Bitcoin Price Prediction: What Does the End of The Federal Reserve Liquidity Rise Trend Mean for BTC?

Since the beginning of 2025, the liquidity engine supporting risk assets including Bitcoin is now turning to reversal. Macro analyst Thomas (@TomasOnMarkets) indicates that the six-month trend of rising liquidity from The Federal Reserve (FED) has ended, and the U.S. Treasury is about to face a wave of debt issuance that may cause instability. Thomas warned in an article published on X last Sunday night: "The Federal Reserve (FED) liquidity will decline... The rising liquidity trend of the Federal Reserve (FED) that began on January 1, 2025, has now ended."

Bitcoin enters a dangerous zone The catalyst behind this reversal is the $5 trillion debt ceiling increase bill passed by Congress last week. This legislation has cleared the way for the Treasury to significantly rebuild its cash balance at the Federal Reserve — namely the Treasury General Account (TGA). In the first half of this year, this account was deliberately drained to inject liquidity into the financial system.

"The U.S. government has been draining the Treasury General Account (liquidity injection). However, a new debt ceiling agreement was reached last week (increasing by $5 trillion). This means the government will start injecting new debt into the market to 'supplement' the TGA (liquidity loss)," Thomas wrote. He emphasized that the current supplementary target is set at $850 billion, up from a recent level of about $350 billion, which means that approximately $500 billion of liquidity will be drained from the financial system in the coming months.

The impact on Bitcoin is obvious. Historically, risk assets have benefited from the rise in dollar liquidity—especially against the backdrop of increased ETF inflows, corporate adoption, and a weakening dollar. However, this backdrop is changing. As Thomas said, "Under other equal conditions, the TGA rebuilding process should be beneficial for the dollar." A stronger dollar, coupled with declining bank reserves, is usually unfavorable for Bitcoin.

Liquidity pressure may not appear all at once, but its mechanism is evident. The Treasury will issue a large number of new short-term bonds (mainly Treasury bills) to provide funds for replenishing the TGA. The issuance of these bonds will compete for financing with other dollar-denominated assets, thereby siphoning cash from banks and the money market.

Thomas pointed out that if money market funds transfer cash out of the Federal Reserve's overnight reverse repurchase agreement facility (which currently holds about $214 billion), this dynamic may ease. He added, "Treasury Secretary Scott Bessent may lower the target level, which means the replenishment effort will weaken. I expect we may see a large issuance of Treasury bills, which could prompt a portion of the remaining $214 billion in the reverse repo mechanism to exit that mechanism (liquidity injection) and alleviate the negative impact of TGA replenishment."

Nevertheless, even if the RRP undergoes some redistribution, Thomas expects its overall impact to still lower the reserve balances—he estimates that the proportion of bank reserves to GDP could fall below 10%. Although this is not as alarming as the 7% reached in 2019 (the period that triggered the repo crisis), it is already a sharp tightening compared to the first half of this year. Thomas warned, "Some funding pressure may arise around the end of September (the end of the quarter)."

The performance of Bitcoin coincides with what Thomas calls the liquidity rise window. According to reports, the price of Bitcoin is closely related to the overall trend of the balance sheets of the five major industrial countries (G5) central banks and the reserve levels of American banks. When these reserves shrink—especially in the context of increased issuance of U.S. government bonds and a rebound in the dollar—Bitcoin has historically struggled to maintain its upward momentum.

Thomas warns that speculative short positions against the dollar have reached extreme levels, exacerbating these concerns. "As early as January, I was loudly proclaiming that the dollar would fall. Now, everyone is bearish on the dollar, and short positions have generally increased significantly. In my opinion, the dollar should at least have a moment of upward correction/consolidation."

This reversal of the US dollar will mark a critical macro headwind for Bitcoin. The 90-day rolling correlation between Bitcoin and the US Dollar Index (DXY) remains negative. In an environment of a strengthening US dollar—especially driven by tightening liquidity—Bitcoin's performance is rarely better than that of other coins.

The next few weeks will be crucial. If the Treasury continues to actively issue bonds and market participants demand higher yields, liquidity may tighten faster than expected. Although Thomas has indeed retained the possibility of Treasury Secretary Basant lowering the TGA target, the baseline scenario remains a net liquidity loss of $500 billion — which would directly reverse the conditions for a Bitcoin surge.

Gate.io market shows that BTC is currently at $108,011.6, with a slight drop of 0.82% in the last 24 hours.

(Source: NewsBTC)