The cryptocurrency market is exhibiting early signs of recovery in the first quarter of 2026, as the dust settles following the sharp sell-off in December. According to a recent analysis by Coinbase, four key structural indicators suggest that the correction was more of a temporary setback than a regime change. These indicators include new inflows into spot ETFs, a drastic reduction in systemic leverage, improved order book liquidity, and a rotation in options sentiment, all of which point to the market stabilizing.
While traders remain cautious, these metrics imply that the ecosystem is significantly less vulnerable than it was weeks ago, paving the way for a possible bounce. The first and perhaps most visible indicator of a shift in sentiment is the behavior of spot ETFs, which serve as the clearest measure of institutional risk appetite in public data. In the first week of trading of the year, US-listed spot Bitcoin ETFs posted a net performance that was hardly positive, with two days of strong inflows immediately offset by three consecutive days of outflows, resulting in a net gain of approximately $40 million.
Cautious New Risk Taking via ETFs
This choppy, two-sided current profile is hardly the kind of steady, relentless bid that typically guarantees a major breakout. However, the magnitude of this two-day flow suggests that current positioning remains highly tactical. On the other hand, the data for Ethereum paints a slightly more encouraging picture, with ETH spot ETFs recording around $200 million in net inflows during the same period, maintaining a positive balance even after accounting for redemptions at the end of the week.
The Leverage Reset
A key catalyst for turning standard sales into extended market declines is the persistence of elevated leverage, which can “re-collapse” the market through cascading liquidations. A key metric to assess this fragility is systemic leverage, defined as open futures interest relative to market capitalization. At the beginning of January, open interest in Bitcoin futures was around $62 billion, while the market capitalization was nearly $1.8 trillion, putting the ratio of open interest to market cap at around 3.4%, a level low enough to argue that the market is not currently overwhelmed.
However, Ethereum presents a different profile, with an open interest of around $40.3 billion and a market cap of $374 billion, resulting in an ETH quota of around 10.8%. This reflects the asset’s more derivatives-based structure and implies that while ETH rallies are not automatically bearish, they could become more fragile if leverage is allowed to be aggressively rebuilt.
Liquidity and the “Clean Slate”
The third pillar of the recovery thesis is the microstructure of the market, particularly whether order books are robust enough to absorb large flows without causing significant price swings. After the holiday lull, this market “plumbing” is showing signs of improvement, with data from Amberdata indicating that Bitcoin’s order book depth increased to around $631 million, within 100 basis points of the median price, an increase from the seven-day moving average.
Crucially, spreads remained tight, and the balance between buyers and sellers was close to neutral, with Bitcoin’s book split at around 48% bid and 52% ask. This balance is crucial for market stability, as in panic regimes, liquidity tends to evaporate, and order books become heavily stressed on the ask side, turning any attempted recovery into a wall of selling pressure.
What Can We Expect from Bitcoin in the First Quarter?
Looking forward, the options market provides a framework for what will be priced in for the first quarter. Since implied volatility is in the mid-40% range on an annual basis, one standard deviation would place Bitcoin’s expected baseline between $70,000 and $110,000. Within this area, the analysis outlines three different scenarios: the bull case, the base case, and the bear fall.
The bull case assumes consistently positive ETF flows over weeks, not days, and order book depth continuing to increase to support large spot demand. The base case assumes mixed flows and slowly building leverage, with liquidity improving but ongoing macroeconomic uncertainty limiting risk appetite. The bear fall scenario assumes persistent ETF outflows, deteriorating liquidity, and a return to positive territory as traders seek downside protection.
Ultimately, while crypto can recover based on its own internal mechanisms, sustained performance in the first quarter will likely depend on the macroeconomic environment. The early January setup offers asymmetric options: the market is structurally less vulnerable and increasingly open to upside. However, until ETF inflows stabilize in a reliable trend and macroeconomic conditions no longer generate volatility, the “reset” remains a promising approach rather than a guaranteed recovery. Read more about the potential surge in Bitcoin’s price at https://cryptoslate.com/shortest-bear-market-ever-key-metrics-imply-bitcoin-price-could-surge-past-125000-before-april/
