Raoul Pal Says Bitcoin (BTC) Isn’t Broken: US Liquidity Is the Real Culprit

Raoul Pal said Bitcoin’s collapse reflects a temporary dip in liquidity in the US, not a broken crypto cycle or a failed market.

Bitcoin is down nearly 40% from its peak of $126,000. Although the price is currently just above $77,000, prices remain vulnerable and investors are preparing for a deeper decline.

Amid intense bearish sentiment, Raoul Pal, founder and CEO of Global Macro Investor, said widespread claims that BTC and the broader crypto market are “broken” represent a false narrative driven by temporary liquidity conditions rather than a failed cycle.

Bitcoin and SaaS

Pal said the dominant market narrative indicates that the crypto cycle is over and prices are collapsing due to factors such as exchange rate issues, institutional actions or structural flaws. But he described this view as an “alluring narrative trap,” which has been exacerbated by continued daily price declines. Analysis showed that the UBS SaaS Index and Bitcoin have followed nearly identical price patterns, essentially indicating a common underlying factor rather than asset-specific issues.

According to Pal, that factor is US liquidity, which is limited due to various technical and fiscal factors. He pointed to the completion of the US Reverse Repo drain in 2024, followed by the reconstruction of the Treasury General Account (TGA) in July and August, which lacked a compensatory liquidity injection, ultimately resulting in a liquidity withdrawal.

Friend declared this liquidity shortage has also contributed to weak ISM figures. While Global Total Liquidity tends to have the strongest long-term correlation with Bitcoin and US stocks, he argued that US Total Liquidity is currently more influential because the US is the main source of global liquidity. The GMI founder added that global liquidity has taken the lead over U.S. liquidity this cycle and is starting to rise, which is expected to feed into U.S. liquidity and economic indicators.

Bitcoin and SaaS are particularly affected as they are among the longest-dated assets and therefore most sensitive to liquidity conditions. The rally in gold absorbed marginal liquidity that would otherwise have flowed into riskier assets such as Bitcoin and SaaS, leaving insufficient liquidity to support all asset classes simultaneously, he said.

The current US government shutdown has intensified liquidity drain, as the Treasury Department did not reduce the TGA after the previous shutdown, but instead increased it. He called the resulting environment a temporary “air pocket” that has created severe price pressure.

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However, Pal said there are signs that the shutdown could be resolved soon, calling it the last major liquidity hurdle. He reiterated that additional liquidity factors, such as adjustments to the enhanced supplementary leverage ratio (eSLR), partial TGA withdrawals, fiscal stimulus and possible interest rate cuts, will remain in place.

Fear of the Hawkish Fed

Some market commentators have done so hinted that expectations of a more cautious pace of rate cuts under incoming Fed Chairman Kevin Warsh have also weighed on markets. But Pal rejected claims that Warsh represents a hawkish policy position, instead calling the story false and rooted in outdated commentary. He believes Warsh’s approach is in line with policies that promote interest rate cuts and economic expansion while maintaining balance sheet stability due to reserve constraints.

Despite the recent market turmoil, Pal said he remains strongly optimistic about 2026.