The year commenced on a strong note, fueled by a cocktail of geopolitical event-driven bidding and fresh capital reallocation. By mid-January, Bitcoin had partially shaken off its late-2025 lethargy, surging from December lows near $88,000 to approach the $98,000 threshold for the first time in three months.
This rally was not merely speculative; it was backed by aggressive institutional purchasing. Encouraged by a favorable inflation backdrop, as CPI data came in lower than expected – spot Bitcoin exchange-traded funds experienced a massive resurgence.
In a single day in mid-January, these funds attracted an estimated $760 million in net inflows, echoing the fervent accumulation phases of previous years. For a brief window, the structural trend appeared decisively bullish, and market participants began positioning for an imminent breakout past the six-figure mark.
The sentiment soured as we proceeded in the month, and Bitcoin and other crypto assets saw some of the wildest swings ever witnessed. While the nomination of a historically – though not recently – hawkish Federal Reserve Chair dominated the headlines, several underlying forces are also at play.
Institutional investors are shifting away from technology stocks, signalling a significant rotation in financial markets. Sentiment in the software industry remains weak, as institutional players increasingly focus on “real economy” assets, such as energy and materials. This rotation is happening as the disruptive influence of Artificial Intelligence (AI) takes a toll on what were previously considered businesses with strong competitive moats, with key charts highlighted in the crypto industry this month illustrating this trend. The tech-heavy Nasdaq is currently underperforming global equities, with the US market experiencing one of its worst starts to the year compared to other equity indexes.
Source Bloomberg
A strong correlation exists between Bitcoin and Software as a Service (SaaS) companies – which deliver cloud-based subscription software – as well as broader software stock indexes that track publicly listed software firms.
As the disruptive wave of AI continues, investors are growing cautious of legacy software companies, and Bitcoin appears to have been caught up in this crossfire.
Source Bloomberg
A second major contributor to the sell-off was the technical levels observed in Bitcoin reserve treasuries. These factors, alongside volatility in the ETP industry – exchange-traded products such as ETFs that provide regulated market exposure to crypto – served to amplify the overall market volatility.
Third, an under-appreciated factor is the shift in the odds of the Democratic Party gaining control of Congress in the upcoming midterm elections. Following an unexpected turn in domestic policy, we have observed a change in the probability complex. Polymarket probabilities – derived from a decentralised prediction market platform where users trade contracts on political and economic outcomes – for a Democratic-led Congress post-midterms are rising, and this trend appears to be mildly negatively correlated with Bitcoin performance.
While this correlation may be spurious, it is nonetheless a potential concern. A Democratic Congress might create resistance or “sand in the gears” for the current administration’s efforts to advance crypto regulation, particularly given the administration’s generally close relationship with the crypto industry.
Sources Bloomberg
Bitcoin again proved the most resilient crypto asset, outperforming the rest of the complex and acting as a defensive bet or “flight-to-quality” safe haven within the industry. Capital gravitated towards its superior liquidity, adoption, and track record, reinforcing its digital gold narrative and status as the industry’s benchmark and most defensive allocation.
Sources Bloomberg
Bitcoin has regained market dominance and outperformed Ethereum, according to a recap of 2026 performance. Ethereum, along with most DApp Platform currencies – tokens that power blockchain networks supporting decentralised applications such as smart contracts and Decentralised Finance (DeFi) protocols – and Meme coins – highly speculative cryptocurrencies often driven by online communities and social media trends rather than fundamental utility – continues to be viewed as a more speculative asset.
Sources Moneyfarm, Bloomberg
The flows
The flow into crypto ETPs showed a noticeable increase in January. While the Assets Under Management (AUM) for the US Spot Bitcoin ETPs we track slightly decreased to $112.6 billion at the end of January – down from $118.7 billion in December – this marginal dip occurred despite a significant -6.5% negative performance in the underlying asset.
This indicates that new money was marginally added to the asset class, suggesting a recovery in investor sentiment following a challenging two-month period.
The European market, however, remains marginal. Tracked Bitcoin ETP AUM decreased from $9.1 billion at the end of December to $8.7 billion. Adjusting for the impact of performance, this still implies very marginal buying activity persisted in the European space.
Sources Moneyfarm, Bloomberg
Portfolio sizing is key
Despite the persistent uncertainty, the crypto asset class is experiencing a rebound in sentiment and is currently in a consolidation phase. This follows the clearing of some key technical levels. The primary drivers for future direction will be developments related to broader macro risk sentiment and the policy outlook.
Investing in Crypto involves a high level of risk. You should not invest unless you are prepared to lose all of the money you invest. The value of your Moneyfarm portfolio can go down as well as up, and you may get back less than you invest. You may not be protected if something goes wrong. Past performance is not a reliable indicator of future results. The views expressed here do not constitute a recommendation, advice or forecast. If you are unsure whether investing is right for you, please seek independent financial advice.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.