Raoul Pal, a prominent macro investor, offers insight into the recent downturn in Bitcoin prices, challenging narratives that suggest a fundamental breakdown in the cryptocurrency market cycle. In a detailed essay presented through his Global Macro Investor platform, Pal emphasizes that the current slump in Bitcoin and broader crypto assets is the consequence of macroeconomic liquidity dynamics in the United States, rather than inherent structural damage to digital currencies.
Pal points out that Bitcoin's price trajectory has closely mirrored that of technology stocks, a phenomenon he attributes to shared exposure to macroeconomic factors, especially liquidity conditions. Both asset categories are characterized as long-duration and highly sensitive to liquidity, making them especially susceptible to declines when liquidity is constrained.
Several specific factors contribute to the contraction in U.S. liquidity, according to Pal's analysis:
- The reverse repurchase agreement (repo) facility in the U.S. was fully depleted in 2024, removing an important source of liquidity from the market.
- The U.S. Treasury has rebuilt its General Account balance without offsetting this action with equivalent liquidity injections into the financial system.
- Multiple government shutdowns disrupted usual capital flows, further limiting available liquidity.
- An unexpected robust rally in gold has absorbed some of the limited marginal liquidity that might otherwise have lent support to other asset classes.
Pal asserts that due to these combined liquidity constraints, riskier investment assets such as Bitcoin and tech stocks were among the first to suffer noticeable declines. He further notes that weak liquidity conditions have negatively impacted indicators such as the Institute for Supply Management (ISM) data, which reflects broader economic activity, thus underpinning a narrative of economic deceleration.
Looking ahead, Pal expresses optimism about an imminent liquidity resurgence. He expects the resolution of the current government shutdown to remove one of the last significant impediments to liquidity growth. Anticipated sources of liquidity improvement include partial drawdowns from the Treasury's General Account, modifications to the enhanced supplementary leverage ratio (eSLR), forthcoming fiscal stimulus measures, and prospective interest rate cuts.
Pal points out that the build-up of political considerations related to the upcoming midterm elections could hasten policy actions conducive to enhanced liquidity. He also places emphasis on the investment principle that time holds more significance than price in a full-market cycle, advocating for investors to maintain patience during drawdown phases.
Addressing expectations around monetary policy leadership, Pal disagrees with views that the Federal Reserve Chair nominee, Kevin Warsh, will adopt a hawkish stance. Instead, he suggests Warsh is more likely to embrace strategies akin to those of former Fed Chair Alan Greenspan, combining interest rate reductions with balance-sheet tightening. Pal discounts the likelihood of such policy amid current reserve limitations.
He acknowledges a prior underestimation of the dominance of U.S.-specific liquidity influences relative to global factors during this stage of the financial cycle. Despite this, Pal remains confidently bullish about the outlook for Bitcoin and similar assets in 2026. He warns investors against prematurely exiting positions at points that might superficially resemble cycle endings but are in fact temporary troughs.
This nuanced perspective emphasizes that the recent Bitcoin selloff to approximately $78,000 should be understood within the context of overarching liquidity dynamics rather than as evidence of fundamental market breakdowns.