The Truth Behind Bitcoin's Early Morning Drop: Without Understanding This Logic, You're Always on the Verge of Loss

Early this morning, Bitcoin suddenly plummeted sharply, causing many investors to panic and exclaim: “It’s dropping without any reason!” But in reality, all volatility has its cause. The core issue lies in the depletion of liquidity, an important factor often overlooked by the majority of the market. Where Did the Liquidity Drain Come From? The first reason comes from the US Treasury bond auction, often compared to a “bloodsucking machine” of the financial market. In the context of the US government facing a shutdown risk, the (Treasury General Account) (TGA) is nearly exhausted. Market-wide liquidity was already weak, and now it faces additional heavy pressure. Although the Federal Reserve (Fed) has attempted to inject money through the banking system, the amount of money drained from the bond market exceeded expectations. Specifically, in the 3-month and 6-month bond issuance, the nominal size was $163 billion, but the actual amount reached $170.69 billion. After deducting Fed reinvestments, approximately $163 billion was pulled out of the financial market in a short period. During periods of abundant liquidity, this figure might not be too concerning. But when the market is in a tightening cycle, such a large “blood withdrawal” is enough to make risky assets tremble. Bitcoin, highly sensitive to cash flow, is the quickest to react. The “Cold Wind” from the Fed and Rate Hike Expectations The second reason stems from the Fed’s hawkish stance. Recent remarks by Goolsbee have a “hawkish” tone, shaking market confidence in the Fed’s ability to cut interest rates in December. The probability of a rate cut has sharply decreased from nearly 70%. Remember that, the expectation of interest rate cuts acts as a stimulant for risk assets. When this stimulus weakens, the market is hit with a cold shower, and selling pressure immediately increases. Bitcoin and other risk assets are thus unlikely to avoid correction. Lessons for Investors Bitcoin’s decline is not “irrational.” It is a direct consequence of strong cash outflows and worsening monetary policy expectations. If you only look at the chart and ignore the macro liquidity picture, investors can easily fall into panic or make wrong decisions. Understanding the logic of cash flow, you will realize: Bitcoin’s volatility is not just driven by crypto-specific news. Liquidity and monetary policy are the “invisible hands” controlling the market. In the current phase, the most important thing is not to guess the bottom but to manage risks and patiently wait for the return of cash flow. Those who understand this will have a better chance to stand firm amidst the market’s violent swings.