Bitcoin has seen a sharp decline of nearly 40% from its all-time high of $126,000, currently hovering slightly above $77,000. Amid prevalent pessimism, Raoul Pal asserts that the narrative suggesting that Bitcoin and the broader crypto market are faulty is misguided, attributing the downturn to short-lived liquidity issues rather than a collapse of the crypto cycle.

Bitcoin and SaaS

Pal contends that the prevailing narrative indicates the end of the crypto cycle and assigns blame for the price collapse to factors such as exchange complications and institutional actions. He described this perspective as an “alluring narrative trap” exacerbated by continuous price sagging. An assessment reveals that the UBS SaaS Index and Bitcoin have mirrored each other’s price trajectories, highlighting a unified underlying reason rather than problems specific to individual assets.

Pal identifies US liquidity constraints resulting from various technical and fiscal factors as the key issue. He refers to the completion of the US Reverse Repo drain in 2024 and subsequent Treasury General Account (TGA) rebuilds lacking liquidity offsets, creating a liquidity drain.

Pal remarked on the connection between liquidity shortages and weak ISM readings, emphasizing that while global total liquidity typically correlates with Bitcoin and US equities, US total liquidity currently plays a more pivotal role due to being the main source of global liquidity. He added that global liquidity is starting to increase, which should eventually influence US liquidity and economic indicators.

Bitcoin and SaaS have been particularly vulnerable since they are categorized as the longest-duration assets and are thus the most sensitive to shifts in liquidity conditions. The recent surge in gold prices has also absorbed liquidity that otherwise could have supported riskier assets like Bitcoin and SaaS, leading to a shortage across asset classes.

The ongoing US government shutdown has exacerbated the liquidity situation, with the Treasury opting not to reduce the TGA as it did after prior shutdowns, causing additional pressure on liquidity. Pal referred to this period as a temporary “air pocket,” contributing to extreme pricing pressures.

Hawkish Fed Concerns

On an additional note, some market analysts have hinted that expectations of a more measured approach to rate cuts under incoming Fed chair Kevin Warsh have impacted market dynamics. However, Pal refutes the notion that Warsh suggests a hawkish policy stance, claiming this narrative to be outdated and incorrect. He believes Warsh’s policies favor economic growth and rate cuts while also maintaining balance sheet stability amid reserve limitations.

Despite the current market turmoil, Pal maintains a strong bullish outlook toward 2026.