Bitcoin Market Faces Volatility Amid Liquidity Crisis
By: Eliza Bennet
The Bitcoin market has experienced a tumultuous start to 2026, with its price dropping below significant psychological thresholds. Early trading on January 21 saw Bitcoin fall below $90,000, hitting a session low of $87,282, a move that erased all the gains made at the start of the year. This decline in the largest cryptocurrency by market capitalization kicked off a broader market sell-off, affecting major altcoins like Ethereum, XRP, Cardano, and Solana, which all mirrored Bitcoin's downturn. The sell-off is part of a two-day slide reminiscent of the price levels seen in late 2025, derailing the bullish momentum of early January.
The sharp reversal in prices was, in part, due to a combination of derivatives liquidations and genuine supply pressures. Over-leveraged long positions saw $1.5 billion liquidated as prices fell, triggering a cascade of forced sell orders in futures markets. Analysts highlighted the role of liquidation cascades, which forced prices downward even further. Data from CoinGlass indicated that this was not an isolated futures event, as aggressive spot market selling also played a critical role. On January 20, CryptoQuant reported a net taker volume of -$319 million, showing significant selling pressure as traders scrambled to exit positions.
The downturn has been further compounded by external macroeconomic factors, particularly the fallout from Japanese government bond market instability. This crisis, termed "Japanic," has caused a ripple effect, putting downward pressure on global risk assets, including Bitcoin. The fall of the Japanese 20-year government bond auction's bid-to-cover ratio to its lowest levels has sparked fears of a lack of demand for Japanese debt. Analysts suggest that this uncertainty, alongside U.S. trade tariffs and global liquidity tightening, has created a hostile environment for Bitcoin and other risk assets. Large Japanese investors have retreated to domestic assets, exacerbating liquidity problems and increasing volatility across international markets.
Despite these challenges, some experts view this correction as a standard part of the volatile nature of cryptocurrency markets. However, the sentiment among traders remains cautious, as observed by shifts in Bitcoin options markets, with increased demand for downside protection. CryptoQuant notes a critical support range around $89,800 to $90,000, which is pivotal for short-term market recovery. For sustained positive momentum, breaching this range remains essential. As the market waits on macroeconomic developments, particularly from the Japanese bond market influence and U.S. trade policies, Bitcoin's price movement will likely remain unpredictable.
