Bitcoin ETF outflows 32%! $130 trillion in liquidity may trigger a supply shock

BlackRock IBIT Fund size has retreated 32% from its October high to $67.6 billion, with outflows in 8 of the past 10 weeks. However, Glassnode data shows retail panic selling while whales are aggressively accumulating in the $80,000 to $90,000 range. Exchange Bitcoin balances have fallen to a new low since 2018, with large amounts of chips exiting circulation, hinting at a supply shock brewing in the market.

Main Cause of Bitcoin ETF Capital Outflows: Tax Loss Harvesting, Not Confidence Collapse

(Source: Koyfin)

The capital outflows from Bitcoin ETFs exhibit a very clear “tax loss harvesting” characteristic, with most of the outflow concentrated toward the end of 2025. Wall Street fund managers, having profited immensely from US tech stocks, urgently need to sell some of their loss-making Bitcoin holdings to offset tax liabilities. Under the US tax system, investors can use capital losses to offset capital gains, thereby reducing tax payments. When tech stocks surge dramatically in 2025, many institutional investors holding Bitcoin ETFs are in a loss position, making these ETFs an ideal tax optimization tool.

This is a financial technical maneuver, not a permanent devaluation of the asset. Historical experience shows that when the new fiscal year begins and tax books reset, these forced-out funds often re-enter the market. Similar tax-driven sell-offs occurred at the end of 2022 and 2023, followed by strong rebounds in the first quarter of the following year. If one interprets this outflow as a sign of confidence collapse, it risks underestimating the market’s technical recovery.

The deeper logic lies in the behavior patterns of institutional investors. They do not change strategic allocations due to short-term volatility; tax optimization is merely a technical execution at the operational level. When new capital allocations are unlocked in 2026, these institutions will face a stark reality: liquidity in the spot Bitcoin market has been significantly compressed, forcing them to buy back chips at higher prices. This structural contradiction is at the core of the supply shock theory.

Major Chip Transfer: Retail vs. Whales

Glassnode on-chain data reveals a complete divergence in market participant behavior. Retail addresses holding less than 1 Bitcoin are frantically selling, with their actions highly synchronized with price declines—classic FOMO buying near $100,000 and panic selling when prices retreat to $80,000–$90,000, realizing paper losses and market fear.

In contrast, whales holding 1,000 to 10,000 Bitcoins show an accumulation trend score approaching maximum. This indicates that during the $80,000–$90,000 range, which causes retail investors to tremble, whales are greedily devouring bloodied chips. This pattern appears in every bull market correction and is a key marker distinguishing smart money from blindly following the crowd.

Three Major Chip Concentration Signals

Exchange Balances at Historic Low: Bitcoin balances on exchanges have fallen to the lowest point since 2018, indicating large amounts of Bitcoin have been withdrawn to cold wallets, exiting circulation. This “supply lock-up” phenomenon often precedes sharp price surges.

Whale Addresses Continue to Accumulate: The number of addresses holding over 1,000 Bitcoins continues to grow, signaling that large investors recognize the current price range. These holders typically possess deeper market insights and a longer-term investment horizon.

Retail Capitulation: Small holders clearing out signals market sentiment has bottomed. Historically, when retail investors collectively capitulate, it often marks an important mid-term bottom.

Chips are undergoing a massive “class transfer,” moving from weak hands to strong hands. While this structural change may cause short-term price weakness, it is a necessary condition for a bull market to continue in the medium to long term. Only when floating chips are thoroughly washed out can the market confidently move higher.

Global M2 Surpasses 130 Trillion USD Liquidity Resonance

Focusing solely on Bitcoin ETF outflows risks missing the bigger picture. The decisive factor for Bitcoin’s fate in 2026 is not on Wall Street trading floors but at the world’s central banks’ printing presses. Bitcoin, as a “super sponge” for global liquidity, is about to experience a rare liquidity resonance between China and the US.

Historical data shows a high positive correlation between Bitcoin price movements and global M2 (broad money supply). By the end of 2025, despite the price decline, global M2 has quietly surpassed a record high of 130 trillion USD. The source of this liquidity surge mainly comes from two directions.

First, the East. China’s central bank is injecting enormous liquidity into the market to counter deflationary pressures. Although Chinese retail investors cannot directly buy Bitcoin, this massive capital will indirectly seep into global high-risk assets through trade surpluses, offshore financial centers (like Hong Kong), and various underground channels. The digital renminbi 2.0 interest rate policies aim to strengthen the RMB system but also indirectly boost global liquidity.

Second, the West. The Federal Reserve’s quantitative tightening (QT) has effectively ended, and to sustain the enormous debt system, rate cuts and covert balance sheet expansion are the only paths in 2026. When the US dollar index falls below 100, trillions of dollars of dormant cash in currency funds will be forced to seek new high-yield opportunities. Bitcoin ETFs, as compliant and highly liquid investment vehicles, will become one of the preferred targets for these funds.

Based on this logic, the baseline scenario (50% probability) expects the market to bottom out in the first quarter, with Bitcoin trading between $82,000 and $92,000. Subsequently, as global liquidity opens the floodgates, prices are expected to regain upward momentum in Q2, breaking through $100,000, and potentially reaching $150,000 by year-end. The pessimistic scenario (20% probability) involves runaway inflation causing the Fed to re-raise interest rates, with Bitcoin falling below $80,000 to test the $60,000 abyss, but this would be a golden opportunity for long-term believers.