Bitcoin Sell-Off Returns, Short-Term Selling Pressure at Its Strongest Since December 23

Bitcoin fell to $91,544 on January 7, marking a 3% drop from a local high near $94,400. The move triggered over $440 million in liquidations, as traders unwound leveraged positions amid sharp price swings according to Decrypt.

The initial surge in early 2026 was driven by easing year-end liquidity strains and growing expectations for Federal Reserve rate cuts. The broader crypto market saw gains of about $250 billion in market capitalization during this period.

Analysts suggest that the rally lacked sufficient leverage and momentum to sustain higher prices. "The market has not yet entered an 'offensive state' driven by the resonance of sentiment and high leverage," noted Tim Sun of HashKey Group.

What caused the sudden drop? MSCI's decision not to exclude crypto treasury stocks like MicroStrategy from its indexes removed a potential source of institutional selling pressure. This move prevented passive funds from being forced to sell, which had been a concern for crypto bulls.

Bitcoin's recent volatility highlights structural fragility in the market. The rally was described as "conservative" with low volatility and leverage, according to HashKey's analysis.

Short-term selling pressure has intensified as the Yen carry trade unwinds. The Bank of Japan's rate hikes increased the cost of Yen-based borrowing, shifting capital away from risk-on assets like Bitcoin.

Why Did This Happen?

The unwinding of the Yen carry trade has led to liquidity outflows from Bitcoin and altcoins. Investors repaying Yen-denominated loans are shifting capital to safer assets, weighing on bullish sentiment.

Bitcoin's recent dip to $92K was also accompanied by $243 million in outflows from U.S. spot Bitcoin ETFs on Tuesday, with Fidelity's FBTC experiencing the largest redemptions.

Analysts see these outflows as tactical repositioning rather than a loss of long-term conviction. "The recent ETF outflows look more like a normalization after stronger inflows at the start of the year," said Illia Otychenko of CEX.IO.

How Did Markets Respond?

Despite the pullback, some investors remain bullish. Prediction market Myriad users placed a 76% probability that Bitcoin will reach $100,000 rather than $69,000.

Strategy, the largest corporate holder of Bitcoin, continued to add to its BTC portfolio in early 2026, despite reporting a $17 billion paper loss in Q4. The company's latest purchase brought its total holdings to 673,783 BTC, valued at roughly $62.6 billion.

Meanwhile, altcoins saw relative strength in the ETF space. Spot Ethereum and Solana ETFs recorded inflows of $114.74 million and $19.12 million, respectively.

What Are Analysts Watching Next?

Looking ahead, analysts are monitoring how institutional allocations via spot ETFs develop. Tim Sun expects these flows to absorb long-term capital and reduce Bitcoin's dependence on short-term sentiment.

The broader market is also filtering out speculative projects, with infrastructure, payment settlements, and real-world applications likely to benefit.

Bitcoin's price action must rally above $100,000 in the coming weeks to invalidate a bearish macro outlook, according to market observers.

The unwinding of the Yen carry trade remains a near-term risk, but analysts believe bullish fundamentals will dominate if the Fed continues its rate-cut trajectory.

Investors are also watching developments in U.S. banking regulation, as Federal Reserve Vice Chair Michelle Bowman outlined modernization efforts to enhance transparency and efficiency.

In conclusion, the recent Bitcoin sell-off reflects a consolidation phase rather than a long-term downturn. Market participants remain cautiously optimistic, with institutional buying and ETF inflows providing a buffer against short-term volatility.