Smart money influx! Decoding the three driving forces behind the BTC rebound.

Author: Yuanshan Dongjian

Data sources: Farside Investors, SoSoValue, Federal Reserve H.4.1 report, CryptoQuant

On the first trading day of 26 years, the BTC ETF saw a net inflow of $471 million.

What does this number mean?

In November and December, spot BTC ETFs saw a combined net outflow of approximately $4.57 billion; with a net outflow of approximately $1.09 billion in December alone.

Many people frantically sold at a loss above 93K, and institutions bought back about one-tenth of it in one day on January 2nd.

At the same time, the following also occurred:

- The Federal Reserve's balance sheet increased by approximately $59.4 billion this week (WALCL: $6.6406 trillion on December 31, an increase of approximately $59.4 billion from December 24).

- New whale holdings surpass 100,000 BTC ($12 billion)

-BTC rebounded from 87.5K to 93K (+6.8%)

The simultaneous appearance of these three data points reflects a shift in the funding situation.

The rise in 2025 will rely on "narratives" (halving, ETF launch), while the rise in 2026 will rely on "real money" (Federal Reserve quantitative easing, institutional subscriptions, whale hoarding).

This is the second phase of the market trend: from being driven by sentiment to being driven by capital.

01 | What happened: Three signals occurring simultaneously

Signal 1: ETFs reverse selling pressure

In November and December, spot BTC ETFs saw a combined net outflow of approximately $4.57 billion; with a net outflow of approximately $1.09 billion in December alone. Retail investors frantically sold at a loss in the 90-93K range, and panic spread.

However, on January 2, the BTC ETF saw a net inflow of $471 million, the highest single-day inflow since November 11, 25 years ago.

What does this mean? Institutions are taking over the positions at the point where retail investors are selling at a loss.

The data is more intuitive:

BlackRock's IBIT is currently the largest single BTC spot ETF; in terms of trading activity, IBIT is often estimated to account for nearly 70% of the trading volume.

The total net asset value of spot BTC ETFs is in the hundreds of billions of dollars.

The cumulative trading volume of US cryptocurrency ETFs has surpassed $2 trillion.

Signal 2: The Federal Reserve shifts to expanding its balance sheet

In March 2022, the Federal Reserve launched QT (quantitative tightening), which lasted for nearly three years. The essence of QT is to withdraw liquidity from the market, which is the fundamental reason for the sharp decline in all risky assets in 2022-2023.

However, according to authoritative sources (Reuters, Federal Reserve reports, etc.), QT will stop/end balance sheet reduction on December 1, 2025.

Starting in January, the Federal Reserve not only stopped withdrawing liquidity, but also began injecting it into the market.

The Federal Reserve's balance sheet increased by approximately $59.4 billion this week (WALCL: $6.6406 trillion on December 31, an increase of approximately $59.4 billion from December 24).

Starting in December, the Federal Reserve began technical purchases (RMPs) of short-term Treasury securities to replenish reserves, with approximately $40 billion in the first week. The market expects the Fed to continue its "slow expansion of its balance sheet to replenish reserves" approach, but with a more controlled scale.

In other words, the key turning point has shifted from "pumping water" to "releasing water".

Signal 3: Newly emerging whales are accelerating their accumulation of coins.

On-chain data shows that newly minted whales are accumulating BTC at a record pace:

The new address holds over 100,000 BTC, worth approximately $12 billion.

Tether purchased 8,888 BTC ($780 million) on New Year's Eve 2025, bringing its total holdings to over 96,000 BTC.

Long-term holders have turned to a "net accumulation" status over the past 30 days.

However, there is a significant point of contention here: CryptoQuant's research director points out that some "whale hoarding" data may be misleading due to data compiled from internal exchange wallets. After filtering out exchange factors, the actual whale addresses (100-1000 BTC) are actually reducing their holdings slightly.

The real buying mainly came from: newly emerging whales (small and dispersed addresses) + ETF institutional subscriptions.

What these three signals have in common is that money is entering the market, and it's "smart money."

02｜Why do institutional investors enter the market when retail investors are selling at a loss?

First layer: The Federal Reserve's quantitative easing creates a liquidity foundation.

Since the Federal Reserve began QT in March 2022, its balance sheet has shrunk from $9 trillion to $6.6 trillion, withdrawing a total of $2.4 trillion in liquidity.

What happened during QT?

2022: Nasdaq fell 33%, BTC fell 65%.

2023: Interest rates rise to 5.5%, FTX goes bankrupt, Luna goes to zero.

All risky assets are under pressure.

However, QT officially ceased in December 2025. Starting in January, the Federal Reserve shifted to "reserve management purchases." This is not QE (quantitative easing), but at least liquidity stopped flowing out and began to flow in in a limited manner.

What does this mean for BTC?

Historical reference: In March 2020, the Federal Reserve launched unlimited quantitative easing (QE), and BTC rose from $3,800 to $69,000 (+1,715%). This time, the scale is much smaller than in 2020, but the direction has changed.

More US dollars entering the market will seek high-yield assets. BTC, as "digital gold," is a natural receiver of liquidity.

The second layer: ETFs have become a "highway" for institutional asset allocation.

In January 2024, BTC spot ETFs were launched, significantly lowering the threshold for institutional investors to allocate BTC.

• No need to learn about private keys, cold wallets, or on-chain transfers.
• Compliant channels can be included in the asset allocation of pension funds, hedge funds, and family offices.
• High liquidity, buy and sell at any time, no withdrawal restrictions

Why the outflow in December? Retail investors were driven by FOMO (fear of missing out) and bought at higher prices, taking over positions above 93K.

Why did funds flow in during January? Institutions made rational allocations, buying on dips in the 87-90K range.

Key data:

• BlackRock's IBIT holds 770,800 BTC, making it the largest single BTC ETF.
• ETF trading volume surpasses $2 trillion

Before the launch of ETFs, institutions wanting to allocate BTC needed to build their own cold wallets, train teams, and deal with regulatory risks. After the launch of ETFs, it only requires a few clicks in a brokerage account.

The third layer: The "generational succession" of newborn giant whales

Traditional whales (who entered the market between 2013 and 2017) may have taken profits at the peak. Their costs were extremely low (hundreds or thousands of dollars), and 90,000 dollars represents astronomical profits.

But new whales (entering the market between 2023 and 2026) are taking over. Their costs are between $50,000 and $70,000, and $90,000 is just the starting point.

Tether's logic is the most typical: starting in May 2023, it used 15% of its profits each quarter to buy BTC. Regardless of whether BTC was worth 60,000 or 40,000, it persisted in buying. This was carried out for 10 consecutive quarters without interruption.

Average cost: $51,117; current price: $93,000; unrealized profit: over $3.5 billion.

This wasn't luck, it was discipline.

This represents a generational shift in ownership, moving from early adopters to institutional investors. Older whales are taking profits, while new whales are taking over. The market structure is becoming healthier, with a more diversified portfolio of holders.

03｜Three Risks That Cannot Be Ignored

Risk 1: Controversy surrounding the data of "newborn giant whales"

CryptoQuant's research director points out that recent "whale accumulation" data may be misleading: internal wallet consolidation within exchanges can be mistakenly interpreted as "whale buying."

After filtering out exchange-related factors, the actual whale addresses (100-1000 BTC) are slightly reducing their holdings.

The real buying activity mainly came from: newly emerging whales (small, dispersed addresses) + ETF institutional subscriptions.

what does that mean?

Data must be verified for authenticity; it shouldn't be blindly trusted. Real buying pressure still exists, but it's not as exaggerated as the surface data suggests. Market rallies are driven more by "continuous small-scale buying" than by "large-scale buying."

This is actually a good thing. It shows that the market is more diversified and does not rely on a few large players.

Risk 2: The "Limited" Nature of the Fed's Balance Sheet Expansion

The expansion of the balance sheet is a "technical purchase to replenish reserves," unlike quantitative easing (QE), and its scale is more controllable. If the market overinterprets this as an expectation of a 2020-style QE, it will be disappointed.

The current RMP is a technical buy, which is not the same as actively injecting liquidity into the market, and its scale is far smaller than the QE in 2020 (when the monthly balance sheet expansion exceeded $100 billion).

In other words, the improvement in liquidity will be limited. BTC will not experience a "brainless surge" like in 2020-21 (from 4K to 69K). We need to wait for a clearer shift in monetary policy (such as interest rate cuts or the resumption of QE).

2026 may be a "slow bull market".

Risk 3: The "time lag trap" between retail investors and institutional investors

Institutions bought in the 87-90K range, while retail investors chased the rally at 93K. If BTC retraces to 88K:

Institutional investors remain profitable and continue to hold their positions; retail investors are trapped and panic-selling.

Result: Institutions once again bought in at low prices.

This is an eternal cycle:

• Institutional investors look at a 4-year cycle, while retail investors look at 4-week fluctuations.
• Institutional investors have discipline, while retail investors rely on intuition.
• Institutional investors bought against the trend, while retail investors chased the highs and sold the lows.

The data from November and December is the best proof: retail investors sold at a loss at 93K (a net outflow of approximately $4.57 billion over the two months), while institutions bought at 87K (a net inflow of $471 million on January 2nd). Institutions profited from the losses incurred by retail investors during their panic selling.

04｜How does this round of price increases differ from that of 2025?

Rise in 2025: Narrative-Driven

Core logic: Halving + ETF launch + Post-halving supply shock

Funding sources: retail investor FOMO, institutional tentative allocation

Price performance: From 25,000 to 73,000 (+192%)

Risk: After the narrative is fulfilled, funds will withdraw (a net outflow of approximately US$4.57 billion in November and December combined).

2026 Upturn: Fund-Driven

Core logic: Fed easing + continuous inflows into ETFs + accumulation by newly minted whales

Funding sources: long-term institutional allocation, sovereign wealth funds, family offices

Price performance: Rebounded from 87,000 to 93,000 (+6.8%, just the beginning).

Advantages: Funding-driven approaches are more sustainable than narrative-driven ones.

Key differences:

The driving force has changed: 25 is driven by "expectations," while 26 is driven by "real money." Narratives can change overnight (such as a shift in the SEC's attitude or adjustments to regulatory policies), but the inflow of funds represents real buying activity.

The sustainability has changed: the narrative will fade (the halving effect diminishes, the novelty of ETF launches disappears), but the funds will remain (institutional allocation is a long-term behavior and will not involve frequent entry and exit).

Volatility differs: volatility is lower during periods driven by capital inflows. Institutional investors do not chase highs and sell lows like retail investors; they have clear allocation plans and discipline.

This means that 2026 may not see the same "boom and bust" as 2021, but rather a "slow bull market": climbing step by step with small pullbacks.

Retail investors need to adapt to the new pace, not expect to "double their money overnight," and be patient.

Referring to gold's performance from 2019 to 2024, it took five years for gold to rise from $1,300 to $2,700 (+107%). There was no explosive growth, but there was also no sharp drop. This is characteristic of a market dominated by institutional investors.

05｜Three Lessons for Us

First, learn to understand the movements of "smart money".

Don't follow the candlestick chart, follow the flow of funds:

• ETF inflows = institutional buying
• Fed balance sheet expansion = improved liquidity
• New whales accumulating coins = a long-term signal

These three indicators are more important than any technical analysis. Candlestick charts can lie (they can create gaps, shakeouts, false breakouts), but fund flows don't lie.

Second, understand the "time difference" trap.

Institutional investors buy when retail investors are panicking and sell when they experience FOMO (fear of missing out). If you always chase highs and sell lows, you'll be the one getting fleeced.

You need to learn:

• Buy when institutions buy (even if you're panicking at the time).
• Sell when institutions sell (even if you're excited at the time).
• Use ETF flow data to make judgments, not intuition.

Third, the bull market in 2026 may be a "slow bull market," so we need to be patient.

The "surge" of 2021 will not be repeated. This bull market is more like:

• Increased by 5-10% each month
• Lasting 12-18 months
• It eventually reached a new high, but the path was more tortuous.

If you're expecting to get rich overnight, you'll be disappointed. But if you're patient, you might find this bull market more comfortable than the last one. Pullbacks are smaller, and you don't have to live in constant fear.

Previously, BTC dropped from 69,000 to 15,000, a decrease of 78%. Many people sold at a loss at various points, including 60,000, 50,000, and 40,000, and finally became completely desperate at 15,000.

If the market is a slow and steady bull market, the pullback might only be 15-20%. It would be a pullback from 90,000 to 75,000, not a drop from 90,000 to 20,000. In this market environment, it's easier to hold positions and maintain a more stable mindset.

In conclusion: Understanding institutional fund flows is more important than predicting prices. When you understand fund flows, you won't panic when you should buy, nor will you be greedy when you should sell.

In December, retail investors sold at a loss at 93K, while in January, institutions added to their positions at 87K. That's the difference.