Bitcoin’s liquidity just evaporated – and now this Wall Street feedback loop could wipe out the gains

The U.S. Spot Bitcoin exchange-traded fund recorded three consecutive sessions of net outflows this week, totaling $1.58 billion.

The pullback comes after a short period of positive follow-through that saw a total of $1.134 billion flow out of the category over three consecutive days from Jan. 7 to 9, or about $378 million per day.

At the beginning of the month, flows reversed, with more than $1 billion in net inflows in the first two business days of January and $1.8 billion in net inflows from January 12th to 15th, setting the risk tone at the beginning of the month.

The swing from rapid inflows to multi-session drawdowns has brought renewed attention to ETF flow trends as a short-term positioning read rather than a passive backdrop.

Feedback loops and concentration of selling pressure are also important.

The day of big outflows was led by the largest funds, including BlackRock’s iShares Bitcoin Trust (IBIT) and Fidelity’s Wise Origin Bitcoin Fund (FBTC), which opposed moves through smaller products and idiosyncratic reallocation.

If the largest instruments lead redemptions, flows are more likely to be interpreted as a significant pullback in real money demand. It can also feed through to the mechanisms of the spot market, as creation and redemption are ultimately done via the fund’s spot Bitcoin exposure, whether delivered in-kind or traded in cash via ETF piping.

This connection is why multiple negative sessions are more important than a single print.

In situations of inflows, ETFs can sustain rallies by providing stable margins, reducing the amount of physical selling required to break through key levels.

In an outflow regime, that marginal bid becomes thinner. Redemptions can add supply at a time when discretionary buyers are already pulling out.

When liquidity decreases, the feedback loop becomes more pronounced because selling the same dollar can move the price more.

recent crypto slate Market Note reported that the order book depth is about 30% below the 2025 high. This is a setting where flow-driven sales can have a greater impact on price than deeper books.

What this means for institutional adoption of Bitcoin

The macro context adds context to why ETF flows became a “hot” input in early January.

The surge in U.S. Treasuries is tied to tariff-related geopolitical uncertainty, and the move cited 10-year Treasury yields near the mid-4% range. This combination tended to put pressure on high-beta risk exposures as interest rate volatility increased.

The recent drawdown in cryptocurrencies can be framed in parallel with a broader risk-off tape, tying Bitcoin’s direction to asset-wide sentiment rather than just crypto-specific catalysts.

In such an environment, ETF redemptions become one of the cleanest and most observable footprints of risk aversion. These illustrate what investors are doing with the regulated wrappers that many allocators use for tactical exposures.

Centering on late January option levels provides another perspective on how flows interact with price.

Call interest is concentrated at about $100,000 until expiration in late January. So the focus will be on whether the spot can rise above nearby levels, or whether the positioning will pull back towards a dense strike.

If ETF flows remain negative and the spot remains below a large call cluster, the rally could face two headwinds at once. It’s a decline in new ETF bidding and a derivatives environment that allows traders to monetize rather than chasing upside.

If flows change and spot is firm, the same concentration can act as a magnet above price, especially if spot goes through a strike and dealers’ hedging needs change.

What investors need to know as Bitcoin and BlackRock headlines collide

Using the January 7-9 execution rate as a simple unit of scenario helps translate the story into forward-looking terms without treating flow as destiny.

1. There is a net outflow of about $378 million per day, and if similar print continues for another week, a total of about $1.9 billion will flow out of this category. If market depth remains thinner than last year, this will be large enough to matter.
2. A more moderate path would be a return to a flat daily paper of roughly plus or minus $0 to $100 million. This would lead to fewer mechanical sellers and more emphasis on organic spot demand and macro catalysts.
3. A third path is to reset to sustained inflows similar to the first two business days of January. This would restore consistent marginal bidding, making it easier for Bitcoin to maintain its level through US macro data and interest rate movements.

The next thing investors look at is persistence and price response, not a single number.

According to Barron’s report on the role of the biggest products in the major outflow session, one checkpoint is whether redemptions will remain concentrated in IBIT and FBTC or spread across the complex.

The other is whether Bitcoin will start absorbing negative flow days without sharp downside follow-through. This could suggest that sellers are receiving bids away from the ETF channel.

If the pattern becomes “Outflow and Rapid Decline”, it indicates weak spot demand, and the shallow depth will amplify the movement. this is, crypto slate Note linked above.

According to MarketWatch’s report on the decline in U.S. Treasuries related to tariff-related uncertainty, interest rate sensitivity remains a parallel check as the spike in yields related to macro headlines coincides with de-risking across assets.

There are also practical considerations. ETF flows can be tactical and can quickly reverse. This includes rebalancing, tax positioning, or fundamentals-based strategies that do not reflect a long-term perspective.

Markets operate under macro-first constraints, which may require allocators to rapidly adjust their exposures in response to changes in interest rates.

That’s why the length of a streak, the identity of the funds driving the move, and the market’s ability to hold levels during negative prints tend to convey more information than the daily total.