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After facing challenges last week, Bitcoin (BTC) has regained strength, igniting optimism among derivatives traders. Bullish positioning has increased sharply, pushing key indicators to notable highs.

However, predominantly negative exchange-traded fund (ETF) flows and weakening institutional demand are fueling concerns over elevated long-liquidation risk.

Bitcoin Derivatives Turn Bullish Despite Soft Spot Demand

Bitcoin opened 2026 with strong upside momentum, gaining more than 7% in the first five days of January. Nonetheless, a correction briefly pushed the asset below $90,000 late last week.

Since Sunday, Bitcoin has stabilized and returned to positive territory, trading mostly in the green amid relatively subdued volatility. At the time of writing, Bitcoin traded at $91,299, down 0.81% over the past 24 hours.

Bitcoin Price Performance. Source: BeInCrypto Markets

The rebound has sparked bullish sentiment in the derivatives market. Data from CryptoQuant revealed that the Taker Buy/Sell Ratio climbed to 1.249 today. This is the highest level since early 2019.

For context, the Taker Buy/Sell Ratio measures the balance between aggressive buying and selling in the derivatives market by comparing the volume of buy and sell orders executed at market price. A ratio above 1 indicates that bullish sentiment is dominating. Additionally, a ratio below 1 signals stronger bearish sentiment.

Bitcoin Taker Buy/Sell Ratio. Source: CryptoQuant

The surge in aggressive buying coincides with unusually elevated long exposure among top traders. Joao Wedson, founder of Alphractal, noted that long positions held by large traders have reached their highest level on record.

Such concentration of leverage on one side of the market can increase the likelihood of sharp, liquidation-driven price moves.

“This partially explains the liquidity hunts carried out by exchanges, driven by high-capital traders. Exchanges don’t really care about retail traders — what they want are wealthy traders positioned in the wrong direction,” Wedson wrote.

Additional market indicators reinforce concerns around elevated long risk. Data from SoSoValue showed unstable ETF demand. While the funds saw strong inflows at the beginning of the month, they reversed shortly after, with $681.01 million exiting the funds last week. Still, the ETFs pulled in $187.33 million on Monday.

“With an average realized price around $86,000, the majority of ETF inflows that entered since the October 2025 ATH are now sitting at a loss. More than $6 billion has exited spot Bitcoin ETFs over the same period, marking an all-time record since their approval,” analyst Darkfost stated. ” With Bitcoin liquidity remaining periodically thin, the impact of ETFs becomes even more significant, making it essential to keep a close eye on ETF flows.”

At the same time, the Coinbase premium has turned negative, showing that US-based spot buying pressure is lagging behind global markets.

Taken together, the data paint a picture of a market that is increasingly driven by leveraged speculation rather than spot demand. While derivatives traders are positioning aggressively for upside, institutional participation via ETFs remains inconsistent, and US spot buying pressure is weakening.

This leaves Bitcoin vulnerable to downside volatility. Crowded long positions may quickly unwind if price momentum stalls. Under such conditions, even modest corrections risk triggering liquidation cascades, potentially amplifying losses before more sustainable demand returns to the market.

India’s Financial Intelligence Unit (FIU) has introduced stricter compliance requirements for cryptocurrency platforms, significantly enhancing identity verification for users nationwide.

Under the new rules, regulated crypto exchanges are required to verify users through live selfie authentication and geographic location data during the onboarding process.

India’s Enhanced Verification Standards Target Deepfakes and Static Images

The latest FIU rules take user verification further than simple document checks. Exchanges must use live selfie verification that requires dynamic movement, such as eye-blinking or head turns, to confirm the user’s presence. This step aims to prevent static images or deepfake attacks from bypassing identity controls.

As noted by the Times of India, platforms must collect details at sign-up, including latitude, longitude, date, timestamp, and IP address.

“The RE (crypto exchange) shall also ensure that the client whose credentials are being furnished at the time of onboarding is the same individual who is actually accessing the application and personally initiating the account creation process,” the guidelines read.

The framework also expands documentation requirements. In addition to a Permanent Account Number (PAN), users must submit a secondary form of identification. This may include a passport, Aadhaar card (a 12-digit unique identification number issued by the Indian government), or a voter ID.

Furthermore, email addresses and mobile numbers will undergo one-time password (OTP) verification to ensure accuracy. The penny-drop method, involving a small, typically refundable, bank transaction of 1 rupee, further verifies that the user owns the submitted account.

Notably, users flagged as high-risk will face enhanced and more frequent compliance checks under the new FIU rules. This includes individuals with ties to tax havens, regions on the Financial Action Task Force (FATF) grey or blacklists, politically exposed persons (PEPs), or non-profit entities.

Specifically, these users will have their KYC details updated every six months, compared with an annual refresh for standard users. Exchanges are also required to apply enhanced due diligence.

Beyond onboarding, the FIU takes a tough stance on anonymity-enhancing tools (mixers/tumblers and similar products) used to conceal transaction trails. Moreover, the guidance “strongly discourages” Initial Coin Offerings (ICOs) and Initial Token Offerings (ITOs).

According to the regulator, such activities present “heightened and complex” risks related to money laundering and terror financing. They are viewed as lacking a clearly justified economic rationale.

Strict Tax Regime Drives Users to Offshore Platforms

In addition to stricter oversight, India taxes crypto profits at a flat 30%. Each transaction also incurs a 1% tax deducted at source (TDS). Analysts have stated that this tax framework is “backfiring,” arguing that it discourages domestic trading activity and prompts users to shift to offshore platforms.

“If we were to summarise in one line – the tax framework, implemented and enforced non-uniformly across industry participants – has led to a marked migration of users and liquidity towards offshore platforms,” a report revealed.

According to the report’s estimates, Indian users generated approximately ₹4,87,799 crore in trading volume on offshore exchanges between October 2024 and October 2025. This equals roughly $54.1 billion.

By comparison, offshore trading activity attributed to Indian nationals totaled ₹2,63,406 crore ($29.2 billion) in the previous year. This represents an 85% year-over-year increase.

The report noted that 91.5% of Indian crypto trading now occurs offshore, while only 8.5% remains on registered domestic exchanges.

“The uncollected TDS since October 2024 is ₹4,877 crore. If calculated from the date of introduction, this number goes up to ₹11,000 crores,” the analysts highlighted. “Talking about capital flight, and loss of capital gain collections for the Government, we conservatively estimate the revenue loss to the exchequer at approximately ₹36,000 crores since introduction of the 30% tax.”

The growing compliance requirements and severe taxation present a challenge for India’s crypto space. While new KYC rules aim to promote transparency and prevent crime, high tax rates are driving users abroad, thereby reducing revenue. The balance between oversight and domestic engagement remains uncertain, with the crypto industry at a critical crossroads.

Bitcoin and Ethereum have been trading sideways after their early 2026 gains, but several alternative coins are posting big weekly numbers. Experts say this shows investors moving money into riskier plays while waiting for important economic data.

XRP and Solana are up nearly 10% and 7% over the past week, CoinGecko data shows. Sui, Bittensor, and Shiba Inu did better, with gains between 14% and 17% in the same period.

Bitcoin’s having a different week. Its year-to-date gains got cut in half to 4%. Ethereum followed a similar path, falling from over 11% to nearly 4%.

Marcin Kazmierczak, who co-founded RedStone, told Decrypt this is a typical pattern. “The altcoin rally reflects a classic rotation pattern—capital flowing toward perceived upside optionality when macro uncertainty peaks,” he said.

According to Kazmierczak, Solana and XRP are riding specific storylines, but the move is “largely sentiment-driven rather than fundamental.”

The buzz around top altcoins includes money flowing into the spot Solana ETF and speculation about a potential XRP ETF approval in 2026.

Nicolai Søndergaard, a research analyst at Nansen, told Decrypt that “this may be why these tokens have seen more interest.” Smart money is sitting in a ‘wait and see mode,’ he added. They need more good news before jumping in.

Bitcoin’s been consolidating while altcoins move.

Some big catalysts are coming up

Yuya Hasegawa, a crypto analyst at Bitbank, told Decrypt the dates to watch are the U.S. employment report on the 9th and the Consumer Price Index on the 13th.

Good data could push Bitcoin toward $98,000, Hasegawa noted. That’s an important technical level. But there’s also a downside gap in CME futures near $88,000 that could get tested if numbers come in weak. He expects “meaningful support” at that level though.

Whether altcoins can keep rising without broader market help isn’t clear.

“Heading into the weekend, we can expect continued volatility,” Kazmierczak said. “Alt jumps are quick to reverse without follow-through volume.”

Next week should tell more. The U.S. economic data coming out will show how institutions are thinking about risk and whether the market can start climbing again.

Morgan Stanley filed Tuesday for Bitcoin, Ether, and Solana exchange-traded funds. It’s the firm’s first move into crypto ETFs, coming two years after these funds became popular in the U.S.

The paperwork includes a Bitcoin Trust and a Solana Trust. Each one holds the individual cryptocurrency. The Solana product would stake a portion, which means earning rewards by letting tokens support the blockchain network. Morgan Stanley Investment Management Inc. would sponsor these trusts, according to the filings.

Early Wednesday, Morgan Stanley filed for an ETF holding Ether, the second-largest token. That one will also do staking, the filing showed.

Digital dollar transactions broke records last year

The broader crypto infrastructure continues expanding. The Trump administration’s friendlier stance on crypto helped push volumes up. Stablecoin transactions jumped 72% to $33 trillion in 2025, per Artemis Analytics. Circle’s USDC did $18.3 trillion. Tether’s USDT hit $13.3 trillion.

What’s interesting is that decentralized platforms actually lost market share. That means regular people and businesses are using stablecoins, not just crypto traders.

Anthony Yim from Artemis said it shows “mass adoption of digital US dollars, especially in an increasingly unstable geopolitical landscape.”
People in countries with bad inflation are grabbing stablecoins as an easy way to hold dollars, Yim added.

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