Crypto Is Not Broken; It’s a US Liquidity Squeeze, Says Raoul Pal

Raoul Pal, founder of Global Macro Investor, believes the decline in cryptocurrency prices is due to a temporary liquidity squeeze in the US, rather than a sign of a failing crypto market. He argues that factors like US Treasury cash management and recent government shutdowns are crucial for understanding the current situation.

Key Takeaways

Raoul Pal argues that the crypto market is not broken but affected by a liquidity squeeze in the US.
He highlights that recent price declines in Bitcoin and SaaS (Software as a Service) stocks are driven by similar market dynamics.
The lack of liquidity is due to US Treasury management and recent government shutdowns.
Pal suggests that resolving the shutdown could lead to a significant influx of liquidity, positively impacting the market.
He remains optimistic about the future of Bitcoin in 2026 if the expected policy and liquidity changes take place.

Crypto Is Not Broken; It’s a US Liquidity Squeeze, Says Raoul Pal

The Current Market Dynamics

Raoul Pal is countering the narrative that the current downturn in cryptocurrency prices indicates a broken market. He points out that Bitcoin, along with high-volatility assets, is facing challenges due to a temporary lack of liquidity in the US financial system. In his recent post on X, Pal critiques the common belief that “Bitcoin and crypto are broken, and the cycle is over.” He describes this as a misleading narrative that has gained popularity, especially as prices have been plummeting consistently.

The Role of Liquidity

Pal suggests that the recent decline is primarily due to liquidity issues in the US. He argues that shutdowns and complications with US financial systems have restricted liquidity, which has negatively affected market performance. He notes that the depletion of funds in the Federal Reserve’s reverse repo facility was almost complete by 2024, which has left insufficient liquidity during crucial months.

If we look at historical trends, Pal states that the Treasury General Account (TGA) was replenished in July and August without the usual supportive measures, creating a liquidity drain. He also points to an overall weakness in macroeconomic indicators, suggesting that the low liquidity heavily influences these readings.

BTC vs SaaS | Source: X @RaoulGMI

The Impact of Gold and Shutdowns

According to Pal, the recent surge in gold prices has further drained available liquidity from the market, making it difficult for riskier assets like Bitcoin and SaaS stocks to attract investment. He emphasizes that both Bitcoin and SaaS stocks are long-duration assets, which are particularly vulnerable during periods of liquidity withdrawal.

He also mentions that the latest government shutdown has exacerbated these liquidity pressures. The Treasury's strategy of not depleting the TGA during the previous shutdown has led to further liquidity constraints.

Looking Ahead

Despite the current challenges, Pal believes the liquidity squeeze is nearing resolution. He notes that the ongoing shutdown is likely to be resolved soon, which could lead to an influx of liquidity into the market. He lists various factors, such as regulatory changes and potential fiscal stimulus measures, that may contribute to a favorable shift in liquidity.

Pal also addresses misconceptions about Federal Reserve policies, particularly concerning Kevin Warsh, suggesting that he is not likely to adopt a hawkish approach as some have speculated.

In closing, Pal admits that his firm, GMI, initially underestimated the impact of US liquidity on market dynamics. However, he stresses that it's essential to be patient during these times, as the timing of market cycles may be more significant than the price itself. He remains highly optimistic about Bitcoin’s potential in 2026, should the anticipated policy shifts occur.

At the time of writing, Bitcoin's price was $77,510.

Bitcoin price chart
Bitcoin trades at key support, 1-week chart | Source: BTCUSDT on TradingView.com