Bitcoin's "Liquidity Siege"

Bitcoin, which was originally expected to quickly surpass $100,000, has suddenly fallen back to the $80,000 range.

But what's even more disheartening for the crypto community is that outside the crypto world, the scenery is uniquely bright. Gold and silver have hit new highs again, with gold breaking through $5,000. The Russell 2000 index has outperformed the S&P 500 for 11 consecutive days, and China's STAR 50 index has gained over 15% in a single month.

The jest of the "ABC Investment Strategy" (Anything But Crypto) continues to play out in reality. Why is everything rising except the crypto market? And why has the crypto market, after welcoming Trump, been in a persistent "decline"?

From macro to micro, from external to internal, the market seems to be brewing a larger storm: the White House faces another shutdown, Japan continues monetary tightening, uncertainty surrounding Trump and his policies, and capital flight and meme coin "blood-sucking" within the crypto market.

The Macro "Three Mountains"

The White House is About to "Shut Down" Again

The U.S. government is once again on the brink of a shutdown. Due to another fatal shooting involving federal law enforcement officers in Minnesota, Democratic senators collectively opposed a funding bill that included the Department of Homeland Security budget, causing the shutdown risk on Polymarket for January 30th to surge to 80%.

A government shutdown means frozen fiscal spending, with hundreds of billions of dollars locked in the Treasury General Account (TGA), unable to flow into the market. The TGA becomes a financial black hole that only absorbs but never releases, draining liquidity from the market. The shutdown in October 2025 sucked over $200 billion from the market in just 20 days, comparable to multiple rounds of interest rate hikes.

When bank reserves are massively siphoned by the TGA, the cost of capital in the market soars. The first to feel the chill is always the crypto market, which is most sensitive to liquidity.

Looking back at the 43-day shutdown in October 2025, Bitcoin's price action was quite dramatic:

• Early Shutdown (Oct 1-10): Bitcoin hit a new all-time high of $126,500 on October 6th. The market generally believed the government shutdown would highlight the value of decentralized currency.

• Mid-Shutdown (Oct 11 - Nov 4): The shutdown lasted longer than anyone imagined. During this policy vacuum period when everyone thought the worst was over, the crypto market experienced the "1011" liquidity black swan event, plummeting to $102,000, a drop of over 20% from the peak.

• Late Shutdown (Nov 5-12): The price oscillated around $110,000, not immediately rebounding as the shutdown was about to end.

Once bitten, twice shy. This time, the market's reaction to the potential government shutdown has been more direct and rapid. Within 24 hours of the shutdown risk surging, Bitcoin fell from $92,000 to below $88,000. The market seems to have learned from last time, no longer viewing a government shutdown as a positive, but directly pricing it as a liquidity negative.

Japan's "Butterfly Effect"

Another straw breaking the camel's back comes from Tokyo. On January 19-20, 2026, the yield on Japan's 10-year government bond soared to 2.330%, hitting a 27-year high.

Expectations of BOJ rate hikes and fiscal expansion push bond yields to highest since 1999

Behind this is the reversal of the yen carry trade. In the past, investors borrowed low-interest yen, converted it to dollars, and invested in high-yield assets (like U.S. Treasuries and Bitcoin).

But now, the Bank of Japan has begun raising rates (increased to 0.75% in December 2025), and the new Prime Minister, Sanae Takaichi, announced an end to fiscal austerity, planning large-scale investment and tax cuts. This has sparked serious market concerns about Japan's fiscal health, leading to bond selling and surging yields.

More importantly, Japan's economic fundamentals are supporting this high-interest-rate trend becoming long-term. Data from Japan's Ministry of Internal Affairs and Communications shows that in November 2025, Japan's unemployment rate remained stable at 2.6%, marking 59 consecutive months of "full employment." The strength of the labor market gives the BOJ confidence to continue raising rates. This Friday (January 31st), Japan will release its December unemployment rate, widely expected to remain low, further reinforcing rate hike expectations.

The surge in Japanese bond yields pushes up global borrowing costs and further compresses the spread for yen carry trades. Carry traders are forced to unwind their positions, selling dollar-denominated assets to buy back yen. The resulting global market liquidity squeeze seems set to continue.

The "Risk-Off Period" Before Key Data

At 3 AM Beijing time this Thursday, the Fed's FOMC will announce its interest rate decision, followed by a press conference by Fed Chair Powell. On Friday, Japan will release its December unemployment rate, and the U.S. will release its December PPI data.

During this key week of data releases, large capital generally chooses to enter a "silent period," reducing risk exposure and waiting for uncertainties to resolve. This risk-off sentiment further exacerbates selling pressure in the market.

Historical data shows that in the 5-7 days before an FOMC decision announcement, Bitcoin prices often show weakness, following a "pre-meeting dip" pattern. For example, before the December 2025 FOMC meeting, Bitcoin retreated from a high of $94,000 to around $90,000. Before the October 2025 meeting, Bitcoin also fell from $116,000 to below $112,000.

Behind this pattern is the risk-off operations of large institutional investors. Before the Fed's policy becomes clear, they tend to reduce positions in risk assets to prepare for potentially unexpected policy changes.

The Liquidity "Seesaw"

Without incremental macro liquidity, both global markets and the internal crypto market face a zero-sum game of existing liquidity. Crypto liquidity is being siphoned by all markets, while the liquidity of mainstream coins like BTC is being siphoned by meme coins.

Bitcoin ETF vs. Gold ETF

If macro factors are long-term worries, then the flow of funds is a more immediate concern.

The approval of spot Bitcoin ETFs in early 2025 was once seen as the "engine" of the bull market. But data shows that since mid-January, the pace of ETF inflows has significantly slowed, even showing net outflows for 5 consecutive days, totaling $1.7 billion.

Meanwhile, gold and silver ETFs continue to attract capital. In 2025, gold ETFs recorded their strongest inflows since 2020, with total holdings increasing by over 220 tons.

Entering 2026, this trend continues. In the first three weeks of January alone, net inflows into precious metal ETFs like gold and silver reached $4 billion.

Precious metal ETFs have seen total inflows of ~$4B since January | Source: ETF Action

This stark contrast reflects a fundamental shift in market risk appetite. Against a backdrop of heightened macro uncertainty, capital is flowing from high-risk Bitcoin to traditional safe-haven assets like gold and silver.

Meme Coins Are Sucking Blood Again

Amid the macro winter, the crypto market presents a starkly divided scene. On one side, Bitcoin continues its slow decline; on the other, meme coins are partying.

A Solana meme coin named "Nietzschean Penguin" ($PENGUIN) surged a hundredfold in two days after the official White House Twitter account posted an AI-generated image of Trump with a penguin, briefly reaching a market cap of $170 million.

Behind this phenomenon is extreme market sentiment suppression.

When macro narratives fail, value investing fails, ETF-driven incremental inflows slow, and the crypto market loses its wealth effect post-"1011," existing capital rushes into meme coins seeking short-term riches.

This is a mentality of "end-of-the-world revelry" and "wanting to break even": since value coins aren't rising, one might as well gamble on "air coins."

But often, this "chasing pumps" and "break-even" sentiment among investors is more easily captured and harvested by "scheme operators." The fact that "Nietzschean Penguin" received multiple retweets from A16Z, Solana's official Twitter, the White House, and Musk's account within two days suggests it was "well-prepared."

The White House official Twitter posted three "penguin"-related tweets in two days

Looking back, after every hot, sentiment-driven, and well-backed "pump and dump" like $Trump or $币安人生, a broader market crash seemed to follow. The spread of this sentiment further drains liquidity from mainstream coins, creating a vicious cycle.

It's just that current crypto liquidity is much worse than in December 2024 or October 2025, so despite the White House and major Twitter accounts catalyzing its growth, "Nietzschean Penguin's" ceiling currently remains below $200M.

Will the Storm Continue?

Although debate about BTC's "four-year cycle" is intensifying, since Bitcoin fell below $110,000 on October 11, 2025, the crypto market seems to have entered a bear market, with liquidity becoming increasingly thin during three months of volatility.

But this time, we face a more complex situation. The market's short-term direction will depend on political games in Washington, signals from the Fed, and the earnings reports of tech giants.

From a longer-term perspective, the global economy seems already on edge due to geopolitics, trapped in a debt-liquidity-bubble cycle it cannot escape.

And Trump remains a "bomb" that could detonate at any unknown time.

On January 17th, the Trump administration threatened to impose 10% import tariffs on eight European countries—Denmark, Norway, Sweden, France, Germany, among others—to pressure them on the Greenland issue. Although Trump temporarily dropped the tariff threat after meeting with the NATO Secretary-General on January 21st, the "art of the deal" remains full of uncertainty.

On January 24th, Trump threatened to impose 100% tariffs on all Canadian exports to the U.S. to prevent it from reaching a trade deal with China.

No one can predict what "crazy" move he might make next for his mid-term election campaign.

For investors, now may not be a good time to chase rallies in other assets. In this "January siege," maintaining patience and caution, waiting for the macro fog to clear, might be the only choice.