Smart money flows in! Decoding the three main drivers behind BTC's rebound

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Author: Yuan Shan Insights

Data Sources: Farside Investors, SoSoValue, Federal Reserve H.4.1 Report, CryptoQuant

On the first trading day of 2026, BTC ETF net inflow reached $471 million in a single day.

What does this number mean?

In November and December, the total net outflow of spot BTC ETFs was approximately $4.57 billion; of which December alone saw a net outflow of about $1.09 billion.

Many people are frantically cutting losses above 93K, while institutions bought back about one-tenth in just one day on January 2.

At the same time, the following occurred:

• The Federal Reserve’s balance sheet increased by approximately $59.4 billion week-over-week (WALCL: as of 12/31, $6.6406 trillion, an increase of about $59.4 billion from 12/24)

• New whale holdings surpassed 100,000 BTC (worth about $12 billion)

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

These three data points appearing simultaneously indicate a shift in capital flow.

The rally in 2025 is driven by “narrative” factors (halving, ETF launch), while the rise in 2026 relies on “real money” (Fed liquidity injections, institutional subscriptions, whale accumulation).

This marks the second phase of the market: from emotion-driven to capital-driven.

01｜What happened: three simultaneous signals

Signal 1: ETF reverses selling pressure

In November and December, the total net outflow of spot BTC ETFs was about $4.57 billion; December alone saw a net outflow of approximately $1.09 billion. Retail investors frantically cut losses in the 90—93K range, spreading panic.

But on January 2, BTC ETF saw a single-day net inflow of $471 million, the highest since November 11, 2025.

What does this mean? Institutions are stepping in to buy the dip created by retail investors.

More intuitive data:

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 trading volume.

The total net assets of spot BTC ETFs are in the hundreds of billions of dollars.

US crypto ETFs have accumulated over $2 trillion in trading volume.

Signal 2: Fed shifts toward balance sheet expansion

In March 2022, the Fed launched QT (quantitative tightening), which lasted nearly three years. The essence of QT is to withdraw liquidity from the market, which was the fundamental reason for the plunge in all risk assets in 2022–2023.

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

Starting in January, the Fed not only stopped draining liquidity but began injecting it.

The Fed’s balance sheet increased by about $59.4 billion week-over-week (WALCL: as of 12/31, $6.6406 trillion, an increase of about $59.4 billion from 12/24).

Since December, the Fed has been automatically buying short-term government bonds from the market to replenish reserves (RMP), with about $40 billion in the first week; subsequent market expectations remain that the pace of “slow balance sheet expansion to replenish reserves” will continue, but at a more controlled scale.

In other words, the key turning point is shifting from “withdrawing liquidity” to “injecting liquidity.”

Signal 3: New whales accelerate accumulation

On-chain data shows that new whales are accumulating BTC at record speeds:

New addresses holding over 100,000 BTC, worth about $12 billion.

Tether bought 8,888 BTC (about $78 million) on New Year’s Eve 2025, with total holdings exceeding 96,000 BTC.

Long-term holders have shifted to a “net accumulation” state over the past 30 days.

But there is an important controversy: CryptoQuant’s research director points out that some “whale accumulation” data may be misleading due to internal exchange wallet consolidation. After filtering out exchange-related factors, the actual number of large whale addresses (holding 100–1,000 BTC) has slightly decreased.

The genuine buying mainly comes from: new whales (small, dispersed addresses) plus ETF institutional subscriptions.

The commonality among these three signals: money is flowing in, and it’s “smart money.”

02｜Why are institutions entering while retail is selling?

First layer: Fed liquidity injections create a liquidity floor

Since March 2022, the Fed has been implementing QT, reducing its balance sheet from $9 trillion to $6.6 trillion, withdrawing a total of $2.4 trillion in liquidity.

What happened during QT?

2022: Nasdaq down 33%, BTC down 65%

2023: interest rates raised to 5.5%, FTX bankruptcy, Luna zeroed out

All risk assets were under pressure.

But by December 2025, QT officially ended. Starting in January, the Fed shifted to “reserve management purchases.” This is not QE (quantitative easing), but at least liquidity is no longer flowing out; it’s beginning to flow in modestly.

What does this mean for BTC?

Historical reference: In March 2020, the Fed launched unlimited QE, and BTC surged from $3,800 to $69,000 (+1,715%). This scale was much larger than now, but the direction has changed.

More dollars entering the market will seek high-yield assets. BTC, as “digital gold,” is a natural recipient of liquidity.

Second layer: ETFs become “highways” for institutional allocation

In January 2024, BTC spot ETFs launched, significantly lowering the threshold for institutional allocation.

No need to learn private keys, cold wallets, on-chain transfers.

Regulatory channels allow inclusion in pension funds, hedge funds, family offices.

Good liquidity, tradable at any time, no withdrawal restrictions.

Why did outflows occur in December? Retail FOMO chasing higher prices, taking over above 93K.

Why did inflows happen in January? Institutions rationally allocating, buying on dips between 87K and 90K.

Key data:

BlackRock’s IBIT holds 770,800 BTC, the largest single BTC ETF.

ETF trading volume has exceeded $2 trillion.

Before ETF launch, institutions wanting to allocate BTC had to set up cold wallets, train teams, and face regulatory risks. After ETF launch, they just click a few buttons in brokerage accounts.

Third layer: The “intergenerational shift” of new whales

Traditional whales (entered between 2013–2017) may have taken profits at high levels. Their costs are extremely low (a few hundred or thousand dollars), and 90K is an astronomical return.

But new whales (entering between 2023–2026) are taking over. Their costs are in the $50K–$70K range, with 90K just the starting point.

Tether’s logic is typical: since May 2023, buying BTC with 15% profit each quarter. Regardless of whether BTC is at $60K or $40K, they keep buying. This has been executed for 10 consecutive quarters without interruption.

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

This is not luck; it’s discipline.

This is “intergenerational transfer of chips,” shifting from “early believers” to “institutional allocators.” Old whales take profits, new whales take over. The market structure becomes healthier, and holders are more dispersed.

03｜Three risks that cannot be ignored

Risk 1: Controversy over “new whale” data

CryptoQuant’s research director points out that recent “whale accumulation” data may be misleading: Wallet consolidation within exchanges can be mistaken for “whale buying.”

After filtering out exchange factors, the actual large whale addresses (holding 100–1,000 BTC) are slightly decreasing.

Real buying mainly comes from: new whales (small, dispersed addresses) plus ETF institutional subscriptions.

What does this mean?

Data must be discerned for authenticity; blind trust is dangerous. Genuine buying still exists, but not as exaggerated as surface data suggests. The market’s upward movement relies more on “continuous small purchases” rather than “large buys.”

This is actually a good sign. It indicates a more dispersed market, less dependent on a few big players.

Risk 2: The “limited” nature of Fed balance sheet expansion

Balance sheet expansion is “technical buying to replenish reserves,” different from QE, with a more controllable scale. If the market overinterprets this as a 2020-style QE expectation, disappointment will follow.

Currently, RMP is a technical buy, not an active liquidity injection, and the scale is far smaller than the 2020 QE (monthly expansion exceeding $100 billion).

In other words, liquidity improvement is limited. BTC will not “recklessly surge” like from $4K to $69K in 2020–2021. We need to wait for clearer monetary policy shifts (such as rate cuts or restarting QE).

2026 may be a “slow bull.”

Risk 3: The “time lag trap” between retail and institutions

Institutions buy between 87K–90K, retail chases higher at 93K. If BTC pulls back to 88K:

Institutions still profit, continue holding; retail gets trapped, panic selling.

Result: institutions buy again at the low.

This is an eternal cycle:

Institutions view a 4-year cycle; retail focuses on 4-week volatility.

Institutions are disciplined; retail relies on feelings.

Institutions buy against the trend; retail chase and panic sell.

Data from November–December is the best proof: retail sold at 93K (net outflow of about $4.57 billion over two months), while institutions bought at 87K (net inflow of $471 million on January 2). Institutions profit from retail’s panic selling.

04｜How does this rally differ from 2025?

2025 rally: narrative-driven

Core logic: halving + ETF launch + supply shock post-halving

Capital sources: retail FOMO, institutional tentative allocation

Price performance: from $25K to $73K (+192%)

Risks: after narrative realization, capital retreats (net outflow of about $4.57 billion in Nov–Dec)

2026 rally: capital-driven

Core logic: Fed liquidity injections + continuous ETF inflows + new whale accumulation

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

Price performance: from $87K to $93K (+6.8%, just beginning)

Advantages: capital-driven is more sustainable than narrative-driven

Key differences:

Driving force change: 2025 relies on “expectation,” 2026 on “real money.” Narratives can change overnight (e.g., SEC attitude shift, regulatory policy adjustments), but capital inflows are real buying.

Continuity change: Narratives fade (halving effect diminishing, ETF novelty wearing off), but capital remains (institutional allocation is long-term, not frequent entry/exit).

Volatility difference: The capital-driven phase has smaller fluctuations. Institutions do not chase prices like retail; they have clear plans and discipline.

This suggests that 2026 may not experience the “boom and bust” of 2021 but rather a “slow bull”: gradual upward movement with small pullbacks.

Retail investors need to adapt to the new rhythm, avoid expecting “double overnight,” and be patient.

Historical reference: Gold from $1,300 to $2,700 (107%) from 2019–2024 took five years. No explosive surge, but no crash either. This is characteristic of a market dominated by institutions.

05｜Three lessons for us

First, learn to interpret the “smart money” movements.

Don’t follow K-line patterns blindly; follow the capital flow:

ETF inflow = institutions buying

Fed balance sheet expansion = liquidity improving

New whale accumulation = long-term signal

These three indicators are more important than any technical analysis. K-line can deceive (fake breakouts, washouts, false signals), but capital flow won’t lie.

Second, understand the “time lag” trap.

Institutions buy during retail panic, sell during retail FOMO. If you always chase highs and sell lows, you are the one being harvested.

Learn to:

Buy when institutions buy (even if it’s panic)

Sell when institutions sell (even if it’s euphoria)

Use ETF flow data for judgment, not feelings

Third, 2026 may be a “slow bull,” so patience is needed.

The 2021 “explosive rise” will not repeat. This bull market is more like:

5–10% monthly gains

lasting 12–18 months

ultimately reaching new highs, but with a more winding path

If you expect to get rich overnight, you will be disappointed. But if you are patient, you may find this bull market more “comfortable” than the last. Smaller corrections, less daily anxiety.

Previously, BTC dropped from $69K to $15K, a 78% decline. Many cut losses at $60K, $50K, $40K, only to despair at $15K.

If 2026 is a slow bull, corrections may only be 15–20%. From $90K to $75K, not from $90K to $20K. In such an environment, holding is easier, mindset more stable.

Final words: understanding institutional capital dynamics is more important than predicting prices. When you understand capital flows, you won’t panic when it’s time to buy, nor be greedy when it’s time to sell.

Retail investors sold at 93K in December; institutions added positions at 87K in January. That’s the gap.