Bitcoin Faces a Mid-Cycle Reset as On-Chain Data Stabilizes

In recent weeks, analysts have increasingly categorized Bitcoin's trajectory as part of a bear market. However, five critical data indicators reveal that the market is experiencing a mid-cycle reset following the significant rally that peaked in late 2025.

Current on-chain and ETF data indicate that the selling pressure is waning. Rather than long-term investors liquidating their positions, evidence suggests that late buyers are being shaken out while more resilient holders absorb the available supply. This development is significant because mid-cycle resets often signify a shift from panic-selling to a focus on accumulation.

ETF Outflows Indicate a Washout Rather Than Long-Term Selling

In the first half of January, U.S. Bitcoin ETFs underwent their most substantial selloff since their inception. Following substantial inflows of over $1.1 billion on January 2 and January 5, the ETFs quickly turned negative, with more than $1.1 billion leaving the funds over the next three trading days.

US Spot Bitcoin ETFs Daily Inflow in January 2026. Source: SoSoValue

This behavior reflects a classic capitulation or washout scenario. Investors who purchased ETFs during the October and November rally did so when Bitcoin was nearing its all-time highs. After the price struggled to maintain a level above $95,000, many of those positions fell into losses, leading to prompt redemptions as risk managers and short-term traders reduced their exposure.

It’s crucial to note that this was not the gradual outflow typically associated with bear markets. Instead, it was a rapid and concentrated sell-off. Such selling often exhausts itself, as it tends to remove the weakest holders first. Recent data suggests that ETF flows are beginning to stabilize, implying that the forced selling period may soon come to an end.

In the context of market cycles, this type of ETF washout usually precedes a phase of sideways consolidation and an eventual recovery.

🔴 We are witnessing the largest liquidity drawdown ever recorded on ETFs.

With an average realized price around $86,000, most of the ETF inflows that entered since the all-time high in October 2025 are now showing losses.

💥 More than $6 billion has exited spot Bitcoin ETFs during this period.

ETF Cost Basis Near $86,000 Serves as a Price Anchor

According to CryptoQuant’s ETF drawdown chart, the average realized price of Bitcoin held by ETFs hovers around $86,000. This means that many ETF investors, who entered the market after the October peak, are approaching their break-even point.

This cost basis is significant. When the price oscillates near the average cost of the largest group of marginal buyers, the selling pressure typically diminishes. Investors who have already incurred losses are likely to exit, while those still holding onto their assets may wait for a recovery rather than sell at a slight loss.

Bitcoin ETF Drawdown Chart. Source: CryptoQuant

Historically, these cost-basis levels act like gravitational pulls. When Bitcoin prices dip significantly below these levels, buyers often come in. Conversely, when prices rise significantly above them, profit-taking tends to increase. Currently, Bitcoin is just slightly above this critical ETF anchor.

This dynamic explains why the market is stabilizing between $88,000 and $92,000, despite billions exiting ETFs. The ETF cost basis has become a structural support level, which is characteristic of mid-cycle resets rather than collapse in bear markets.

BlackRock’s Coinbase Transfers Highlight Redemption Activity

Blockchain data reveals that BlackRock transferred 3,743 BTC and 7,204 ETH to Coinbase Prime. At first glance, one might perceive this as institutional selling.

However, understanding ETF mechanics is essential. When investors redeem ETF shares, the fund must provide Bitcoin to authorized participants. Coinbase Prime functions as the custody and settlement hub for this process.

As redemptions surged last week, BlackRock was required to move Bitcoin and Ethereum to fulfill these obligations. This action reflects a demand for liquidity rather than indicating a directional bet by BlackRock. The firm merely processes withdrawals based on investor decisions.

BlackRock just deposited 3,743 $BTC($339.45M) and 7,204 $ETH($22.42M) to Coinbase Prime.

In bear markets, one typically observes funds actively decreasing their exposure over months. In this instance, short-term investors are exiting, and ETFs are settling those trades—indicative of a reset rather than a substantial withdrawal from institutional capital.

Coinbase Premium Indicates US Institutions Are Taking a Breather

The Coinbase Premium Index sharply fell negative on January 12. This indicates that Bitcoin was trading at lower prices on Coinbase compared to offshore exchanges. Coinbase primarily caters to U.S. institutions and high-net-worth investors. When the premium is positive, it signifies aggressive buying from American funds.

Currently, this cooling trend is logical. ETF investors have recently incurred significant losses. Many funds are now waiting for flows to stabilize before re-entering the market.

However, a lack of buying does not equate to heavy selling. Spot Bitcoin is not flooding Coinbase; it simply isn’t being aggressively pursued upward.

Bitcoin Coinbase Premium Index. Source: CryptoQuant

Typically, during mid-cycle resets, institutional buyers step back while weaker hands are shaken out. They are likely to return when the price stabilizes, aligning with the current pattern shown by the Coinbase Premium.

Exchange Netflows Confirm Supply is Being Absorbed

The 30-day average of Bitcoin exchange netflows has recently reached its highest level since October. While more Bitcoin is moving onto exchanges, which typically signals selling pressure, the context is key.

This supply is primarily emerging from ETFs unwinding positions and arbitrage desks settling redemptions, not from long-term holders rushing to sell their assets.

Bitcoin Total Exchange Netflow. Source: CryptoQuant

Despite the significant inflow, Bitcoin's price has remained stable within the low $90,000 range. This stability suggests that buyers outside the ETF market are absorbing the supply, including global traders, offshore funds, and long-term accumulators.

When substantial selling occurs but the price holds steady, it often indicates a transition of assets from weaker hands to stronger ones—an occurrence typical of mid-cycle resets.

What Lies Ahead for Bitcoin Prices?

The consensus amongst all five data points is clear. Bitcoin is currently navigating through an ETF-driven shakeout, where late buyers have exited while long-term holders remain steady.

Provided Bitcoin maintains its price above the $86,000 ETF cost basis, the structural outlook remains optimistic. Under these conditions, the price can consolidate and potentially make another push toward $95,000. If ETF flows turn positive again, a test of $100,000 could become a realistic target later this quarter. A deeper sell-off would require a resurgence of ETF redemptions, but current data suggests that such a phase is already fading.

Key Takeaways:

Bitcoin is undergoing a mid-cycle reset, with evidence showing that selling pressure is easing.
Recent ETF outflows indicate a rapid washout rather than a steady decline typical of bear markets.
The average cost basis for Bitcoin held in ETFs is around $86,000, which serves as significant price support.
BlackRock’s transfers reflect liquidity demands tied to ETF redemptions, not institutional offloading.
A drop in the Coinbase Premium Index indicates that U.S. institutions are momentarily pausing their buying activities.
Net flows suggest that long-term holders are absorbing sell-off supply, signaling a potential stabilization for Bitcoin.