Risk Appetite Roars Back: What Crypto’s Explosive First Week of 2026 Reveals About Market Sentiment
Forget the cautious forecasts—the first trading week of 2026 just delivered a masterclass in crypto's signature volatility. The digital asset space isn't just ticking up; it's screaming that investor fear has been sidelined by pure, unadulterated greed.
The Fear Gauge Plummets
Market indicators that typically flash warning signs are now glowing green. Trading volumes have surged past previous benchmarks, while leveraged positions are stacking up faster than a degenerate gambler's chips. The narrative has decisively shifted from capital preservation to aggressive accumulation.
Narratives Driving the Frenzy
Several catalysts are fueling the fire. Institutional adoption is no longer a promise—it's a tangible flow hitting the order books. Meanwhile, developments in layer-2 scaling and real-world asset tokenization are providing the fundamental 'story' that speculative capital craves. It's a classic case of momentum feeding on itself.
A Reality Check for the Bulls
This euphoria, however, comes with its own set of red flags. Such a rapid sentiment reversal often precedes a sharp liquidity squeeze. Remember, in crypto, the most expensive lesson is usually taught just after everyone declares they've cracked the code—right before traditional finance pundits smugly say 'I told you so.' The market's memory remains notoriously short, and leverage cuts both ways.
The stage is set. Risk is firmly back on the menu, but the real question is who gets to enjoy the feast and who gets stuck with the bill when the music stops.
The start of 2026 so far has, however, seemingly flipped the script. Key levels are being retested again as trading desks reopen and liquidity returns to the market. On the surface, crypto sentiment appears to have moved from apathy to alertness. Driving this market structure change are a combination of several factors such as a pick up in spot ETF inflows, reduced profit taking from long term holders, a gradual rise in futures open interest and advancing regulatory clarity, with the U.S. senate banking committee set to vote on the market structure bill on January 15th.
Early Signals from Price Action
Since January 1st, bitcoin is up around 4% at the time of writing, opening the year at $87.5K and reaching a high of $94.8K on January 5th. From a technical standpoint, Bitcoin approached a significant long term support and resistance zone between $93K to $95K which has been in play since December 2024. This explains why the price saw a drop from the $94K region. Until we see a decisive break and close over these zones, a longer bullish trend cannot be confirmed.
What is clear however is that there is a risk of appetite within the broader crypto market and not limited to Bitcoin. Altcoins, measured by the TOTAL2 excluding stablecoins chart, is up around 8% since the start of the year. Large caps like XRP, Solana and Sui have outperformed Bitcoin during this period.
Notably, sectors such as AI and memes have shown significant strength, up 27% and 23% respectively.
Position Versus Conviction
Spot and Futures volumes also indicate that traders are gradually positioning themselves with risk-on conviction. When we look at spot volumes, which had been a clear downward trend since the second week of October, are now starting to show early signs of a reversal, a pattern that is also emerging in derivatives markets.
Aggregate futures open positions in BTC are also showing signs of a recovery after the massive deleveraging we witnessed last quarter. The modest recovery in positioning coincides with the price uptick, suggesting that traders are re-entering the market thereby improving liquidity conditions and supporting short term price discovery.
Institutional Activity Being Watched Closely
In addition to the rise in volume, U.S. spot ETF flows, specifically for the altcoin ETFs, also began the year with a shift back into motion. This comes after a prolonged period of net outflows and subdued activity seen throughout late-2025.
BTC ETFs since the start of the year have been mixed. January 5th clocked in inflows not seen since October, but this was followed up with three consecutive days of outflows, leaving net inflows since the start of the year at $40.4 million.
Comparatively, Inflows to the ETH spot ETFs are showing more strength, with net inflows at $199.7 million so far this year. Notably, solana spot ETFs have seen consistent demand recording net inflows of $50.72 million since January 1st.
Apart from existing Spot ETF activity, institutional interest in crypto was reinforced by the news that Morgan Stanley was applying for Bitcoin, ethereum and Solana spot ETFs with the SEC.
What Will Confirm Sentiment Next
While 2026 has shown early signs of a trend reversal, there are still key levels that need to be reclaimed on the chart. So far, what’s positive is that despite BTC rejecting from the $94K zone, it has perfectly bounced from the 50 day simple moving average, which has acted as support in previous rallies to the upside. In the immediate short term, getting above the $95K resistance and treating this as support will be a crucial catalyst for improving sentiment among traders.
To truly see a sustained sentiment shift, we can use the Short Term Holder Cost Basis model as a reference. This is an on-chain indicator that shows the average price at which recent Bitcoin buyers (holding for less than about five months) acquired their coins. When price is above this level, recent buyers are generally in profile while below it increases selling pressure as they are at a loss. Given that it shows where recent buyers are positioned, this can be a very useful sentiment tool. Currently this level sits at $98.7K.
