Crypto Crash: Why Bitcoin Fell After Record $126,000
Introduction
After soaring to an all-time high of over $126,000 in early October, Bitcoin has hit a turbulent patch. The world's largest cryptocurrency rapidly slid back towards the $100,000 mark, even entering bear-market territory. While many attributed the sudden pullback to shifting interest rate expectations, Citi analysts point to deeper liquidity dynamics as the primary reason behind Bitcoin’s decline.
Why Did Bitcoin Price Fall?
Citi strategists led by Dirk Willer argue that falling liquidity in the U.S. financial system—not just Fed rate speculation—is the main driver of the recent slump. Two critical factors are at play:
Bank Reserves at the Federal Reserve: These have dropped notably, especially as the U.S. government’s main checking account (Treasury General Account, or TGA) has grown. The TGA and bank reserves generally move in opposite directions, so as the TGA swelled this year, reserves fell.
Quantitative Tightening by the Fed: Since 2022, the U.S. central bank has been pulling money out of the system. Bitcoin’s price has closely tracked this drop in reserves, declining together as liquidity shrank.
Willer notes that Bitcoin, compared to equities, is even more sensitive to pure liquidity shifts:
"It is plausible that bitcoin is a more sensitive instrument for pure liquidity, especially with equities caught up in the fundamentally driven AI narrative."
The Outlook: Citi Remains Bullish
Despite recent losses, Citi analysts remain optimistic. Several signals point to a near-term stabilization and a bullish long-term path:
Fed Easing on the Horizon: The Federal Reserve is expected to halt the reduction of its balance sheet in December, indicating that bank reserves will soon reach “ample” levels.
TGA Stabilization: After a temporary drain following the 2025 debt ceiling resolution, the TGA has since been replenished, now exceeding $940 billion as of early November.
Citi believes these factors will stabilize and potentially improve liquidity conditions, creating a more supportive backdrop for Bitcoin and possibly reigniting a rally in the Nasdaq 100 as well.
FAQs
Why is the Bitcoin price falling today?
Citi analysts say the main culprit is shrinking liquidity in the U.S. financial system, rather than just Fed rate cut expectations.
What is Bitcoin’s price prediction according to Citi?
Citi expects Bitcoin to recover and potentially reach $181,000 in the next year.