The crypto market is showing the first signs of recovery in the first quarter as the dust finally settles after the sharp sell-off in December.
According to a new one analysis Coinbase shows that four structural indicators suggest the correction was a temporary setback rather than a regime change. New inflows into spot ETFs, a dramatic reduction in systemic leverage, improved order book liquidity and a rotation in options sentiment all point to a stabilizing market.
While traders remain cautious, these numbers indicate that the ecosystem is significantly less vulnerable than weeks ago, paving the way for a possible rebound.
Take cautious re-risk through ETFs
The first and perhaps most visible indicator of changing sentiment lies in the behavior of spot ETFs, which serve as the purest gauge of institutional risk appetite in public data.
During the first trading week of the year, US-listed spot Bitcoin ETFs recorded a net performance that was barely positive. The cohort experienced two days of strong inflows, which were immediately offset by three consecutive days of outflows, resulting in a net addition of approximately $40 million.
This choppy, two-way flow profile is hardly the kind of steady, relentless bid that typically guarantees a big breakout. However, the size of that two-day flow indicates that the current positioning remains highly tactical.
On the other hand, the data for Ethereum paints a slightly more encouraging picture. In the same time frame, spot ETH ETFs saw net inflows of roughly $200 million, maintaining a positive balance even after accounting for late-week redemptions.
This difference is significant because ETH often serves as a higher beta institutional proxy, a vehicle for investors looking to add risk beyond “Bitcoin-only” allocations.
The nuance in these flows tells the broader story of the current market regime. While the return of capital implies that institutions are re-entering the fray, the daily swing in the flow data indicates that beliefs are still coalescing.
To achieve a real rebound in the first quarter, the market will likely need a regime shift from this erratic activity to several consecutive weeks of net inflows.
The lever reset
A primary catalyst for turning regular selloffs into prolonged market declines is the maintenance of elevated debt levels, which can “rebreak” the market through successive liquidations.
A key measure for assessing this vulnerability is systemic leverage, defined as the open interest on futures relative to market capitalization.
At the beginning of January, Bitcoin’s open interest was hovering around $62 billion, while its market cap was almost $1.8 trillion. This places the ratio of open interest to market capitalization at around 3.4%, a low enough level to say the market is not currently overextended.
However, Ethereum presents a different profile. With open interest of approximately $40.3 billion against a market cap of $374 billion, ETH’s ratio is almost 10.8%.
This reflects the asset’s more derivative-heavy structure and implies that ETH rallies, while not automatically bearish, could become more vulnerable if leverage is built aggressively.
Nevertheless, the core thesis remains that the deleveraging in December has provided a healthier basis for price action.
With the speculative surplus removed, the market is theoretically positioned to rise without immediately tripping the kind of liquidation threads that exacerbated December’s volatility, especially if funding rates remain neutral.
Liquidity and the ‘clean slate’
The third pillar of the recovery thesis is the microstructure of the market, specifically whether order books are robust enough to absorb large flows without causing a significant price drop. After the holiday break, this “plumbing” of the market is showing signs of improvement.
Facts Amberdata shows that Bitcoin’s order book depth rose within 100 basis points of the mid-price to around $631 million, up from the seven-day average.
Crucially, spreads remained tight and the balance between buyers and sellers was close to neutral, with Bitcoin’s share being around 48% bid and 52% ask.
This balance is crucial for market stability. In panic regimes, liquidity tends to evaporate and demand-side order books become heavy, turning any attempted rally into a wall of selling pressure.
The return to two-way liquidity increases the chance that an upward move can extend beyond a single session.
Furthermore, the broader liquidity signal, the stablecoin supply, is flashing green. According to data from DeFiLlama, stablecoin supply is almost $307 billion, up about $606 million week-on-week.
While the latest increase is small in context, the targeted growth is consistent with new deployable capital re-entering the ecosystem.
Notably, Binance, the largest cryptocurrency trading platform, has recorded net stablecoin inflows of over $670 million in the past week.
This is supported by the “clean slate” effect in the options market. A large expiration on December 26 freed up a significant portion of the open interest at Glassnode facts highlighting that approximately 45% of positions were reset.
This reduces the risk that the old positioning ‘locks in’ prices.
Additionally, the skew, the premium paid for downside puts versus upside calls, has shifted from strongly positive to slightly negative. This indicates that traders are moving away from panic-driven hedging and toward upside participation.
What should we expect from Bitcoin in the first quarter?
Looking ahead, the options market provides a framework for what is priced in for the first quarter.
With implied volatility hovering around the mid-40% annualized range, a standard deviation would place Bitcoin’s expected baseline between $70,000 and $110,000.
Within this band, the analysis outlines three different scenarios:
- The Bull Case ($105,000 – $125,000): This scenario assumes that ETF flows remain consistently positive for weeks rather than days, and that the order book continues to rise to support high demand in the spot market. If the skew remains neutral to negative and pushes the price through the dealer’s critical ‘gamma zone’, the rally could accelerate.
- The base case ($85k–$105k): Here the flows remain mixed and reconstruction is slowly promoted. Liquidity is improving, but persistent macro uncertainty limits risk appetite, keeping options “well priced” without extreme distortions.
- The Bear Case ($70,000 – $85,000): In this outcome, ETF outflows continue, liquidity deteriorates with widening spreads, and the skew returns to positive as traders rush to seek downside protection. A macro shock, such as rising interest rates or a stronger dollar, would likely lead to deleveraging.
While crypto can recover based on its own internal mechanisms, a sustainable follow-through in the first quarter will likely depend on the macro environment.
The setup at the beginning of January offers asymmetric possibilities: the market is structurally less vulnerable and increasingly open to upward prices.
But until ETF flows stabilize into a reliable trend and macro conditions stop injecting volatility, the reset remains a promising setup rather than a guaranteed recovery.