Macro investor Raoul Pal sees the recent selloff in Bitcoin (CRYPTO: BTC) and crypto as a temporary U.S. liquidity squeeze, not a broken market cycle.

Why Bitcoin Is Not Broken

In his latest Global Macro Investor essay, Pal pushed back against claims that Bitcoin and crypto are structurally damaged, arguing the current weakness is driven by macro liquidity dynamics rather than a collapse in fundamentals.

He noted Bitcoin’s decline closely mirrors weakness in tech stocks, pointing to a shared macro driver.

Both asset classes are long-duration and highly sensitive to liquidity conditions, he said, making them vulnerable during periods of tightening.

According to Pal, U.S. liquidity has been constrained by several factors:

• The reverse repo facility was fully drained in 2024
• The Treasury rebuilt its General Account without offsetting liquidity injections
• Repeated government shutdowns disrupted flows
• A strong rally in gold absorbed marginal liquidity

With not enough liquidity to support everything, the riskiest assets, BTC and tech, were hit first, Pal said.

He added that weak liquidity has also weighed on ISM data, reinforcing the broader slowdown narrative.

A Liquidity Upswing Could Be Ahead

Looking forward, Pal expects the current government shutdown to be resolved soon, removing what he sees as the final major liquidity headwind.

He anticipates a meaningful liquidity upswing driven by partial Treasury General Account drawdowns, changes to the enhanced supplementary leverage ratio (eSLR), fiscal stimulus and eventual rate cuts, particularly as political incentives build ahead of midterm elections.

Pal emphasized that time, not price, is the key variable in full-cycle investing and urged patience during periods of drawdown.

He also rejected the view that Fed Chair nominee Kevin Warsh would be a policy hawk, arguing instead that Warsh is more likely to follow a Greenspan-era framework of cutting rates and balance-sheet tightening, is unlikely due to reserve constraints.

While Pal acknowledged underestimating the dominance of U.S., rather than global, liquidity in this phase of the cycle, he said he remains firmly bullish on 2026 and cautioned investors against capitulating near what feels like the end of the cycle.

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