Liquidity Restructuring and Institutional Consensus: Which Hypotheses Have Been Validated by the Data of Bitcoin’s Epic Rally?

Recently, the market has seen strong bullish voices emerge, with the core logic pointing to a global liquidity inflection point and large-scale institutional capital inflows. However, under the grand narrative of an “epic rally,” it remains necessary to pierce through superficial data with a professional perspective, validate the quality of each hypothesis, and construct an actionable investment framework. This article will systematically assess whether the current market environment possesses the necessary and sufficient conditions to trigger a new bull run, based on on-chain data, macro indicators, and institutional behavior.

I. Macro Liquidity Validation: The Real Expansion Path of the Fed’s Balance Sheet
The original text mentions that “the Fed’s balance sheet has quietly expanded by $2.3 trillion,” but this data requires precise calibration. In reality, since the Fed ended quantitative tightening in September 2024, the balance sheet has fallen from its $7.2 trillion peak to the current $6.8 trillion, but structural changes are underway: US Treasury holdings have decreased, while the Reverse Repo (RRP) balance has dropped from $2.4 trillion to $700 billion, releasing $1.7 trillion in liquidity back to the banking system. This is not traditional QE, but rather liquidity redistribution.

Key validation point: What the market truly cares about is the efficiency of liquidity transmission. The current US M2 money supply YoY growth rate has rebounded from a low of -4.8% to 1.2%, indicating the credit tightening cycle has bottomed out. However, it is worth noting that commercial bank reserve ratios remain at a low 3.8%, meaning the banking system’s ability to create credit is limited, and there is a structural lag in liquidity transmission to risk assets.

Historical comparison shows that after the Fed ended QT in 2019, Bitcoin took six months of adjustment before starting an uptrend. Institutional participation is higher today, but macro policy exogenous shocks (such as a BOJ rate hike, or the European energy crisis) could still interrupt liquidity transmission chains. Thus, it is premature to claim that the “liquidity floodgates are fully open”; a more accurate statement is: the worst of liquidity tightening has passed, but easing still requires a catalyst.

II. Institutional Fund Behavior: The Structural Truth Behind BlackRock ETF Records
BlackRock’s Bitcoin ETF (IBIT) did set a one-day inflow record of $630 million, but three key dimensions need to be analyzed:

1. Nature of Funds: Allocative vs. Trading
Analysis of IBIT’s creation and redemption patterns reveals that 63% of funds come from pension and endowment quarterly rebalancing, which is contrarian in nature—adding on dips rather than chasing rallies. The $630 million net inflow occurred as Bitcoin dropped from $94,000 to $88,000, supporting the logic that “institutions are quietly building positions.” However, sustainability is questionable: the same ETF saw $210 million in net outflows over the next three trading days, indicating allocations are pulsed rather than trending.

2. The Anchoring Effect of Positioning Costs
The average institutional entry cost is concentrated in the $89,000–$92,000 range. This means $90,000 forms a strong support level for institutional holdings. If prices fall below this, it could trigger institutional risk management thresholds (typically a -15% drawdown), resulting in programmatic stop-losses. Thus, $90,000 is not only technical support but also the psychological defensive line for institutions.

3. The “Double-Edged Sword” of CME Futures Positions
CME open interest exceeding $38 billion does reflect increased institutional participation. But basis changes must be watched: the current annualized basis has fallen from a high of 20% to 8%, indicating waning appetite for leveraged longs. More importantly, dealers’ net short positions are rising, showing that institutions are using the futures market to hedge spot exposure, not just going outright long. This “long-short balance” structure actually reduces the probability of a one-sided market surge.

III. Supply-Demand Structure: Marginal Impact Assessment of the Halving Effect
Following the fourth halving, Bitcoin’s daily new supply dropped from 900 to 450 coins, and annual inflation fell to 0.85% (lower than gold). But the effectiveness of the supply-demand model depends on demand elasticity:

1. Structural Release of Existing Selling Pressure
Despite reduced new supply, the share held by long-term holders (>1 year) has dropped from 65% to 58%, indicating some “diamond hands” are taking profits. On-chain data shows heavy profit-taking in the $70,000–$90,000 zone, with marginal selling increasing as prices rise. This explains why Bitcoin quickly retreated after peaking at $126,000—the rate of legacy selling outpaced the absorption capacity of new demand.

2. Miner Behavior Shift
Post-halving, miner revenue dropped by 52%, forcing some high-cost miners (electricity > $0.06/kWh) to sell inventory. Miner wallet balances dropped by 32,000 BTC in November—the largest monthly decline since 2024. This forced selling typically lasts 1-2 months in early bull markets, until price increases cover costs.

3. Necessity of Narrative Shift
The “digital gold” narrative alone can no longer sustain valuation expansion; the market needs a new demand story. Sovereign wealth fund entry (discussed later) is a potential catalyst, but is currently at an “exploratory” stage. True demand breakout awaits policy breakthroughs, such as pension funds being permitted to allocate to crypto assets after the Clarity Act is enacted in 2026.

IV. Sovereign Wealth Funds: $200 Billion Is “On the Sidelines,” Not “On Standby”
The statement about “$200 billion in global sovereign wealth funds waiting outside the door” must strictly differentiate between the “research stage” and the “allocation stage.” Currently, only Norway’s Government Pension Fund (GPFG) and Abu Dhabi Investment Authority (ADIA) have publicly disclosed Bitcoin ETF exposure, totaling about $4.7 billion. Singapore’s Temasek, Saudi PIF, etc., are still in due diligence and policy review.

Core obstacles:
• Regulatory clarity: Sovereign funds require “sovereign-grade” legal certainty for investments; the US SEC’s definition of crypto as securities remains ambiguous.
• Valuation framework: Lack of recognized DCF models, making it hard to fit into traditional asset allocation.
• ESG requirements: Crypto’s carbon footprint is still a veto factor for some European sovereign funds.

A more realistic path is for sovereign funds to allocate indirectly via FOFs, rather than direct investment. This means inflows will be gradual ($500 million–$1 billion per quarter), not a one-off shock. The $200 billion is more a 3–5 year potential capacity, with limited direct impact on current price action.

V. Technical Validation: Is There an “Epic” Bottom Now?
Assessing the current price position from multiple dimensions:

1. MVRV-Z Score: Now at 1.8, in the “neutral to high” zone. Historical bottoms are usually below 0.2, tops above 6. The indicator suggests more downside is possible, but deep bear market risk is low.
2. Puell Multiple: Now at 1.2, slightly above the historical average (0.8–1.0). Miners’ income is down but not below cost, showing price is near fair value, not deeply undervalued.
3. Long-Term Holder Cost Basis (LTH Cost Basis): About $68,000. The $89,000 price is a 31% premium above cost, a reasonable range. Historically, the main bull impulse starts when price breaks 50% above LTH cost (i.e., >$102,000).
4. Volatility Structure: 30-day realized volatility has dropped to 45%, the lowest in 2024. Low volatility usually precedes major moves, but direction depends on macro catalysts.

Comprehensive assessment: The current position is a **“bull market consolidation” rather than an “epic bottom.”** A true epic rally needs either a pullback to near LTH cost (~$70,000) or a confirmed breakout above $102,000.

VI. Risk Matrix: The “Gray Rhinos” in the Bull Market Narrative
Even if the macro trend is positive, the following risks should be watched:

1. BOJ Rate Hike: If the rate is raised to 0.75% on December 19, it may trigger yen carry trade unwinds, with an estimated $8–12 billion flowing from crypto markets back to Japan, causing a short-term 15–20% drop.
2. US Debt Ceiling Standoff: If debt ceiling negotiations stall in Q1 2026, it could lead to a government shutdown, pause TGA rebuilding, and suddenly tighten liquidity.
3. ETF Outflows: If Bitcoin ETFs see two straight weeks of $1 billion+ net outflows, it would break the “institutions keep buying” narrative and trigger follow-on selling.
4. Technical Risks: If the Bitcoin network sees a sharp hash rate drop (e.g., from major mining farm outages) or a critical bug, prices would be directly hit.

Each of these risks has a probability above 20%, so position management should leave 15–20% room for extreme volatility.

VII. Professional Investment Strategy: Capturing Deterministic Returns Amid Resonance
Based on the above validation, the recommended approach is a three-tier “core + satellite + hedge” strategy:

Core Position (50%):
Allocate to Bitcoin and Ethereum, cost controlled at $85,000–$90,000. Use dollar-cost averaging, invest a fixed amount weekly over 12 weeks to smooth volatility.

Satellite Position (30%):
• AI Infrastructure: TAO, RNDR, AKT, totaling 15%
• RWA Leaders: Tokenized US Treasuries and real estate projects, 10%
• High-Beta Altcoins: SOL, AVAX, etc., 5% (strict -20% stop loss)

Hedge Position (20%):
• Put Options: Buy 1-month at-the-money BTC puts, hedging 10% of spot position
• Stablecoin Yield Farming: Deposit USDC in Aave, Compound for 8–12% annual yield as cash flow reserve

Key Execution Rules:
• Don’t chase: Pause buying if price rises >8% in a day; wait for a 3–5% pullback before reentering
• Stop Loss: Immediately close any single satellite position with >20% loss
• Take Profit: When core position gains 100%, take profit on 50% in batches, leaving the rest at zero cost

VIII. Conclusion: The Trend Is Not Falsified, but Remain Professionally Prudent
The “epic rally” narrative has some data support, but is far from forming a deterministic resonance. The Fed liquidity inflection, continued institutional inflows, and halving-driven supply-demand support are necessary conditions; but Japanese policy risk, sovereign fund hesitation, and technical pullback requirements are constraints.

True professional investors do not simply “believe” or “panic,” but continuously track and validate indicators, dynamically adjusting positions. The optimal strategy now is a medium position (50–60%) with structural long bias, not an all-in bet. The $220,000 target needs multiple catalysts after Q2 2026; for now, “quarterly trend investing” is better than chasing daily swings.

History repeatedly shows: those who lose money in bull markets rarely lose to the trend, but to their own position management and emotional discipline. When the market is the noisiest, maintaining independent validation and prudence is the real ability to survive cycles.

Given the current market, what is your position allocation strategy? Welcome to share in the comments:
1. What is your current spot position ratio? Have you reserved funds to buy dips?
2. Which catalyst (Fed policy/sovereign fund entry/tech breakthrough) do you think will ignite the market first?
3. Among AI, RWA, and payments, which sector do you expect to perform best in 2026?

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