Is Crypto Over? Don't Give Up, Liquidity Relief Is Coming
The article "Is Crypto Over? Don't Give Up, Liquidity is Coming" by Raoul Pal addresses the current downturn in the crypto market, arguing it is not a sign of the industry's demise but a temporary liquidity crisis.
Pal refutes the narrative that crypto has permanently decoupled from other assets by showing that Bitcoin's price chart is nearly identical to that of the SaaS index, indicating a shared, external factor: a shortage of U.S. dollar liquidity. He explains this was caused by a combination of events, including the draining of the Reverse Repo facility, the rebuilding of the Treasury General Account (TGA) without monetary offset, and government shutdowns. This liquidity drain negatively impacted risk assets like crypto and tech stocks, while gold absorbed the marginal liquidity.
The key takeaway is that this period of illiquidity is ending. The impending resolution of the U.S. government shutdown is seen as the final obstacle. Once cleared, a significant injection of liquidity is expected from sources like the easing of the SLR rule, TGA drawdowns, fiscal stimulus, and eventual rate cuts. Pal, alongside analysis from Stanley Druckenmiller, suggests the new Fed leadership under a potential Warsh chairmanship would be focused on cutting rates to keep the economy hot, aligning with a pro-growth strategy from the administration.
The author admits a mistake in not prioritizing U.S. liquidity as the dominant short-term driver over global liquidity but remains highly bullish on the long-term cycle into 2026. The core advice for investors is patience, emphasizing that in a full cycle, time is more important than price. The message is clear: the liquidity cavalry is on its way.
marsbit02/02 03:40
