Bitcoin may face the "last fall": the real script of liquidity tightening is unfolding.

Author: SoSoValue Community Researcher ET (Agarwood Capital)

Reprint: White55, Mars Finance

1. Introduction

While investors are still looking for emotional and technical explanations for the decline of Bitcoin, the real answer has quietly been written into the ledger of the U.S. financial system: U.S. dollar liquidity is experiencing a structural tightening. Specifically manifested as

The balance of the Treasury General Account (TGA) is approaching 1 trillion dollars, significantly draining market liquidity.

Short-term funding market pressure has surged sharply, with the SOFR-FDTR spread once widening to +30bp;

The Federal Reserve was forced to restart temporary repurchase operations (Overnight Repo), injecting nearly $30 billion in liquidity into the market - the first time since the repurchase crisis of 2019.

This liquidity “vacuum” is not accidental; it is fundamentally caused by the government shutdown. The Treasury has been “sucking in funds” in advance due to the budget impasse and the risk of a potential government shutdown, issuing a large amount of debt which locks cash into the TGA account, directly withdrawing reserves from the banking system. The available “market dollars” are decreasing, naturally putting pressure on risk assets—Bitcoin has become the earliest and most sensitive victim.

However, the script is not entirely pessimistic. Historical experience shows that every time the Ministry of Finance replenishes inventory and liquidity is extremely tight, it often heralds the approach of a reversal.

As of November 5, the number of days the U.S. government has been shut down has reached a historical peak, and the pressure on finance, the economy, and people's livelihoods is rapidly accumulating. SNAP food assistance is restricted, and some airport security checks and federal air traffic control services have been forced to temporarily halt, leading to a simultaneous decline in public and business confidence. Against this backdrop, there are signs of easing tensions between the two parties, especially as U.S. stocks have recently corrected from high levels, which will help accelerate the resolution of the government shutdown issue.

Market expectations suggest that the Senate may push for a compromise plan before the Thanksgiving recess on November 15, ending the government shutdown. At that time, the Treasury will restart spending, and the TGA balance is expected to retreat from its high, liquidity will return, and risk appetite will rise. Bitcoin may be in the “final drop” stage of this adjustment — at the intersection of fiscal spending recovery and the beginning of future interest rate cuts, a new liquidity cycle will also restart.

2. BTC is facing a liquidity shock from the US dollar.

As a non-yielding asset, BTC is very sensitive to liquidity. Tightening liquidity in US dollars often puts downward pressure on BTC, which is one of the reasons for BTC's noticeable weakness since mid-October, especially against the backdrop of the Nasdaq reaching new historical highs.

As shown in Figure 1, as of October 31:

SOFR–FDTR spread turns positive, reaching +30bp → The real funding cost in the interbank market exceeds the upper limit of the policy interest rate, indicating that banks are borrowing at a higher cost, leading to tight liquidity;

RRP balance rebounded to $50.3 billion → The market is once again seeking collateral liquidity from the Federal Reserve;

Figure 1: SOFR–FDTR Spread and RRP Balance

This indicates that there are signs of significant tension in the U.S. short-term funding market, prompting the Federal Reserve to restart overnight repo operations, injecting nearly $30 billion in liquidity into the market on October 31.

This is the first occurrence of such operations since the repurchase crisis in 2019, marking the transition of liquidity shortages from a phase phenomenon to a structural problem.

Overall, the macro money supply (M2) remains loose, but the safety cushion of bank system reserves is being rapidly drained, and the rise in market interbank lending rates indicates that liquidity pressure is no longer a prediction, but a current reality.

Therefore, subsequent observation of liquidity conditions is an important reference for determining the direction of BTC prices.

Figure 2: BTC Price and Federal Reserve Liquidity

3. Breakdown of US Dollar Liquidity

Dollar liquidity = Bank reserves + Circulating cash = Total size of the Federal Reserve's balance sheet - ON RRP (Overnight Reverse Repo) - Treasury TGA account

This is the core framework for observing the “disposable dollar balance in the U.S. financial system.” It reveals:

The total liquidity of the US dollar = The “supply side” of the Federal Reserve - The “absorption side” of the Treasury and the money market.

The specific components are as follows:

Description of Components Affecting LiquidityBank Reserves (Reserves) The deposit balance of commercial banks at the Federal Reserve, which is the most direct liquidity in the system. When increased → liquidity easingCurrency in Circulation The cash held by enterprises and individuals. Generally stable growth, with small short-term fluctuationsON RRP (Overnight Reverse Repo) A short-term tool where money market funds “lend” funds to the Federal Reserve, equivalent to “sucking away” liquidity. When increased → liquidity tighteningTGA (Treasury General Account) The main account of the Treasury at the Federal Reserve, used for government revenue and expenditure. When TGA rises, it means the Treasury has “sucked away” market liquidity. When increased → liquidity tightening

1. Logical Relationship

This formula actually describes the flow of funds between the Federal Reserve, the Treasury, and the money market.

Federal Reserve expands its balance sheet → Increases reserves and cash → Liquidity increases, for example during QE (Quantitative Easing) periods, the Federal Reserve purchases assets to increase bank reserves.

TGA increase → Ministry of Finance issues bonds to absorb funds → Decrease in liquidity as the government increases bond issuance and tax revenue flows into TGA, market funds are “sucked away.”

ON RRP rises → Money market funds deposit idle funds into the Fed → The reduction in liquidity is equivalent to money market funds “parking” market funds at the Fed, no longer circulating in the banking system.

Therefore:

Liquidity ↑ = Fed assets ↑ + TGA ↓ + RRP ↓

2. Practical Application

This indicator is key to observing the liquidity cycle of risky assets:

When TGA + RRP decrease simultaneously → Bank reserves surge → US dollar liquidity eases → Usually accompanied by an increase in risk assets (stock market, Bitcoin).

When TGA replenishes and RRP rises → liquidity recovery → risk assets come under pressure.

Specific examples:

Second half of 2023: After the debt ceiling is lifted, TGA replenishment → temporary tightening of liquidity → fluctuations in US stocks and crypto assets.

Early 2024: RRP declines rapidly, funds flow back to banks → reserves increase → market risk appetite rises.

3. Extended observation: The correlation with the market

Explanation of Indicator Correlation S&P 500 / NASDAQ has a positive correlation Liquidity easing drives valuation expansion Bitcoin BTC has a high positive correlation Risk appetite rises during liquidity easing Dollar Index DXY has a negative correlation During liquidity easing, dollar supply increases, and the index weakens US Treasury yield varies by phase QE phase suppresses yields; QT phase raises yields.

4. Conclusion

This formula is essentially the liquidity balance equation of the entire dollar system.

The Federal Reserve has determined the “total supply”.

TGA and ON RRP are two “liquidity valves” that determine how much money can flow into the financial markets.

Therefore, when analyzing the trends of risk assets, it is more important to observe the changes in RRP + TGA than to look solely at the Federal Reserve's balance sheet, as they are the true drivers of short-term dollar liquidity.

IV. Recent Reasons for Liquidity Tightening - TGA Continues to Attract Capital

Figure 3: Changes in the balance of the U.S. Treasury TGA account

1. Indicator Interpretation

The above chart shows the balance of the U.S. Treasury's main account TGA (Treasury General Account) at the Federal Reserve. The horizontal axis represents time (2021–2025), while the vertical axis represents the amount (in billions of dollars). This line actually reflects the status of the Treasury absorbing or releasing liquidity, and it is also an important regulator of U.S. dollar liquidity. Below is a complete professional interpretation that combines the recent risks of government shutdowns with fiscal operations.

The fluctuations of this line represent the Treasury's “raising funds in the market (TGA rising)” or “releasing funds to the market (TGA falling).”

TGA increase → Government absorbs market liquidity (bank reserves decrease)

TGA decline → Government releases market liquidity (increase in bank reserves)

Therefore:

TGA ≈ Inverse indicator of market dollar liquidity

When TGA rises, market funds tighten; when TGA declines, market funds loosen.

Combining Time and Events: 2021–2025 Five-Year Liquidity Rhythm

The characteristics of the TGA during the time period show a background of events and liquidity impacts. From Q1 to Q3 of 2021, it continued to decline (from 1.6 trillion to 0.2 trillion) as the Biden administration pushed for large-scale fiscal stimulus, resulting in high Treasury spending and TGA consumption. The dollar liquidity was extremely loose, driving the stock market and crypto assets upward. In the first half of 2022, the TGA quickly rebounded to approximately 800 billion as the Treasury stocked up to cope with the debt ceiling risk; simultaneously, the Fed initiated QT, tightening liquidity, which weakened the US stock and crypto markets. In the first half of 2023, the TGA plummeted to around 100 billion due to the US debt ceiling crisis, with the Treasury suspending bond issuance and using cash to cover expenses; there was a brief large release of liquidity (increased bank reserves), with Bitcoin rising from 16K to 30K. After the summer of 2023, the TGA saw a significant replenishment (from 100 billion to 700 billion+) after the debt limit agreement was passed, leading to a large amount of bond issuance to rebuild the TGA, which absorbed liquidity; during the same period, the US stock market was volatile, and bond market yields rose. In 2024, it is expected to fluctuate moderately between 400 and 800 billion due to repeated budget negotiations and threats of partial shutdowns; the Treasury adopted “dynamic inventory management,” which affects short-term interest rates and liquidity. From the beginning of 2025 to now, it has rapidly increased (approaching 1 trillion again) as the government prepares for spending in the new fiscal year and potential shutdowns; the replenishment of the TGA has tightened liquidity once more.

2. Structural linkage with the “government shutdown”

Before closing: The Treasury raises TGA in preparation for emergencies

As the congressional budget impasse approaches and the risk of a shutdown rises, the Treasury will issue bonds in advance to raise funds and increase the TGA balance, ensuring that there is still cash available to cover essential expenditures during a government shutdown.

In this phase, the market will experience short-term liquidity tightening and rising short-term interest rates.

During the closing period: expenditure suspended, debt issuance restricted

During the closure, government partial payments are suspended, TGA levels will remain flat or slightly decrease in the short term, but due to the lack of new government bond supply in the market, the demand for money market funds is rushing towards ON RRP.

Forming a “liquidity structural mismatch”: neutral in total amount but tight at the short end.

After the closing of the door: supplementary allocation, supplementary salary → TGA sharply dropped

After the government resumes spending, TGA decreases and liquidity is released instantly. Bank reserves rise, Repo market pressure eases, and risky assets often rebound during this phase.

For example, after the debt ceiling was lifted in 2023, BTC experienced a short-term surge and the Nasdaq rebounded.

V. The Federal Reserve in Action: Liquidity Injection

Figure 4, Federal Reserve ON RPs (Overnight Reverse Repurchase Agreements)

1. Indicator Interpretation

Source: FRED (Federal Reserve Bank of New York)

Latest data (October 31, 2025): 29.4 billion USD

Comparison Reference: The peak in September 2019 was $49.75 billion

This indicator represents the overnight cash provided by the Federal Reserve to primary dealers through temporary repurchase agreements (collateralized by U.S. Treasuries), serving as a direct means of liquidity injection.

Since the pandemic, this tool has been out of use for a long time. Its restart carries significant policy signaling implications.

2. Three Key Observations

Policy Background: The Federal Reserve's move is a response to the “real shortage” in the short-term funding market. Although QT is about to stop, the continuous decline in reserves has intensified borrowing pressures. The restart of ON RPs signifies: “The Federal Reserve's shift from passive balance sheet reduction to active liquidity management.”

Scale characteristics: $29.4 billion, although lower than the crisis level of 2019, carries significant symbolic meaning, indicating that the liquidity gap has surpassed the observation threshold of the Federal Reserve. If the scale of operations continues to rise in the next two weeks, it can be seen as a “quasi-policy shift.”

Market mechanism:

Banks and money market funds are forced to raise financing rates due to a shortage of reserves;

The Federal Reserve releases liquidity through repurchase agreements, temporarily lowering the SOFR and Repo spread;

If this behavior continues, it will create a “mini QE” effect.

3. Historical Comparison: 2019 vs 2025

Indicators of the 2019 repurchase crisis and the triggering factors for the October 2025 event: Treasury settlement + RRP exhaustion, Treasury settlement + QT leading to reserve depletion, SOFR–FDTR spread +30bp +30bp, Fed repurchase scale at $49.7 billion and $29.4 billion, policy response: Term Repo + QE restart, ON Repo + waiting for results, reserve rebuilding + QE4 commencement pending observation, or gradual liquidity replenishment.

6. Conclusion

7. Currently, the TGA account is close to 1 trillion, which is the main reason for the recent liquidity crunch. As the government reopens and spending resumes, the TGA will decline, and dollar liquidity will recover, providing support for BTC and other risk assets.

8. Before the government reopens, the Federal Reserve will continue to release liquidity through repurchase agreements, temporarily suppressing the SOFR and Repo spread to ease the market's liquidity tension.

9. The prediction for the real money betting on the website is mid-November, specifically from November 10 to November 15, with institutions like Goldman Sachs expecting the government to reopen within two weeks.

10. Therefore, BTC is very likely to undergo its 'final drop'; at least the government reopening and future interest rate cuts are certain, although the timing is uncertain.