lacks directional conviction.
DeFi credit markets have been going through the same process, just more slowly. Active loans on Aave V3 have been drifting lower since their recent peak as borrowers reduce leverage and repay debt in response to weaker risk appetite and repriced collateral.
The sharpest pullback has been in stablecoin borrowing. Ethena’s USDe depeg triggered a 65 percent collapse in USDe borrows and a broader shakeout in synthetic-dollar leverage. ETH-based borrowing also shrank. Loans backed by WETH and liquid staking tokens have fallen around 35 to 40 percent, which signals less looping and a downsizing of yield-chasing collateral strategies.
This is what a real deleveraging looks like. Painful in the short run, healthier in the long run. The market today is less stretched, less exposed to cascading margin calls, and closer to neutral positioning.
Thin Order Books Keep Markets On Edge
The problem is that while leverage has reset, spot liquidity has not.
After the big liquidation event, order books across major exchanges thinned out and they have not fully recovered. Top-of-book depth, measured as the amount of BTC, ETH and SOL within 2 percent of the mid-price, is still 30 to 40 percent below where it stood before the crash. That means fewer resting bids and offers. In a structure like that, even modest bursts of buying or selling can move price a lot, increase realized volatility, and magnify the impact of forced flows.
It looks even worse once you move past the majors. Altcoin order books saw an even sharper and more persistent collapse in depth. Market makers have clearly pulled back risk outside the largest names. That makes spreads wider, slippage larger, and price discovery noisier across the long tail.
A broad recovery in spot liquidity would be one of the clearest signs that the market is healing. Deeper books would dampen price impact, make it harder for one seller to dominate the tape, and cushion the next round of liquidations. For now, thin depth is still one of the strongest signals that stress lingers under the surface.
A Cleaner System Waiting For New Flows
Put it all together and you get a simple but powerful picture. Digital asset markets are going through a full recalibration. ETF and DAT demand has cooled. Leverage has been flushed from perps and DeFi. Spot books are still thin. Prices are weaker, but the structure underneath is less levered, more neutral, and more anchored to fundamentals than it was at the top.
Macro, however, is still a headwind. AI equities have stumbled, rate-cut expectations keep shifting, and a broad risk-off tone hangs over everything. For crypto to flip back into a strong uptrend, the market likely needs a sustained return of inflows into ETFs, renewed accumulation from treasuries, renewed growth in stablecoin supply and lending, and a genuine rebound in spot liquidity.
Until those pieces line up, price action will stay a tug-of-war between a cautious macro world on one side and a cleaner but fragile crypto microstructure on the other. It is a healthier system, but it is still on edge, and everybody knows it will not take much to move it in either direction.
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.