Bitcoin Faces Strain as Liquidity Tightens and Key Developments Raise Concerns
Bitcoin (BTC) has experienced a typical bull run since early 2023, featuring steady price hikes followed by consolidation phases that set the stage for future gains. Currently, BTC is consolidating between $90,000 and $100,000, marking the third phase of the ongoing bull cycle that began at $20,000. Many market participants anticipate another breakout, similar to the ones seen in mid-2024 and 2023. However, three key factors suggest that the next surge might face obstacles.
Tightening USD Liquidity
Liquidity is critical for any asset, and especially for cryptocurrencies like Bitcoin, which rely on broader economic conditions. The tightening of USD liquidity, a primary concern for markets, has been gaining attention. According to Arthur Hayes, chief investment officer at Maelstrom, this tightening is becoming more apparent, particularly due to changes in the U.S. Treasury General Account (TGA).
Data from MacroMicro shows that the balance in the TGA has jumped from $623 billion to $800 billion in just a month. With the U.S. hitting its $36 trillion debt ceiling, markets were hoping the Treasury would decrease the TGA balance to increase market liquidity, similar to what was done during the 2023 debt ceiling issue. However, this time, liquidity is tightening, and it’s creating a less favorable environment for risk assets like Bitcoin.
Anddy Lian, blockchain expert, highlighted that the drying up of liquidity sources could lead to slower economic activity, higher borrowing costs, and an overall more challenging environment for risk-driven assets, including cryptocurrencies.
Trump Administration’s Cautious Approach to Strategic BTC Reserve
Another concern for Bitcoin’s bullish trajectory is the U.S. administration’s slower-than-expected pace in establishing a strategic Bitcoin reserve. The Trump administration had initially sparked optimism within the crypto space by discussing a reserve, which was seen as a key catalyst for Bitcoin’s rise from $70,000 to over $100,000.
However, recent statements from the administration revealed that instead of taking swift action, the government would be “evaluating” the possibility of a BTC reserve. This shift has disappointed investors who were hoping for more immediate action, similar to Trump’s approach to other issues like tariffs and international relations.
Jim Bianco, a well-known strategist, expressed frustration, noting that when Washington uses the terms “evaluate” or “study,” it typically signals a lack of intent to act swiftly, leading to market uncertainty. Following these comments, Bitcoin’s price fell from over $100,000 to $96,000, indicating a possible delay in the reserve’s creation.
Technical Bearish Signs: 2021 Pattern Resurfaces
From a technical analysis standpoint, Bitcoin’s momentum also faces potential hurdles. Market participants should closely watch the 14-week relative strength index (RSI), a key indicator that has shown bearish divergence. This pattern mirrors what was seen in 2021, just before Bitcoin’s previous price top.
The RSI has posted a lower high compared to its December peak, diverging negatively from Bitcoin’s price, which continues to rise. This suggests a weakening of bullish momentum. A confirmation of this negative divergence would suggest a slowdown in Bitcoin’s upward trajectory. However, if the RSI breaks above the descending trendline, it could signal a resurgence in bullish momentum, invalidating the bearish outlook.
In conclusion, Bitcoin’s path forward may be less straightforward than expected. Tightening liquidity, slower-than-anticipated government action on Bitcoin reserves, and technical indicators suggest that the digital asset could face challenges in maintaining its upward momentum. Traders and investors will need to monitor these developments closely as they evaluate Bitcoin’s potential for a breakout.
