Bitcoin has just forfeited a concealed $2 trillion liquidity cushion, making it vulnerable to a harsh new wave of pressure.
The rally of Bitcoin in 2025 was built on a robust liquidity base that appears stable until investors analyze the shifts that occurred in the last quarter.
Some experts highlight that global liquidity indices have reached unprecedented levels and assert that the upward trend continues. In contrast, others reference CrossBorder Capital’s real-time monitoring, suggesting that momentum peaked in early November, with the US cycle now beginning to decline.
Both perspectives are grounded in actual data. The critical question is whether the level of liquidity is more significant than its trajectory, and what this divergence implies for Bitcoin as it approaches 2026.
All-time highs and diminishing momentum
Data from the Bank for International Settlements regarding global liquidity indicates that 2025 commenced with substantial growth: cross-border bank credit in foreign currencies reached an unprecedented $34.7 trillion in the first quarter, with credit in dollars, euros, and yen rising by 5% to 10% year-on-year.
By the end of June, the BIS’s broader global liquidity index still indicated a 6% increase in dollar credit and a 13% increase in euro credit compared to the previous year. This is the context bulls reference when claiming liquidity has surged to new heights and remained elevated through mid-year.
US dollar credit outside the United States and the dollar exchange rate showing annual growth rates from 2001 to 2025.
However, CrossBorder Capital’s unique tracking, which compiles central bank balance sheets, shadow banking flows, and credit impulses into a singular global liquidity assessment, presents a different narrative for the fourth quarter.
Michael Howell’s October note estimated global liquidity as “approaching record highs around $185 trillion but struggling to increase further,” with momentum waning due to Fed quantitative tightening, reduced injections from the People’s Bank of China, and a less weak dollar impacting the shadow monetary base.
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An update on Dec. 5 estimated global liquidity at $187.3 trillion, an increase of $750 billion from the previous week but still slightly below the early-November peak, indicating that growth had “recently stalled.”
By Dec. 23, the team explicitly stated that “global liquidity fell again last week,” estimating a reduction of $592 billion to $186.2 trillion and noting that both short- and long-term growth metrics had rolled over.
Howell remarked that liquidity levels had decreased by approximately $1.8 trillion since early November and that the US liquidity cycle seemed to be reaching its peak.
According to Howell’s figures, global liquidity remains close to all-time highs, but the fourth quarter has experienced a phase of flattening or mild contraction, rather than a series of monthly peaks.
The level is elevated. The direction in the fourth quarter is either down or sideways.
Net liquidity contraction
The elements that crypto traders monitor as “net liquidity,” defined as the Fed’s balance sheet minus the Treasury General Account minus reverse repo, clarify the domestic situation.
Reports from the Federal Reserve indicate that total assets have decreased by about $132 billion over the previous two quarters to $6.6 trillion as of late September, with securities holdings down by $126 billion.
A separate Fed report mentions that the Treasury General Account increased by roughly $440 billion since the mid-year debt-ceiling resolution, which, coupled with quantitative tightening, reduced reserve balances by about $450 billion.
In parallel, the Fed’s overnight reverse repo facility, which held over $2 trillion in 2022, has now dropped to nearly zero for the first time in years, eliminating a significant buffer.
The US Dollar Index (DXY) from 2016 to 2025, illustrating a decline from 2023 peaks to around 98 by late 2025.
Increased stress now directly impacts reserves, which explains the occasional spikes in the use of the Fed’s standing repo facility and why the Fed effectively concluded quantitative tightening while resuming small-scale purchases of short-term Treasuries in recent weeks.
When overlaying the dollar, the DXY index has fallen by about 10% throughout 2025. A weaker dollar generally contributes to global dollar liquidity, but Howell specifically noted that the recent dollar “recovery” from absolute lows has been a factor weighing on global liquidity momentum heading into November and December.
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Reconciling the perspectives
When combined, the reconciled view illustrates that global liquidity genuinely surged from late 2024 through mid-2025 and has remained at or near record levels, reinforcing the notion that this Bitcoin cycle is underpinned by actual liquidity rather than being based on illusions.
However, the substantial positive impetus, particularly from depleting the Fed’s reverse repo facility, is now behind the market.
US net liquidity in the fourth quarter has remained flat to slightly negative as quantitative tightening, a larger Treasury General Account, and the depletion of the reverse repo “piggy bank” have offset the previously favorable conditions.
Howell’s high-frequency global liquidity assessments indicate that since early November, the overall global liquidity has ceased to reach new highs and has retraced some ground.
Both sides are correct regarding their specific assertions. Global liquidity achieved record highs and remained elevated, while US net liquidity flattened and contracted in the fourth quarter.
Central bank balance sheet adjustments across major economies from pre-COVID February 2020 through October 2025, illustrating periods of quantitative easing and tightening. Image: Global Liquidity Indexes
The level remains high, but the marginal change has transitioned from a strong tailwind to a mixed or slightly dampened one.
This divergence is significant because Bitcoin typically reacts more to the rate of change in liquidity rather than the absolute level. A high plateau can maintain prices, but it does not instigate explosive movements. For that, the market requires acceleration.
Indicators that influence direction
Fed quantitative tightening has concluded. The Fed has effectively stopped reducing its balance sheet and resumed small Treasury purchases, alleviating a consistent drain on reserves and easing US net liquidity contraction.
The substantial reverse repo tailwind has been exhausted.
The majority of the additional support from money market funds withdrawing cash from the Fed’s reverse repo facility has dissipated. The significant boost experienced from 2024 to early 2025 is unlikely to repeat.
Moving forward, changes in reserves will primarily stem from Treasury issuance and Fed operations, not from a $2 trillion piggy bank being depleted.
US liquidity is no longer being intentionally tightened further, but it is also not receiving the substantial mechanical support it once had.
The mix of Treasury issuance and the Treasury General Account balance determines whether the government’s funding requirements contribute to or detract from liquidity.
Federal Reserve balance sheet assets from 2016 to 2025, demonstrating expansion during COVID-19 followed by quantitative tightening reducing holdings to pre-pandemic levels.
If the Treasury relies more on bills and allows the TGA to decrease, that effectively injects cash back into money markets and bank reserves, mildly enhancing liquidity. Conversely, substantial coupon issuance alongside a higher TGA balance has the opposite effect.
Recent quarterly refundings aimed to maintain this balance in a market-friendly manner, but any alterations in funding needs or political dynamics could alter that scenario.
Fed rate cuts are significant, but context determines whether they are beneficial or detrimental to risk assets. If the Fed cuts occur in a favorable environment characterized by soft inflation and no evident credit crisis, that typically supports risk and can re-steepen curves, benefiting shadow banking and collateral chains.
If cuts are implemented due to a breakdown, liquidity injections occur amidst risk aversion, leading to a more chaotic situation. Currently, options markets and forwards still price in cuts but not extreme panic, suggesting a gentle drift toward looser policy rather than emergency quantitative easing.
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A sustained weaker dollar effectively represents global easing. It alleviates the constraints on non-US borrowers with dollar-denominated debt and typically coincides with stronger cross-border credit.
A sharp rebound in the dollar tightens conditions, and the dollar has already experienced a significant decline. If that pause evolves into a new upward trend, it suggests that peak liquidity has already been reached.
The People’s Bank of China and other emerging market central banks quietly influence global liquidity through reserve growth, foreign exchange interventions, and credit impulses.
Should Beijing intensify its stimulus efforts, such as implementing credit quotas, supporting local governments, or reducing reserve ratios, it would provide an additional layer of global liquidity support.
If they remain cautious, it will serve as one less offset to a peaking US cycle.
Implications for Bitcoin
The trajectory from this point is likely to be a high plateau with fluctuations: still-elevated global liquidity that can either gradually diminish or reaccelerate based on policy decisions and the dollar’s behavior.
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In the meantime, Bitcoin continues to benefit from the high liquidity accumulated earlier in the cycle.
The marginal change in the fourth quarter has shifted from a strong tailwind to a mixed or slightly dampened one. The next phase relies less on a singular narrative of “global liquidity surging again” and more on the speed at which the Fed implements cuts, whether the dollar resumes its upward trend, and whether significant non-US entities begin substantial reflation efforts.
The data indicate that the liquidity wave that initiated this cycle is still in motion, but it is no longer steepening. From this point onward, Bitcoin is not contending with a total drain, but it also isn’t assured of fresh fuel unless the Fed, the dollar, and key central banks collectively move back toward expansion.
This is not a bearish statement. It is an acknowledgment that the easier phase of capitalizing on the mechanical boost from reverse repo reductions and early-cycle liquidity expansion has concluded. What follows will depend on policy rather than plumbing.
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