Source: Bitwise;Compiled by: Jinse Finance
Crypto assets suffered a sharp sell-off due to ETF outflows and futures liquidations, and while market expectations for interest rate cuts were mixed, the nomination of a candidate considered a Fed hawk exacerbated short-term volatility. This week's chart: Bitcoin's 2-year rolling MVRV z-score has fallen to an all-time low, indicating its valuation has remained historically low. Contrarian signals are converging: market sentiment has become extremely pessimistic—the crypto sentiment index has fallen to extreme levels—while reflation signals in precious metals and the ISM trend suggest an improving macroeconomic environment.
Bitcoin: MVRV (2-Year Rolling Z-Score)
Last week, crypto assets were sold off due to large net outflows from exchange-traded products (ETFs) and the liquidation of long futures contracts exacerbating the price pullback. Some analysts attributed the sell-off to Kevin Warsh's nomination as the new president of the Federal Reserve. Warsh is generally considered a "hawk" on monetary policy, implying a future trend towards tightening monetary policy, which is often a negative factor for Bitcoin and crypto assets.
Bitcoin: MVRV (2-Year Rolling Z-Score)
Last week, crypto assets were sold off due to large net outflows from exchange-traded products (ETFs) and the liquidation of long futures contracts exacerbating the price pullback. Some analysts attributed the sell-off to Kevin Warsh's nomination as the new president of the Federal Reserve. Warsh is generally considered a "hawk" on monetary policy, which implies a future trend towards tightening monetary policy, often a negative factor for Bitcoin and crypto assets.
Warsh is generally considered Despite this, Warsh has also praised Bitcoin, believing it can serve as a "good watchdog of policy," meaning that if monetary or fiscal policy becomes too loose, Bitcoin's price could send a positive signal, reminding policymakers to curb (excessive) spending. Following Warsh's nomination, expectations for short-term Fed rate cuts rose, while long-term rate cut expectations fell. In other words, the market expects Warsh to cut rates further in the short term, but smaller rate cuts in the long term—a mixed expectation. On the positive side, the recent correction has made Bitcoin's valuation very attractive—the 2-year rolling z-score of the market capitalization to intrinsic value (MVRV) ratio has fallen to its lowest level ever, effectively indicating that Bitcoin is in a "valuation sell-off" phase (this week's chart). Furthermore, our crypto sentiment index has again issued a contrarian buy signal, with sentiment readings as pessimistic as during the October 11 liquidation crash. Therefore, current market sentiment and valuation metrics both indicate that crypto asset valuation and sentiment levels are diverging from historical averages. Furthermore, we believe the recent rise in precious metals is a clear signal of a global inflation recovery, which will boost overall economic activity (ISM Manufacturing Index) and could catalyze a recovery in risk appetite. Generally, a rise in the ISM Manufacturing Index is often associated with a bull market in Bitcoin and other crypto assets. In fact, yesterday's ISM Manufacturing Index may have differed from market expectations, as the consensus forecast was relatively pessimistic (around 48.5), while regional Purchasing Managers' Index (PMI) readings were above 50. This coincides with the renewed acceleration in precious metal prices, indicating a global economic recovery. In the short term, Bitcoin prices are highly likely to rebound to above $80,000, as the recent sell-off created one of the largest price gaps in the history of Chicago Mercantile Exchange (CME) futures. Historically, over 90% of Bitcoin "CME gaps" are filled within the following trading week. In summary, we believe that bearish sentiment, a "sell-off," and the upcoming global inflation scenario could create an asymmetric risk-reward profile for Bitcoin and other crypto assets. Cross-Asset Performance (Last Week to Date) [Image source: Bloomberg, Coinmarketcap; all performance figures are in USD except for German government bond futures]
Top 10 Best-Performing Crypto Assets So far last week
Source: Coinmarketcap
Overall, among the top 10 crypto assets, Hyperliquid, TRON, and Bitcoin Cash performed relatively well.
Overall, altcoins' performance relative to Bitcoin declined again last week. Among the altcoins we track, only 15% outperformed Bitcoin on a weekly basis. Ethereum also underperformed Bitcoin last week.
Market Sentiment Our internal “Crypto Asset Sentiment Index” has dropped significantly, signaling a contrarian buy. Currently, 2 out of 15 indicators are above their short-term trend lines. Last week, only the Bitcoin hedge fund beta coefficient and cross-asset risk appetite showed positive momentum. As of this morning, the Crypto Fear & Greed Index shows market sentiment at “Extreme Fear” levels. The index was in the “Fear” or “Extreme Fear” range throughout November and December, although it briefly turned into the “Greed” range in early January. It has been in the “Extreme Fear” range since February. The dispersion of crypto asset performance decreased slightly last week, from 0.31 to 0.24. Higher dispersion may mean that the market appears to be driven by a more diversified narrative, which is often a sign of rising risk appetite. Last week, altcoins underperformed Bitcoin, with approximately 15% of the altcoins we track underperforming. Ethereum also lagged behind Bitcoin. Overall, strong (or weak) altcoin performance tends to be a sign of rising (or falling) risk appetite in the crypto asset market. According to our internal Cross-Asset Risk Aversion (CARA) metric, sentiment in traditional financial markets declined to 0.68. This is a significant divergence between sentiment in traditional financial markets and the crypto asset market and should be closely monitored. Fund Flows Last week, global cryptocurrency ETFs saw significant net outflows, encompassing Bitcoin and Ethereum products, basket and thematic products, and other cryptocurrency products excluding ETH. Global cryptocurrency ETFs saw net outflows of approximately $1.7254 billion across all crypto assets this week, compared to a net outflow of $1.811 billion the previous week. Last week, global Bitcoin ETFs saw a net outflow of $1.3464 billion, with $1.4877 billion of that net outflow related to US spot Bitcoin ETFs. The US Bitwise Bitcoin ETF (BITB) experienced a net outflow of $112.5 million last week. In Europe, the Bitwise Physical Bitcoin ETF (BTCE) experienced a net outflow equivalent to $3.9 million, while the Bitwise Core Bitcoin ETP (BTC1) experienced a net outflow of $500,000. Last week, the Grayscale Bitcoin Trust (GBTC) saw a net outflow of $119.4 million, and the iShares Bitcoin Trust (IBIT) saw a net outflow of approximately $947.2 million. Meanwhile, global Ethereum ETFs also experienced a net outflow of $330.3 million last week, with US spot Ethereum ETFs recording a total net outflow of approximately $326.9 million. Grayscale Ethereum Trust (ETHE) recorded a net outflow of $27.6 million, and iShares Ethereum Trust (ETHA) also recorded a net outflow of $263.9 million. The US-based Bitwise Ethereum ETF (ETHW) recorded a net outflow of $2 million. In Europe, Bitwise Physical Ethereum ETP (ZETH) saw a slight net outflow of -$0.5 million, while Bitwise Ethereum Staking ETP (ET32) saw a net inflow of +$0.2 million. Excluding Ethereum, other cryptocurrency ETPs saw a net outflow of $48 million last week. Thematic and basket-type cryptocurrency ETPs saw a combined net outflow of $500,000 last week. However, the Bitwise MSCI Digital Asset Selection 20 ETP (DA20) saw a combined net inflow of $400,000 last week. Global cryptocurrency hedge funds increased their exposure to Bitcoin last week. As of yesterday's close, the 20-day rolling beta of global cryptocurrency hedge funds on Bitcoin rose from 0.82 to 0.94. Bitcoin's price continued its decline, falling to a low of $74,700 and breaking below the November 2025 low. This move solidified the current weekly downtrend and marked the largest drop since the cycle's all-time high of -38.4%. Consequently, the rolling quarterly return has fallen to -28.9%, with only 12% of trading days recording a worse three-month return, highlighting the severity of the recent decline. Bitcoin has entered the "air-gap" zone between $70,000 and $80,000, a zone historically characterized by relatively low trading volume. Technical analysis also confirms this, with very limited trading time within this range. Prices repeatedly test investor demand in these low-trading areas, so such zones frequently reappear. A positive sign is that Bitcoin has continued to flow from weaker investors to stronger investors within this range. Selling pressure on exchanges has intensified, with intraday spot buying minus selling falling to a low of approximately -$2.1 billion, and only 1.8% of trading days experiencing greater dollar-denominated selling pressure. This highlights the persistence of distribution in the current market environment. Investor pressure has risen sharply. Loss-making capital value has surged to a record high of approximately $873 billion, representing 78% of all invested capital, with only 20% of trading days exceeding this loss ratio. Meanwhile, the total unrealized losses of various loss-making tokens have expanded to approximately $175 billion, the highest since the FTX crisis, equivalent to a loss of approximately $19,800 per token. During market downturns, selling intensifies, with realized losses peaking at nearly $740 million, plunging the market into a loss-dominated situation where capital losses exceed new inflows. While short-term holders remain the primary source of realized losses, losses among long-term holders are also increasing, indicating that buyers who paid higher prices over the past two years are beginning to sell, a behavior typically seen during periods of deep market downturns. Despite the increased actual losses, they remain relatively small relative to the total dollar value invested in the asset. This means that while the absolute value of capital losses is large, they remain negligible relative to Bitcoin's overall capital base. Therefore, there are two possible explanations: either a complete capitulation has not yet occurred, or investors' ability to cut losses is diminishing even as prices continue to fall. In the search for support, key structural cost bases, including the average investor purchase price, the strategic funding cost base, and the total cost base of the US spot Bitcoin ETF, converged to form a dense support zone in the $82,000 to $75,000 range. This area also overlaps with the previously identified $70,000 to $80,000 volume gap, further reinforcing its importance as a key defensive area and a benchmark area for market bottom formation. Furthermore, the previous cycle's near-record high of $69,000 and the consolidation zone of 2024 reinforced support at the edge of the range. If the market contracts further, the actual price ($56,000) and the 200-week moving average ($58,000) define the most likely area for an eventual decline in a complete capitulation scenario, although we currently consider this highly unlikely. It's worth noting that a range of on-chain and technical valuation metrics, including the AVIV ratio, STH-MVRV, and Mayer multiple, suggest the market is becoming increasingly undervalued. This shift improves the risk-reward profile for new entrants and helps establish a rising demand floor. Overall, the market situation remains precarious, with investor pressure continuing to build. Valuation metrics indicate that current prices are severely undervalued, with the $70,000 to $80,000 range considered a high-demand area and a fundamental area for market bottom formation. However, $75,000 is currently a control point within this range. A break below this level could trigger further declines, with the actual trading price and the 200-week moving average becoming the ultimate downside targets. Futures, Options, and Perpetual Contracts Over the past week, open interest in Bitcoin perpetual futures contracts decreased by approximately 105,000 Bitcoins, while open interest in CME futures contracts decreased by 138,000 Bitcoins, indicating a contraction in institutional holdings. This may reflect that spot trading is being liquidated as prices fall, thus putting additional downward pressure on the market. With the price plunge, futures long positions have been liquidated on a massive scale, with $901 million, $1.25 billion, and $2.41 billion in long positions liquidated over three consecutive trading days. Only three trading days in history have seen higher liquidation peaks, highlighting the severity of the recent market crash. From a positioning perspective, short futures open interest began rebuilding around $91,000, while long positions accumulated around $72,000, together defining the general range of the medium-term trading range. While perpetual contract funding rates declined, they remained positive, indicating a slight bullish bias among futures investors, highlighting a degree of optimism and an attempt to buy on dips. A constructive observation is that funding rates have turned negative. Meanwhile, the three-month annualized basis for Bitcoin narrowed further to just 3.4%, the lowest level since October 2023. In fact, such a low basis level is consistent with a safe-haven market. In the options market, Bitcoin options open interest decreased by approximately 58,400 contracts before expiring in January, bringing the total open interest down to approximately 321,000 contracts. Meanwhile, Deribit's put/call open interest ratio surged from 0.72 to 0.77, reaching its highest level since May 2021; the IBIT ratio also climbed to 0.60, with both roughly in tandem. These signs indicate that while defensive positioning remains high, the demand for additional downside protection is growing rapidly. Furthermore, the 25-week delta skew remains high, suggesting an increase in both short- and medium-term downside protection premiums. Notably, the 1-week skew surged to 18%, one of the highest levels this period, comparable to levels during the unwinding of yen carry trades and before the October deleveraging event, highlighting the recent increase in risk sensitivity. Finally, across most of the $50,000 to $82,000 range, options traders have negative gamma positions, meaning that their hedging activities amplify price volatility and thus amplify price movements. Conversely, a small positive gamma area exists around $75,000, confirming our view that $75,000 is the next market control point. In summary, this structure indicates high volatility in this range. Furthermore, a large positive gamma node exists around $85,000, forming a significant structural resistance level that may be difficult to break without a significant change in demand. Conclusion: Crypto assets experienced a significant sell-off due to ETP fund outflows and futures liquidations, and despite mixed market expectations for interest rate cuts, the nomination of a candidate considered a Fed hawk exacerbated short-term volatility. This week's chart: Bitcoin's 2-year rolling MVRV z-score has fallen to an all-time low, indicating that its valuation has been historically low. 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