The first few weeks of 2026 have been a tumultuous period for the crypto markets. BTC has fallen ~50% from an all-time high of ~$126k on 6th Oct to ~$62k by 5th Feb and is down ~25% year to date (as at 6th Feb).
At Xapo Bank, our priority is to keep you informed and share our observations on some of the key data trends that we monitor closely and our perspective on what the current market conditions could mean for the months ahead.
(Note: this article is not intended to be investment advice.)
Market Insights | January / February 2026
The purpose of this insights report is not to add to the noise of daily market commentary, but to provide context and perspective rooted in our long-term view of the Bitcoin ecosystem. As Xapo Bank has been supporting BTC trading, custody, spending, and investment for over a decade, with clients in over 100 countries, we have witnessed and survived numerous periods of similar market turbulence and feel well-positioned to share our experience and market observations. We see recent Bitcoin price action driven by five components:
The Long Term BTC holder
The Momentum Driven and Arbitrageur Investor
The Pivot to Gold
The ETF investor
The Levered Retail Investor
The current market presents a fascinating divergence. Liquidity and open interest data suggest that Institutional and momentum/speculative-driven investors who helped push BTC to an all-time high are now exiting BTC and pivoting to other assets, namely Gold & Silver.
To the long-term BTC holder, this cycle is not new, and patience, not excitement, remains their core investment approach.
This article explores the structural reasons behind this divergence and discusses how disciplined strategies are evolving for this new phase of BTC investment.
The Tale of Two Markets: Why Gold Shines While Bitcoin Consolidates
Bitcoin's current volatility and extreme price action is a confluence of four key factors:
1. The BTC Long Term Holder; Cycle-Aware Seller: A significant portion of Bitcoin’s long-term holders, acting on the muscle memory of previous four-year cycles, took profits into strength late last year. This strategic de-risking, not a loss of conviction, created a natural supply overhead that the market now needs to absorb. While many in TradFi thought that the Bitcoin cycle was dead, the reality was drastically different. Bitcoin is an emotional asset class, and muscle memory and the hard lessons learnt in the past made Long Term Holders sell into the middle of the 4-year cycle to take profit.
Source: Glassnode
2. The Rotation: Momentum Driven & Arbitrageur Institutional Investors: A considerable portion of the capital that flowed into Bitcoin last year came from traditional finance players, namely Commodity Trading Advisors (CTAs) & Hedge Funds, looking at arbitrage strategies. CTAs and Hedge Funds were attracted to BTC as an asset class primarily due to the "funding basis”, the difference between the spot price (ETF) vs the futures prices (CME / Perpetual Futures). This BTC “basis” has contracted from more than 10% annualised to ~4% in the last 12 months and has been a significant driver for both CTAs and Hedge Funds to ultimately reduce their exposure. Data supports this rotation as open Interest from CME BTC Futures is down > 60% from ~$18B on October 6th to ~$7B on February 5th. Similarly, should “basis” widen, we can reasonably expect this capital to return to BTC.
3. Pivot to Gold: With basis arbitrage narrowing, much of this capital has now rotated into other markets—including Gold—in search of the next arbitrage or momentum-driven opportunity. The influx of this “hot money”, on top of the structural central bank buying, has helped lead to Gold's all-time highs. The simultaneous rise of Gold and the stagnation of Bitcoin are not contradictory; they are logical outcomes of two very different market structures and buyer profiles. Prominent analysts have noted, the official sector has been a consistent source of demand, providing a deep, structural floor for the market. This creates confidence for other investors, including traditional funds, to follow. As have pointed out, when this structural bid is combined with momentum-driven "hot money," such as arbitrage funds rotating out of other asset classes, the result is a powerful and resilient uptrend.
Source: MacroMicro
4. US BTC ETFs: A Similar Story of Institutional Exiting: The phenomenal success of the U.S spot BTC ETFs, approved by the SEC and launched in January 2024, was undoubtedly a key factor in driving the BTC price to an all-time high of $126k, given AUM reached ~$200B at peak. However, in line with broader BTC selling, we have seen a similar trend across ETF holders with net redemptions now ~$1.8B across all ETFs year to date (as at October 6) and Blackrock’s IBIT ETF breaching a record daily volume of $10B on February 5th in response to the extreme volatility. ETF flows continue to provide a useful proxy for Institutional demand.
5. The Levered BTC Perpetual Holder: This BTC holder continues to dominate daily liquidity during ‘normal’ trading periods, with perpetual volumes typically accounting for ~60-70% of all daily BTC liquidity. As we witnessed on October 10th, 2025, when $19B in liquidations occurred over 24 hours, we will continue to expect liquidations and unwinds with any significant price action. Data points to ~$8.5B of liquidations year to date.
Institutional Capital may Transition out, but BTC Fundamentals Remain Rock Solid
It is important to remember that the BTC price is not the network. While the market continues to correct and consolidate, our fundamental belief in Bitcoin hasn’t gone anywhere. The hashrate—the measure of the network's security and processing power—remains near all-time highs, proving that the machine is working perfectly even if the market price continues to correct. Furthermore, there is a lot of relevant and important work happening in the regulatory space that will continue to facilitate Bitcoin's longer-term success.What changed is the institutional capital that helped drive BTC to an all-time high has begun to exit BTC, for very clear and observable reasons. It’s worth bearing in mind that despite extreme market turbulence, ($66,000) BTC's price is back to pre-Trump 2024 levels. For comparison, the BTC low post-FTX was $15k. On reflection, despite this aggressive market correction, institutional capital should not be viewed as lost forever and can be expected to reinvest in BTC under different macro market dynamics (wider basis, etc).
Realised BTC Volatility: As evidenced by the below graph, BTC’s realised volatility has been on a consistent and gradual trend lower, outside of the recent market correction. Most critiques of BTC as an asset class point to high volatility as the main barrier for BTC to become a globally adopted digital currency so this is an important trend for us all to observe and monitor.
Filtering the Signal from the Noise: Contextualising Risks
In a market looking for direction, narratives often fill the void. Among the long-term questions we often discuss with members is the emerging topic of . While the prospect of a machine powerful enough to challenge current encryption is rightly taken seriously, it is crucial to place this risk in its proper context to avoid unnecessary alarm.
Firstly, this is not a unique vulnerability of Bitcoin; it is a foundational challenge for the entire digital world, from national security infrastructure to central bank systems. Secondly, the developer community is already actively exploring post-quantum cryptographic solutions.
For the investor today, the immediate impact of "quantum risk" is not technological, but psychological. It represents just another layer of noise in a world already grappling with geopolitical shifts and evolving trade alliances. It contributes to a market climate where many investors are adopting a 'wait-and-see' posture, reinforcing the current consolidation.
Navigating the Doldrums: The Shift to Disciplined Accumulation
This market phase, characterised by lower volatility and the absence of a clear narrative, naturally shifts the focus of the savvy long-term BTC holder. The question is no longer "How high can it go tomorrow?" but rather, "How can I strategically improve my position for the long term?" as BTC is a long-term play.
This mindset has given rise to an industry-wide focus on disciplined accumulation through yield-generating BTC-denominated products. The goal is to make time an ally. By earning a return on assets, holders can steadily increase their Bitcoin position without trying to time the market—a strategy perfectly suited for a period of consolidation.
This evolution is a sign of a maturing market. The emergence of fully regulated, transparent BTC credit funds, for example, which allow miners, family offices, and other large holders to earn a return on their holdings, represents a vital progression away from the opaque risks of the past. It creates a productive use for dormant capital and builds a more robust financial infrastructure around the asset.
We see this shift reflected in the continued interest in our Bitcoin-denominated investment products, which have now surpassed all of our subscription targets. This strong demand continued through Q4 and January despite extreme market turbulence. This validates our view that long-term BTC holders are increasingly prioritising capital efficiency and regulated structures over simple dormant custody.
At Xapo, we have always believed in building for the long term. Our product suite and strategic focus are designed for precisely this kind of market, where trust, security, and the ability to patiently and productively grow your assets are paramount.
This letter is for informational purposes and should not be considered financial advice. We encourage you to speak with your Relationship Manager to discuss how these market dynamics may relate to your own long-term financial strategy, and how you might want to learn about and make use of our suite of Bitcoin accumulation and yield products.
