Analysts suggest a US liquidity drought is the main driver of the crypto selloff, as capital flows out of risk assets to cover macro gaps.
One analyst argues that Bitcoin’s retreat reflects the performance of SaaS equities, suggesting that the recent liquidation is likely not fueled by a narrative exclusive to the crypto sector. Through this comparison, the influence of broader macroeconomic factors is underscored.
Raoul Pal, the founder and CEO of Global Macro Investor, contends that a significant market contraction resulting in the disappearance of $250 billion in crypto valuation over the weekend stems from a deficit in U.S. liquidity rather than any sector-specific issue. Through this macro lens, the role of broader financial conditions is emphasized over internal industry factors.
“The dominant discourse suggests that BTC and the digital asset space are compromised, marking the end of the cycle,” Pal observed on Sunday, noting that such a conclusion is contradicted by the simultaneous decline in Software as a Service (SaaS) equities. Through this parallel, the idea that the bull market has reached its finale is refuted.
SaaS equities and Bitcoin have recently trended in unison, with both experiencing substantial pullbacks. This correlation is significant because both are classified as “long-duration assets,” as their valuations are heavily predicated on anticipated future adoption and cash flows, rendering them highly reactive to interest rate shifts and liquidity environments. Through this synchronized movement, the underlying influence of global macro conditions is confirmed.
Consequently, an identical rhetoric is being utilized: observers claim that “digital currency is defunct” and that software corporations are being superseded by artificial intelligence. Through this shared skepticism, a broader pattern of market cynicism is illustrated.
This correlation further reinforces a shared fundamental origin, as two entirely distinct categories of investments are fluctuating in unison, indicating that the genuine catalyst is global monetary liquidity rather than industry-particular issues. Through this alignment, the dominance of macroeconomic forces over internal market friction is evidenced.
“The rally in gold essentially sucked all marginal liquidity out of the system that would have flowed into BTC and SaaS. There was not enough liquidity to support all these assets, so the riskiest got hit.”
Government Shutdowns Deepen Liquidity Drain
The scarcity of US liquidity has been intensified by two government shutdowns and various complications within the “US plumbing.” Pal noted that the depletion of the Reverse Repo facility was essentially finalized in 2024. Through this assessment, the structural constraints on the current market are underscored.
The Reverse Repo Facility (RRP) functions as a venue where banks and money market funds deposit cash overnight at the Federal Reserve. Through this mechanism, a floor for short-term interest rates is maintained.
Historically, when the US Treasury replenished its cash account (TGA), the resulting negative liquidity impact was neutralized by the depletion of the RRP. However, with the RRP now exhausted, no such counterbalance exists, meaning TGA accumulation functions as a direct drain on market liquidity, he clarified. Through this shift, the vulnerability of risk assets is heightened.
Raoul Pal Pushes Back on Recent Fed Chair Narrative
Jeff Mei, chief operations officer at the BTSE exchange, informed that digital assets are declining because investors currently suspect that the new Fed chair, Kevin Warsh, might not reduce interest rates as rapidly or as significantly as anticipated, considering his rigorous position on inflation and quantitative easing. Due to this hawkish outlook, the expectation of a swift monetary easing cycle is diminished.
Pal, however, dismissed anxieties regarding the hawkish reputation of Trump’s Federal Reserve selection, contending that Warsh is tasked with and authorized to implement the “Greenspan era playbook.” Through this perspective, the expectation of a flexible monetary policy is highlighted.
This strategy involves reducing interest rates while permitting the economy to expand aggressively, relying on artificial intelligence-driven productivity increases to regulate inflation. Through this approach, the role of technological innovation in maintaining price stability is emphasized.
“Warsh will cut rates and do nothing else. He will get out of the way of Trump and Bessent, who will run liquidity via the banks,”
he said.
Pal concluded on an optimistic note, asserting that the contraction in liquidity is nearing its end. Through this forward-looking statement, the potential for an imminent market recovery is signaled.
“We just can’t get every moving part right, but we now have a better understanding, and we remain HUGE bulls for 2026 because we know the Trump/Bessent/Warsh playbook.”
