Raoul Pal Says Crypto Drawdown Is About U.S. Liquidity, Not a Broken Cycle
Macro investor Raoul Pal argues that bitcoin’s latest sell-off reflects a temporary U.S. liquidity squeeze rather than the end of the crypto cycle, pointing to Treasury cash management, government shutdown dynamics, and market “plumbing” as the key drivers.
Pal’s Thesis: A U.S. Liquidity Air Pocket
In a weekend post on X, the Global Macro Investor (GMI) founder pushed back on what he called a “false narrative” that bitcoin and crypto are “broken.” Pal said a question from a GMI hedge fund client about beaten-down software-as-a-service (SaaS) stocks led him to re-examine the data, concluding that both SaaS equities and bitcoin have traded as “the exact same chart.” For Pal, that synchronicity points to a liquidity factor rather than sector-specific weakness.
Pal contends that U.S. liquidity has been constrained by two shutdown episodes and “issues with U.S. plumbing,” noting that the Federal Reserve’s reverse repo facility (RRP)—a key buffer for excess cash—was effectively drained in 2024. With the RRP largely exhausted, he said the Treasury General Account (TGA) rebuild over July and August acted as a net liquidity drain, instead of being offset by cash leaving the RRP.
He added that weaker U.S. macro readings, including subdued Institute for Supply Management (ISM) surveys, are consistent with a lackluster liquidity backdrop. While Pal typically tracks global liquidity given its long-term correlation with bitcoin and U.S. tech stocks, he argued the U.S. channel is dominating this phase because the U.S. remains the system’s primary liquidity supplier.
Why Bitcoin, SaaS, and Gold Are Moving the Way They Are
According to Pal, the assets most sensitive to liquidity withdrawal are long-duration, high-volatility exposures—where both bitcoin and SaaS stocks typically sit in portfolios. He said those exposures were “discounted because liquidity was temporarily withdrawing,” tying their drawdowns to macro conditions rather than project-level failures or a broken crypto “cycle.”
Pal also pointed to the rally in gold as an additional constraint on risk assets. In his view, strength in gold “sucked” marginal liquidity away from bitcoin and SaaS, leaving “not enough liquidity to support all these assets,” with the riskiest getting hit hardest.
Shutdowns, the TGA, and What Could Come Next
Pal described the most recent government shutdown as a further headwind, asserting that the Treasury “hedged” by maintaining and then adding to the TGA after the prior shutdown, deepening the liquidity drain. He called this the current “air pocket” behind the “brutal” price action across risk assets.
Looking ahead, Pal said he expects the shutdown to be resolved imminently and characterized it as the “final liquidity hurdle.” He argued the next phase could bring a “liquidity flood” driven by several factors, including:
- Potential adjustments to the enhanced supplementary leverage ratio (eSLR), which could free bank balance sheet capacity
- Partial drawdowns of the Treasury General Account
- Fiscal stimulus measures
- Interest rate cuts
On the Fed and a Mea Culpa
Extending his “false narrative” theme, Pal rejected the idea that former Federal Reserve Governor Kevin Warsh would necessarily pursue a hawkish policy stance if returned to a leadership role, arguing that decades-old comments are being misread. He said he expects a “Greenspan era” style approach if policy shifts—cutting rates, allowing the economy to run hotter, and relying on productivity gains to contain core inflation—while avoiding balance sheet moves that could destabilize bank reserves.
Pal also acknowledged that GMI had emphasized global liquidity in recent years and “was not seeing the U.S. liquidity as the current driving factor.” He cited a sequence he believes was underestimated: RRP drain → TGA rebuild → shutdown → gold rally → shutdown.
Market Snapshot
Bitcoin (BTC) traded around $77,510 at the time of writing.