The recent volatility in the cryptocurrency market has indeed caught many off guard. The wave of retracement in early January is not particularly complicated in its cause, but it reflects the multiple contradictions currently present in the market.

From a macro perspective, the ADP employment data falling short of expectations directly triggered market anxiety. Although some Federal Reserve officials have hinted at the possibility of larger rate cuts in 2026, inflation remains a fierce beast that has not been fully tamed, and market confidence in the interest rate path is far from solid. In a high-interest-rate environment, investors naturally shift their funds toward relatively safer assets like bonds rather than continuing to build positions in high-risk assets such as Bitcoin.

What’s more interesting is the change in capital flow. Commodities like gold, silver, and copper have recently been in the spotlight, with gold prices already back to $4,500 per ounce. This is no coincidence—some speculative funds are indeed withdrawing from the crypto space and moving into these more aggressive assets. Additionally, recent net outflows from Bitcoin spot ETFs indicate that institutional investors are taking profits at levels above $92,000, and this profit-taking pressure should not be underestimated.

Technical issues are also quite evident. When Bitcoin approached the $95,000 mark, it faced strong resistance, which is likely the so-called "bull trap"—the price rebounds, but leveraged longs cannot hold on and are forced to liquidate, further accelerating the decline. Moreover, the early January time window is naturally prone to liquidity gaps (due to government bond financing, reserve requirements, and other factors), which amplifies volatility.

Let’s not forget the variable of regulation. New tax and trading reporting rules took effect on January 1st, causing compliance costs for exchanges to jump significantly. This uncertainty naturally causes some investors to hold back. When the market shows any signs of movement, the funds on the sidelines can quickly turn into fleeing capital.