I’d like to share with you some insights I gathered this weekend while writing the GMI (Global Macro Investor), which should help bolster your confidence. Sit back, pour yourself a drink or brew a cup of coffee… Normally, I reserve this kind of analysis for GMI and Pro Macro subscribers—but I know all of you need to calm those frayed nerves…
The Trap of the Dominant Narrative
The grand narrative goes like this: Bitcoin and crypto are completely broken. The cycle is over. Everything’s ruined—we don’t deserve nice things. Crypto has decoupled from other assets; it’s CZ’s fault, BlackRock’s fault, anyone’s fault. It’s undeniably an alluring narrative trap… especially when we see prices plunging—every damn day…
But yesterday, a hedge fund client of GMI sent me a short note asking whether he should buy discounted SaaS stocks—or instead accept the current narrative that Claude Code (an AI programming tool) has killed SaaS. I decided to dig deeper… What I uncovered shattered both the BTC narrative and the SaaS narrative. SaaS and BTC are tracing identical charts. UBS SaaS Index vs. BTC.
That means there’s another factor at play—one we’ve all overlooked… and that factor is: U.S. liquidity has been suppressed due to two government shutdowns and issues in the U.S. financial “plumbing”—specifically, the reverse repo facility was essentially exhausted in 2024. As a result, the July–August TGA (Treasury General Account) replenishment received no monetary offset. The outcome? A liquidity drought… This persistently weak liquidity is precisely why the ISM (Institute for Supply Management Index) is so low…
We usually rely on global aggregate liquidity, because it exhibits the strongest long-term correlation with BTC and the NDX (Nasdaq-100 Index). But right now, U.S. aggregate liquidity appears dominant—because the U.S. remains the world’s primary liquidity provider. In this cycle, global aggregate liquidity has led U.S. aggregate liquidity—and a rebound is imminent (so is ISM).
That’s what’s driving both SaaS and BTC… Both are the longest-duration assets currently trading, and both have been discounted due to a temporary withdrawal of liquidity. Gold’s rally has effectively siphoned off all marginal liquidity that would otherwise have flowed into BTC and SaaS. There simply isn’t enough liquidity to support all these assets—so the riskiest ones got hit hardest.
Now, the U.S. government has shut down again. The Treasury hedged against this: after the last shutdown, it didn’t touch the TGA at all—and actually increased its balance (further draining liquidity). That’s the “liquidity vacuum” we’re facing today—and it’s causing brutal price action. Our beloved crypto currently lacks liquidity support. Yet signs suggest this shutdown will be resolved this week—the final liquidity obstacle to be cleared.
I’ve flagged the risks of this shutdown multiple times. Soon, it’ll be in the rearview mirror—and we can move forward to welcome the coming liquidity flood: SLR (Supplementary Leverage Ratio) adjustments, partial TGA releases, fiscal stimulus, rate cuts, and more. All of it ties into the midterm elections…
In full-cycle trades, timing almost always matters more than price. Yes—prices may get absolutely slaughtered. But over time, as the cycle evolves, everything resolves—and divergences close. That’s why I preach patience! Things take time to unfold; obsessing over every tick on your P&L only harms your mental health—not your portfolio.
A Misreading of the Fed
There’s another widespread false narrative around rate cuts: that Kevin Warsh is a hawk. That’s pure bullshit. These comments mostly stem from 18 years ago. Warsh’s job—and his mandate—is to run the Greenspan-era playbook. Trump said it. Bessent (nominee for Treasury Secretary) said it. There’s too much to unpack here, but the bottom line is: cut rates, let the economy overheat, and assume AI-driven productivity gains will suppress core CPI—just like the 1995–2000 era.
He dislikes the balance sheet—but the system has already hit reserve limits, so he likely won’t change course. He can’t—or he’ll blow up the lending market. Warsh will cut rates—and do nothing else. He’ll step aside and let Trump and Bessent channel liquidity through the banking system. Mirran will likely force through a full eSLR (enhanced Supplementary Leverage Ratio) reduction to accelerate this process.
If you don’t believe me… then believe Druck (i.e., Stanley Druckenmiller). Stanley Druckenmiller is also betting on policy easing.
I know—it’s hard to absorb a bullish narrative when things feel so bleak. Our Sui position feels like dog shit, and we don’t know who or what to trust anymore. First off—this experience is nothing new. We’ve lived through it many times before. When BTC drops 30%, smaller tokens drop 70%. But if they’re high-quality, they bounce back faster.
Our Mistake
Our misjudgment at GMI was failing to recognize that U.S. liquidity is the current driver—whereas global aggregate liquidity usually dominates across full cycles. Now it’s crystal clear: it’s still “everything is code” in action… There’s no decoupling. It’s just a confluence of events—the reverse repo exhaustion → TGA replenishment → shutdown → gold rally → shutdown—that we couldn’t foresee—or, at least, missed their cumulative impact. But it’s almost over. Finally. Soon, we can return to normal business.
We can’t get every moving piece right—but we now understand better. And we remain massive bulls on 2026, because we know the Trump/Bessent/Warsh playbook. They’ve told us repeatedly… All we need to do is listen—and stay patient.
The key is time, not price. If you’re not a full-cycle investor—or don’t have that risk tolerance—that’s totally fine. We all have our own styles. Julien and I aren’t swing traders either—we’re terrible at it (we genuinely don’t care about intra-cycle volatility). But over the past 21 years, our verified and documented full-cycle investment track record ranks among the best ever. (Warning—we can still be wrong. 2009 was an astonishingly awful example!) Now is not the time to quit… Good luck—and let’s have a goddamn epic 2026! The liquidity cavalry is coming.
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[ChainCatcher]
Liquidity as the Primary Driver: Why Crypto’s Weakness Is Temporary
The prevailing narrative dominating crypto markets has been one of despair—claims that Bitcoin and the broader crypto ecosystem are fundamentally broken, with the cycle concluded and “nice things” no longer deserved. However, a deeper analysis reveals that the primary culprit behind crypto’s recent struggles isn’t structural failure but rather a temporary U.S. liquidity drought that’s affecting not just crypto but other long-duration assets as well.
The Correlation That Matters
One of the most compelling observations in this analysis is the identical chart patterns between Bitcoin and the UBS SaaS Index. This correlation is significant because it suggests both asset classes are responding to the same macroeconomic pressure rather than crypto-specific factors. When traditionally uncorrelated assets move in tandem, it’s typically a sign of a common underlying driver—in this case, liquidity constraints.
The Liquidity Vacuum Explained
The author correctly identifies that U.S. liquidity has been suppressed through a confluence of factors:
– Two government shutdowns
– Exhaustion of the reverse repo facility in 2024
– TGA replenishment without monetary offset in July-August
– The current government shutdown representing “the final liquidity obstacle”
This liquidity vacuum explains why even high-quality assets have been punished. Gold’s rally, in particular, has effectively “siphoned off all marginal liquidity” that would normally flow into risk assets like Bitcoin and growth stocks like those in the SaaS sector.
Why Liquidity Matters Most for Crypto
Crypto, particularly Bitcoin, functions as a long-duration asset similar to growth stocks but with even less near-term cash flows. During periods of liquidity tightening, these assets are disproportionately affected because their valuation relies heavily on future discounting. When liquidity dries up, the risk premium associated with these assets increases dramatically, leading to price declines that exceed those of more traditional assets.
The current situation represents a classic case of monetary policy impact on risk assets. As the author notes, “global aggregate liquidity” typically drives crypto markets over full cycles, but in this instance, “U.S. aggregate liquidity appears dominant” because the U.S. remains the world’s primary liquidity provider.
The Coming Liquidity Flood
The analysis presents a compelling case for an imminent liquidity rebound:
– Resolution of the current government shutdown (expected “this week”)
– SLR (Supplementary Leverage Ratio) adjustments
– Partial TGA releases
– Fiscal stimulus
– Interest rate cuts
These factors, combined with midterm election dynamics, suggest that we’re on the cusp of a significant liquidity injection into the financial system. When this occurs, long-duration assets like Bitcoin and crypto should benefit disproportionately.
Fed Policy Reassessment
The author’s take on Fed policy—particularly regarding Kevin Warsh—provides a contrarian perspective that challenges the prevailing hawkish narrative. The argument that Warsh will follow a “Greenspan-era playbook” of cutting rates while allowing the economy to overheat, betting on AI-driven productivity gains to suppress inflation, is consistent with Stanley Druckenmiller’s public positions on policy easing.
This interpretation of Fed policy is crucial for crypto markets, as rate cuts typically weaken the dollar, increase liquidity, and boost risk appetite—all positive factors for crypto valuations.
Risks and Opportunities
For experienced crypto investors, this analysis presents both significant risks and compelling opportunities:
Risks:
– The timeline for liquidity normalization remains uncertain
– Gold’s continued liquidity absorption could delay crypto’s recovery
– Crypto-specific regulatory challenges persist regardless of macro conditions
– The analysis may be overly optimistic about the magnitude and timing of policy response
Opportunities:
– Current prices represent a potential accumulation opportunity for quality assets
– High-quality altcoins historically bounce faster than Bitcoin during recoveries
– DeFi protocols may benefit disproportionately when liquidity returns
– The intersection of AI and crypto could present unique opportunities given the AI productivity thesis
Investment Philosophy: Time Over Price
Perhaps the most valuable insight in this analysis is its emphasis on “time over price” for full-cycle investors. The author correctly notes that obsessing over every price movement harms mental health more than portfolios. For those with a multi-year investment horizon, the current market conditions may represent an ideal accumulation phase before the anticipated liquidity flood arrives.
Conclusion
While the crypto market has certainly experienced significant pain, this analysis provides a compelling macroeconomic explanation for the weakness that doesn’t rely on crypto-specific failure but rather on temporary liquidity constraints. If the author’s predictions about liquidity normalization materialize, we could see a significant recovery in crypto markets.
However, investors should maintain a balanced perspective, acknowledging both the potential upside from liquidity improvements and the persistent risks facing crypto. For those with the risk tolerance and time horizon, current conditions may represent an opportunity to position for the next bull cycle—though patience will be required as the liquidity story unfolds.
The key takeaway is that crypto markets remain highly sensitive to macro liquidity conditions, and as these normalize, we should expect a more favorable environment for risk assets like Bitcoin and other cryptocurrencies.