Bitcoin’s sharp sell-off and the broader drawdown across risk assets have fueled fears that the crypto cycle is broken.
Key Takeaways
The sell-off in Bitcoin and other risk assets is being driven by a temporary US liquidity squeeze, not a broken crypto cycle, according to Raoul Pal.
Bitcoin is trading around $78,000 after losing $80,000 support, with heavy ETF outflows adding to pressure.
Pal remains strongly bullish on 2026, expecting a liquidity rebound to fuel the next major rally.
But according to Raoul Pal, the real culprit is not fading demand or structural damage to crypto markets – it is a temporary collapse in US liquidity, one that could soon reverse and set the stage for a powerful 2026 rally.
In a detailed post shared on X, Pal argued that the current panic reflects a false narrative taking hold during a brutal liquidity squeeze, rather than a true breakdown of the crypto cycle.
Bitcoin Breaks $80,000 as Liquidity Tightens
Bitcoin is currently trading around $78,000 after failing to hold the key $80,000 support level over the weekend. The move lower coincided with heavy selling pressure across digital assets and traditional markets alike. According to data from Farside Investors, US-listed spot Bitcoin ETFs recorded roughly $1.5 billion in net outflows last week, reinforcing the risk-off tone.
The weakness has not been isolated to crypto. Gold, which had surged earlier in the year, has fallen by roughly $1,000 from its peak near $5,600 and is now trading around $4,775. Silver has seen an even sharper pullback, dropping from highs above $120 to around $84 at the time of writing. US equities and high-growth technology stocks have also struggled, pointing to a broader liquidity-driven reset.
Why Bitcoin and SaaS Stocks Are Falling Together
Pal highlighted a striking similarity between Bitcoin and US software-as-a-service stocks, noting that both have traced almost identical price patterns. In his view, this is not a coincidence. These assets represent some of the longest-duration trades in global markets and are therefore the most sensitive to changes in liquidity.
He explained that US liquidity has been constrained by a rare combination of factors: the near-complete drain of the Fed’s reverse repo facility in 2024, a Treasury General Account rebuild over the summer without offsetting liquidity injections, and repeated US government shutdowns. With no meaningful liquidity offset, capital has been pulled from riskier assets first.
At the same time, the strong rally in gold absorbed much of the reemaining marginal liquidity in the system. With insufficient liquidity to support everything at once, assets like Bitcoin and SaaS stocks bore the brunt of the adjustment.
The Shutdown Effect and the “Air Pocket” in Markets
According to Pal, the latest US government shutdown has intensified the problem. The Treasury has avoided drawing down the TGA and instead added to it, creating an additional liquidity drain. This has produced what he described as an “air pocket” for markets, marked by aggressive price declines and heightened volatility.
However, Pal believes this phase is close to ending. He expects the shutdown to be resolved soon, removing what he sees as the final major liquidity hurdle before conditions begin to improve.
Why Pal Is Bullish on 2026
Looking ahead, Pal remains firmly bullish on the medium-term outlook. He expects a significant liquidity upswing driven by several forces, including partial TGA drawdowns, changes to bank leverage rules such as the eSLR, fiscal stimulus, and eventual rate cuts. In his view, these dynamics are closely tied to the political and economic strategy heading into the US midterm cycle.
Pal also dismissed the idea that future Fed leadership would block this process. He argued that the prevailing narrative portraying Kevin Warsh as a hawkish figure is outdated and misleading, and that the broader policy direction points toward easier financial conditions rather than tighter ones.
Patience Over Panic
Pal acknowledged that the drawdown has been painful, particularly for smaller and higher-beta crypto assets, which historically fall far more than Bitcoin during liquidity shocks. Still, he stressed that such phases are common within full market cycles. While prices can decline sharply, time – not short-term price action – ultimately resolves these dislocations as liquidity returns.
His message to investors was blunt: the market is not broken, the cycle is not over, and the current stress reflects a temporary liquidity vacuum rather than a structural failure. If history rhymes, Pal believes the conditions being set today could pave the way for what he called a “fucking epic” 2026.
