Key Insights
- •Treasury’s $1T cash buildup drained market liquidity, tightening funding and pressuring Bitcoin’s price.
- •Fed resumed overnight repo operations, adding $30B liquidity to ease short-term market stress.
- •Analysts expect a Bitcoin rebound once U.S. spending restarts and dollar liquidity returns.
Bitcoin’s recent drop appears tied to a tightening in U.S. dollar liquidity. A new report from ET, a researcher at SoSoValue (Agarwood Capital), points to a growing cash balance at the U.S. Treasury and renewed stress in funding markets as key factors. These shifts have limited the availability of dollars in the system, weighing on liquidity-sensitive assets like Bitcoin.
Treasury Cash Balance Nears $1 Trillion
The Treasury General Account (TGA) has grown close to $1 trillion, removing cash from circulation and reducing reserves in the banking system. This has made funding conditions tighter. At the same time, the spread between SOFR and the Fed’s target rate has widened to +30 basis points, showing that banks are paying more to borrow short term.
In response, the Federal Reserve has reintroduced overnight repurchase agreements, supplying nearly $30 billion in short-term liquidity as of October 31. This is the first such action since 2019. The report describes the move as a shift from passive balance sheet reduction to direct intervention, aimed at easing market tension.
The liquidity drain is also tied to the ongoing U.S. government shutdown. To prepare for spending delays, the Treasury has issued more debt, increasing the TGA balance. This pulls dollars out of the market.
Bitcoin Reacts to Tight Liquidity
Bitcoin tends to be sensitive to changes in dollar liquidity. While tech stocks have held up, Bitcoin has fallen since mid-October. The report connects this to rising funding costs and fewer dollars flowing through markets.
Data shows that reverse repos, a tool banks use to access short-term cash, have climbed back to $50 billion, signaling increased demand for safe, liquid assets. According to the researcher, shifts in TGA and reverse repo balances are more useful for tracking real-time liquidity than the size of the Fed’s balance sheet.
Reopening May Unlock Liquidity
The report says the current conditions may shift once the government reopens.
The author wrote,
“Historically, when the Treasury hoards cash and liquidity tightens to extremes, a market reversal often follows,”
Forecasts suggest a deal in Congress could arrive by mid-November. If that happens, the Treasury would resume spending, the TGA balance would fall, and dollars would flow back into the market. That could provide relief for risk assets.
The author noted that Bitcoin may be entering the final stage of its correction. If liquidity improves and rate cuts follow, markets could begin a new phase.