Why Bitcoin ETFs Are Rebounding: Liquidity Over Rates

Why are Bitcoin ETFs seeing their first sustained inflows in weeks while the Fed holds rates steady at 2.0%?

The answer isn't monetary policy—it's fiscal flows.

TL;DR: Follow the Liquidity

• US government deficit spending: $43.5 billion per week (January 2026)
• China bank lending surge: 5 trillion yuan ($721B) in January alone
• Bitcoin ETF inflows: $683 million over 3 days (Feb 8-10) after weeks of redemptions
• Bitcoin price: $67,017, stabilizing after touching $64,000 lows

Crypto follows money supply expansion, not rate expectations. Here's what the data tells us.

The US Liquidity Machine Keeps Running

The US federal government injected $94 billion into the private sector in January 2026 alone. That's an annualized deficit pace exceeding $1.8 trillion for fiscal year 2026.

More importantly: the rate of spending hasn't slowed. At $43.5 billion per week through the first four months of FY2026, deficit spending continues to pump spendable dollars into private sector bank accounts—dollars that find their way into risk assets.

Bank credit is expanding alongside fiscal flows. The Federal Reserve's latest survey shows business loan demand hit its strongest level since Q2 2022. Total loans and leases in bank credit stood at $13.43 trillion as of late January. Banks aren't planning further tightening—a key shift from 2025's restrictive environment.

Remember: banks create loans through accounting entries. When businesses see profit opportunities, they borrow. That creates new money independent of central bank policy.

China's Credit Explosion

If US liquidity is a steady stream, China's January was a firehose.

Chinese banks issued approximately 5 trillion yuan ($721 billion) in new loans during January 2026—up from just 910 billion yuan in December. Total social financing surged to 7.05 trillion yuan.

This represents massive credit creation flowing into the global financial system. The People's Bank of China cut rates on structural lending tools by 25 basis points and maintains a "moderately accommodative" policy stance targeting domestic demand, tech innovation, and small enterprises.

China's M2 money supply grew 8.4% year-over-year. Outstanding yuan loans climbed 6.2%. This is liquidity expansion at scale—and it supports global risk asset prices, including crypto.

Bitcoin ETFs: The Canary Returns to the Coal Mine

After weeks of redemptions totaling nearly $2 billion year-to-date, US spot Bitcoin ETFs recorded three consecutive days of inflows from February 8-10:

• February 8: Data unavailable
• February 9: ~$145 million net inflows
• February 10: $166.56 million net inflows (ARK $68.53M, Fidelity $56.92M, BlackRock $26.53M)

Total: approximately $683 million in three days, ending a mid-January redemption streak.

Bitcoin stabilized near $70,000 after touching $64,000 lows. As of February 11, 8:00 AM GMT, Bitcoin trades at $67,017—down 2.71% in 24 hours but well off recent lows.

Institutional allocation continues: over 2,000 US advisory firms now hold crypto ETPs, up from under 200 pre-2024. Cumulative ETF inflows since launch exceed $55 billion, holding over 690,000 BTC.

Regulatory Winds Shifting

The Digital Asset Market Clarity Act stalled in the Senate in January 2026, but regulatory momentum continues:

• SEC terminated most enforcement actions (including vs. Coinbase)
• SEC launched Crypto Task Force for clear digital asset framework
• Banking regulators (FRB, OCC, FDIC) rescinded anti-crypto guidance
• GENIUS Act implementation proceeding for payment stablecoin framework

Treasury Secretary Scott Bessent urged passage of comprehensive crypto legislation by spring 2026 to boost US competitiveness. The shift from enforcement-first to clarity-first creates institutional confidence.

Europe: The Exception

Not all liquidity trends point bullish.

The European Central Bank held rates at 2.0% (deposit facility) on February 5. But eurozone banks tightened lending standards to firms in Q4 2025. Rejected business loan applications rose to 5% from 2% in Q3.

The EU's 2026 budget commits €192.77 billion—substantial but not expansionary. Without fiscal acceleration to match US and Chinese flows, European liquidity remains neutral at best.

Crypto is a global asset. Regional liquidity divergences matter less than the aggregate—and the aggregate points to expansion.

The Framework: Why This Matters for Crypto

Crypto prices track liquidity, not interest rates. Here's why:

1. Government deficit spending creates net financial assets
Every dollar the US government spends beyond tax collection adds to private sector savings. That $43.5 billion weekly doesn't disappear—it sits in bank accounts, seeking returns.

2. Bank credit expansion creates purchasing power
When banks make loans, they create deposits. That's new money entering the economy, independent of government spending. US banks are lending more to businesses seeing profit opportunities.

3. QE/QT changes composition, not spendable money
The Fed's balance sheet operations swap reserves for bonds or vice versa. Neither reserves nor bonds are spendable by the private sector. Fiscal flows—government spending minus taxes—are what matter.

4. Higher rates = more government spending
CounterIntuitively, when rates rise, the government pays more interest to bondholders. That's additional fiscal spending flowing to the private sector. At $38+ trillion in debt, each percentage point adds hundreds of billions in annual interest payments—money deposited into private accounts.

What This Means for Crypto Allocators

The reversal in Bitcoin ETF flows isn't random. It correlates with:

• Sustained US deficit spending ($43.5B/week)
• Chinese credit expansion (5T yuan in January)
• Improving regulatory clarity (SEC task force, terminated enforcement)
• Institutional infrastructure maturing (2,000+ advisory firms allocated)

Investors deciding on crypto allocation should focus on these leading indicators, not Fed meeting minutes or CPI prints.

Bullish liquidity signals:

• US deficit spending acceleration (watch Monthly Treasury Statement)
• China credit data showing expansion (PBOC releases mid-month)
• Bank lending growth in major economies

Bearish liquidity signals:

• US deficit reduction (fiscal tightening)
• Global bank credit contraction
• Tax increases or tariff expansion (withdraw liquidity)

Current trends: 2 out of 3 major economies (US, China) expanding liquidity. That's a supportive environment for risk assets including crypto.

The Takeaway

Bitcoin ETF inflows are returning because global liquidity is expanding—particularly from US fiscal deficits and Chinese credit creation. The Fed's rate policy is secondary.

For portfolio construction, the implication is clear: track fiscal flows and bank credit, not central bank rhetoric. The money supply is what moves markets. And right now, the money supply is growing.

February 2026 data shows $43.5 billion per week in US deficit spending, $721 billion in Chinese January lending, and Bitcoin ETFs recording their first sustained inflows in weeks. That's not coincidence. That's liquidity.

Analysis current as of February 11, 2026, 8:00 AM GMT. Data sources: CBO Monthly Budget Review, PBOC credit data, CoinGecko, Federal Reserve surveys, ECB releases.