Bitcoin’s $2 Trillion Safety Net Vanishes: What’s Next for the Bull Run?
The impressive Bitcoin rally of 2025 was built on a foundation of global liquidity that now appears to be eroding. While some analysts point to record highs in global liquidity indexes, a closer examination of the final quarter reveals a concerning shift. CrossBorder Capital’s high-frequency tracking suggests momentum peaked in early November, with the US cycle now showing signs of a rollover. Both perspectives are supported by real data, raising a critical question: does the absolute level of liquidity matter more than its direction, and what does this divergence mean for Bitcoin as we head into 2026?
Record Highs and Fading Momentum: A Tale of Two Analyses
Data from the Bank for International Settlements (BIS) initially painted a bullish picture. Global liquidity expanded at the start of 2025, with cross-border bank credit in foreign currencies reaching a record $34.7 trillion in the first quarter. Dollar, euro, and yen credit experienced year-on-year growth of 5% to 10%. By the end of June, the BIS’s broader global liquidity index still showed foreign currency credit growing 6% in dollars and 13% in euros compared to the previous year. This data fueled the narrative that liquidity remained robust and supported continued growth.
However, CrossBorder Capital presents a contrasting view. Their proprietary tracking, which aggregates central bank balance sheets, shadow banking flows, and credit impulses, tells a different story for the fourth quarter. Michael Howell, in an October note, indicated that global liquidity was “touching record highs around $185 trillion but struggling to push higher,” with momentum waning as the Federal Reserve’s quantitative tightening, slower injections from the People's Bank of China, and a strengthening dollar began to impact the shadow monetary base.
A December 5th update estimated global liquidity at $187.3 trillion, a $750 billion increase week-over-week, but still slightly below the early-November peak, flagging stalled growth. By December 23rd, the team reported a further decline to $186.2 trillion, noting that both short- and long-term growth measures had reversed. Howell added that liquidity levels had fallen roughly $1.8 trillion since early November, and the US liquidity cycle appeared to be peaking.
While Howell’s numbers still show global liquidity near all-time highs, the fourth quarter has been characterized by flattening-to-mild contraction, not consistent monthly gains. The level remains high, but the direction has shifted downwards or sideways.
The Mechanics of a Net Liquidity Squeeze
Examining “net liquidity” – defined as the Federal Reserve balance sheet minus the Treasury General Account minus reverse repos – clarifies the domestic situation. The Federal Reserve’s balance sheet reports show total assets down approximately $132 billion over the past two quarters to $6.6 trillion as of late September, with securities holdings decreasing by $126 billion.
A separate Fed report indicates the Treasury General Account rose roughly $440 billion since the mid-year debt-ceiling resolution. Combined with quantitative tightening, this increase cut reserve balances by about $450 billion. Simultaneously, the Fed’s overnight reverse repo facility, which held over $2 trillion in 2022, has fallen to near zero for the first time in years, removing a significant buffer.
Further pressure on reserves is evident in occasional spikes in the Fed’s standing repo facility usage, prompting the Fed to effectively end quantitative tightening and resume small-scale purchases of short-dated Treasuries in recent weeks.
Adding to the complexity, the US Dollar Index (DXY) dropped roughly 10% over 2025. While a weaker dollar typically boosts global dollar liquidity, Howell explicitly cited the recent dollar “recovery” off its lows as a factor weighing on global liquidity momentum in November and December.
Reconciling the Claims: A Nuanced Picture
The reconciled picture reveals genuine liquidity surging from late 2024 through mid-2025, remaining at or near record levels. This supports the idea that the current Bitcoin cycle has a real liquidity foundation, not merely being built on speculation. However, the significant positive impulse from draining the Fed’s reverse repo facility is largely behind us.
US net liquidity in the fourth quarter has been flat to mildly negative, as quantitative tightening, a larger Treasury General Account, and the exhaustion of the reverse repo “piggy bank” offset earlier gains. CrossBorder Capital’s estimates show that since early November, the global aggregate has stopped making new highs and has begun to decline.
Both sides are correct in their specific claims. Global liquidity reached record highs and remained elevated, while US net liquidity flattened and contracted in the fourth quarter. This divergence highlights the importance of considering both the absolute level and the direction of liquidity.
Signals That Matter for Future Direction
Several key developments signal potential shifts in the liquidity landscape:
- Fed Quantitative Tightening is Over: The Fed has effectively halted balance sheet reduction and resumed small Treasury purchases, easing US net liquidity tightening.
- Reverse Repo Tailwind Spent: The bulk of the boost from money market funds withdrawing cash from the Fed’s reverse repo facility has passed.
- Treasury Issuance and the Treasury General Account: The mix of Treasury issuance and the TGA balance will determine whether government funding needs add or subtract liquidity.
- Dollar Strength: A sustained weaker dollar effectively eases global financial conditions, while a rebound tightens them.
- China’s Role: The People’s Bank of China’s policies and interventions significantly impact global liquidity.
What Does This Mean for Bitcoin?
The path forward is likely a high plateau with volatility: still-elevated global liquidity that can either gently erode or reaccelerate depending on policy choices and the dollar’s performance. Bitcoin is currently surfing the wave of liquidity built up earlier in the cycle. The marginal change in the fourth quarter shifted from a strong tailwind to a mixed or slightly soggy one.
The next leg up depends less on a monolithic “global liquidity goes vertical again” scenario and more on how quickly the Fed cuts rates, whether the dollar resumes its upward trend, and whether major non-US players begin to reflate their economies. The data suggests the liquidity wave that launched this cycle is still rolling, but it’s no longer steepening.
This isn’t necessarily a bearish outlook. It’s a recognition that the easy gains from reverse repo drawdowns and early-cycle liquidity expansion are over. What comes next will depend on policy, not just plumbing. Bitcoin’s future performance will be closely tied to these macroeconomic factors, requiring investors to remain vigilant and adapt to changing market conditions.
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