has recently dropped to around $80,000, sparking fears of a sustained bear market. While many are speculating about the fundamental causes behind this selloff, I believe it is primarily driven by tightening liquidity in the U.S. financial system, largely a result of the Fed’s prolonged quantitative tightening.
This FRED chart shows the liquidity squeeze hitting U.S. money markets right now. The Fed’s interest-paying liabilities, bank reserves plus the reverse repo facility, declined sharply as QT drained the system. RRP collapsed from a record $2.55 trillion in December 2022 to under $30 billion by late summer 2025. At the same time, Treasury bill issuance surged to finance the deficits. Bills now sit at 21.6% of total public debt, $6.6 trillion that needs constant rollover.
The two lines converging show the liquidity buffer is gone. Reserves went from “abundant” to marginally “ample.” SOFR pushed above the interest on reserve balances rate. In November 2025, the NY Fed held a meeting with major banks over repo market stress and SRF usage. Shortly after, the Fed announced it would end QT effective December 1, 2025. Earlier than expected.
With no RRP cushion left and trillions in bills requiring refinancing, funding markets are structurally fragile now. Very sensitive to Treasury issuance patterns.
I’m only mentioning this to say that there hasn’t been a fundamental shift related to Bitcoin as an asset itself. It’s been mainly driven lower by tightness in liquidity, and this low liquidity environment can’t be sustained for long.
Now let’s have a look at some technical charts
The weekly RSI and the 3-week rate of change (3W ROC) for Bitcoin have hit the lowest levels since June 2022. Every time they’ve reached these levels, these indicators usually signaled oversold conditions in that timeframe. I can’t say that Bitcoin made its bottom in every case, but afterwards it had limited drops and in the long term recorded significant gains.
I’m not just saying this based on Bitcoin’s chart alone. Let’s look at some key ratios in the market, meaning Bitcoin’s performance relative to other major assets.
Bitcoin to Gold Ratio
As you can see, the RSI on the Bitcoin to ratio chart has reached levels that in previous cases mostly marked Bitcoin’s lows for that period. After 2018, in one case Bitcoin did go lower than its previous bottom, but the drop was very limited, and it recorded significant gains afterwards.
Now Bitcoin to S&P 500
For the Bitcoin to U.S. ratio, a very similar pattern is seen for the period after 2018.
Let’s also look at Tether dominance:
The RSI for Tether dominance has also reached levels that in the past usually caused it to correct, and if it continued to rise, the move was limited.
Another indicator that stood out to me is the Bitcoin long position liquidations indicator.
This image from CryptoQuant shows the 50-day average of Bitcoin long position liquidations. As you can see, after the recent round of liquidations in the crypto market, this indicator has spiked to its highest level in at least the past two years. These sharp spikes in the past were not good times to go short.
There’s also a correlation between global liquidity and Bitcoin, with the global liquidity index leading Bitcoin by about a 3-month lag.
Right now, the global liquidity index has stabilized at historically high levels, but Bitcoin has dropped significantly. As I mentioned, I believe this is related to tightening liquidity in the U.S. financial system.
Last week, expectations for a at the December meeting had dropped to around 30%. This drop in expectations coincided with a significant decline in Bitcoin and the broader crypto market. Then we had comments from John Williams, the NY Fed President and a very key official, saying that a rate cut seems reasonable.
Suddenly, market expectations changed significantly, because his position is different from other officials and carries more weight. Plus, his comments weren’t ambiguous. They clearly pointed to a rate cut.
After that, Mary Daly also supported this view. Along with these comments, Bitcoin saw some price recovery. So going forward, a more dovish Fed could be beneficial for Bitcoin.
It’s still not clear whether we’ll get a rate cut at the December meeting. But a rate cut in the short to medium term will be more beneficial for Bitcoin than keeping rates unchanged. If rates don’t get cut, it could hit Bitcoin significantly in the short term, especially since the market is now expecting one. And because it’s not what the market expects, it would bring more pressure.
But anyway, the market is now strongly expecting a cut, and a more dovish Fed will help Bitcoin. Bessent, the Treasury Secretary, also announced today that there’s a strong chance Trump will announce the next Fed Chair before Christmas. Given Trump’s positions, it seems like he’s looking for a dovish Chair.
Based on this, Kevin Hassett is…