Bitcoin’s impressive stairstep bull run, which has seen the king crypto incrementally advance from $20,000 to six-figure prices, now faces stiff headwinds that threaten to reverse its trajectory. Three key developments – tightening USD liquidity, stalling plans for a US strategic Bitcoin reserve, and a reappearance of a 2021 chart pattern – are converging to put the brakes on Bitcoin’s next leg up.
Fiat Liquidity Squeeze Threatens to Suck Oxygen Out of Crypto Markets
The lifeblood of any asset, including Bitcoin, is ample liquidity in reserve currencies like the US dollar. When those liquidity taps start running dry, risk appetite tends to evaporate. Unfortunately for crypto bulls, that’s exactly the scenario now unfolding as several factors conspire to tighten USD liquidity, as noted by Arthur Hayes, CIO at Maelstrom.
Most alarming is the ballooning balance in the Treasury General Account (TGA), which has swelled by nearly $200 billion to $800 billion in just the past month. This effectively removes liquidity from the financial system. Bulls had hoped for a TGA drawdown to help manage the debt ceiling crisis, as occurred in early 2023, but no such luck this time. As intergovernmental blockchain expert Anddy Lian warns, this liquidity drain could sap economic activity, drive up borrowing costs, and sour sentiment in risk assets like crypto.
Trump Administration Taps the Brakes on Bitcoin Reserve
A second blow to Bitcoin’s bull case is the Trump administration’s apparent backpedaling on campaign promises to establish a strategic US Bitcoin reserve. This initiative helped propel BTC from $70,000 to over $100,000 as investors anticipated a new source of demand. However, Trump’s crypto czar recently indicated they will merely “evaluate” the reserve’s feasibility rather than executing it immediately.
Wait, Trump said he would do a $BTC Reserve, not promise to ‘evaluate it.’ Evaluate/Study is what Washington does when they don’t want to do something.
Jim Bianco, President and Macro Strategist, Bianco Research
Bitcoin promptly slid from over $100,000 to $96,000 on the news, underscoring the significance of this potential demand catalyst and the market’s dimming outlook for its realization.
Bearish Divergence Echoes 2021 Cycle Peak
Finally, Bitcoin’s weekly RSI momentum indicator is flashing warning signs that are eerily similar to the 2021 bull market peak. The RSI has carved out a lower high, diverging bearishly from Bitcoin’s recent push to new highs above $100,000. This signals waning upside momentum and raises the risk of a bull trap.
Of course, this divergence would be invalidated if the RSI can power through the downtrend resistance line, but for now it stands as a glaring red flag.
Conclusion: Storm Clouds Gather Over Bitcoin’s Bull Run
In isolation, none of these headwinds would likely be enough to topple Bitcoin’s well-established uptrend. But their combination at a critical juncture – with BTC attempting to break out of a multi-month consolidation – raises legitimate concerns. At minimum, it appears the path of least resistance is shifting from up to sideways, with risks tilting toward a downside resolution if these factors intensify.
Bitcoin still has plenty of long-term tailwinds, from its limited supply to growing adoption to macro uncertainties boosting its appeal as digital gold. However, in the near term, bulls may have to weather a few gut checks as some of their rosier assumptions and projections get a reality check.
- USD liquidity tightening as Treasury account balance balloons and debt ceiling woes loom
- Trump administration backpedals from swift action on strategic Bitcoin reserve
- Bearish divergence in Bitcoin’s RSI momentum indicator resembles setup at 2021 peak
While none of these factors guarantee an end to the bull run, they do argue for heightened caution and tempered expectations in the coming weeks as Bitcoin navigates this gauntlet. Short-term traders may opt to book some profits, while long-term investors should brace for volatility. The next big move in the $90,000 to $110,000 range will be telling and could set the tone for the remainder of the year.
