ETF capital outflows and dual pressure from Federal Reserve expectations: the logic behind the $120 billion evaporation in the crypto market

The cryptocurrency market experienced a clear “cooling down” this week. After the momentum of the January rebound weakened, Bitcoin, Ethereum, and XRP collectively retraced, with the overall market cap evaporating approximately $120 billion. This correction is not an isolated event but a natural result of dual pressures from liquidity and macro expectations. Currently, Bitcoin is trading around $90,922, significantly below the previous high of $94,500.

Liquidity Reversal as the Direct Trigger

The fund flow in the US spot Bitcoin ETF has shown a crucial turning point. Previously, these ETFs continued to attract funds, but in the middle of this week, a clear reversal occurred, with a total outflow of about $729 million over two days. This shift is widely interpreted by the market as a signal of declining risk appetite.

Bitcoin’s price quickly retreated from near $94,500, dropping to the $90,000 level at one point. The breach of this level sends a clear market signal: the upward momentum driven by ETF funds has been exhausted, and the market needs a phase of adjustment.

Federal Reserve Policy Expectations Create “Good News Realization” Trap

Macro-level pressures should not be overlooked either. The market generally expects the Federal Reserve to pause rate hikes at the January 29 meeting, with the probability rising to 86.7%. While this should be positive news, it has instead triggered a correction in risk assets, a phenomenon known as the “good news realization” adjustment.

Policy Expectation Paradox

When the market’s expectation of a Fed pause is too high and fully priced in, the actual realization of this expectation often lacks new upward momentum. Currently, the 3.50%-3.75% interest rate range is expected to persist longer, weakening the market’s bets on a quick easing cycle.

Key Points to Watch Next

Upcoming employment and inflation data will be critical variables influencing future policy paths and the trend of crypto assets. These data points could alter market expectations of the Fed’s policy trajectory and, consequently, impact asset prices.

Asset Divergence: Altcoins Under Greater Pressure

In this correction, different cryptocurrencies have shown significant divergence, with altcoins falling more sharply than Bitcoin.

XRP Risks and Opportunities

XRP has fallen from a high of $2.40 to around $2.00, a decline of about 14%, nearly retracing half of its January gains. The $2.00 level is seen as an important technical support, coinciding with the 50-day moving average.

• Holding above $2.00 could allow for a short-term rebound
• Falling below could lead to further decline toward $1.80

Ethereum’s Directional Choice

ETH has dropped from $3,300 to around $3,000, a decline of about 6%. Technical patterns show that ETH previously formed a symmetrical triangle, and it is now at a stage of directional decision.

• An upward breakout targets $3,600
• A breakdown below $2,900 could open a new downward space

Early Signs of Market Bottom, but Confirmation Needed

Despite short-term pressure, some positive signals are emerging. The altcoin season index has risen from a low of 25 to 57, entering a neutral zone. This suggests that after a phase of adjustment, the market still retains some expectations for a structural rebound in late January.

On the institutional front, BlackRock has withdrawn a total of 7,146 Bitcoin and 6,851 Ethereum from Coinbase over the past two days, possibly reflecting differing views among institutions on current prices. Meanwhile, historical indicators show that the short-term holder profit/loss supply ratio for Bitcoin has rebounded strongly after bottoming in late November, which is often closely associated with market bottoms.

Summary

This correction is fundamentally driven by the release of dual pressures from liquidity and macro expectations. ETF fund outflows have broken the previous upward momentum, and the “good news realization” of Fed policy expectations has weakened further upside potential. Asset divergence indicates declining risk appetite, but early signs of a market bottom are emerging. The subsequent trend will depend on upcoming employment and inflation data, as well as further confirmation from liquidity flows. In the short term, key support levels at $90,000 (BTC), $2.00 (XRP), and $2,900 (ETH) will be important references for judging market direction.