Introduction
While investors are searching for emotional and technical explanations for the decline in Bitcoin's price, the real answer lies elsewhere: a structural squeeze on US dollar liquidity. This is manifested in several ways:
- The Treasury General Account (TGA) balance approaching $1 trillion, siphoning liquidity from the market.
- Sharp increase in pressure on short-term money markets, with the SOFR–FDTR spread widening to +30bp.
- The Federal Reserve being forced to restart temporary repurchase operations (Overnight Repo), injecting nearly $30 billion of liquidity into the market – the first time since the 2019 repo crisis.
This liquidity "vacuum" is not accidental, but a direct result of the government shutdown. The Treasury, anticipating budget gridlock and potential government shutdown risk, is proactively "stockpiling cash" by issuing large amounts of debt and locking the cash into the TGA account. This action drains bank reserves, reducing the "available dollars" in the market, and consequently pressuring risk assets – with Bitcoin being the earliest and most sensitive victim.
However, the scenario is not entirely bleak. Historical experience suggests that every time the Treasury replenishes reserves and liquidity becomes extremely tight, it often foreshadows an impending reversal. As of November 5th, the number of US government shutdown days has surpassed its historical peak, and pressure is rapidly accumulating on financial, economic, and livelihood levels. Against this backdrop, signs of easing tensions between the two parties are emerging, especially with the recent pullback in the US stock market, which could help accelerate the resolution of the government shutdown issue. The market anticipates that the Senate may push for a compromise before the Thanksgiving recess on November 15th, ending the government shutdown. At that time, the Treasury will restart spending, the TGA balance is expected to decline from its high levels, liquidity will return, and risk appetite will rise. Bitcoin may be in the "final dip" of this correction – at the intersection of resuming government spending and the start of a future interest rate cut cycle, a new liquidity cycle will be triggered.
Impact of Dollar Liquidity on Bitcoin
As a non-yielding asset, Bitcoin is highly sensitive to liquidity. Tight dollar liquidity often leads to downward pressure on Bitcoin, which is one of the reasons for Bitcoin's apparent weakness since mid-October, especially against the backdrop of the Nasdaq's continued rise to record highs.
As shown in Figure 1, as of October 31st:
- The SOFR–FDTR spread turned positive, reaching +30bp ← The real interbank interest rate is higher than the policy interest rate ceiling, indicating tight liquidity.
- The RRP balance rose to $50.3 billion ← The market is returning to seeking secure liquidity from the Federal Reserve Bank.
This indicates clear signs of tightness in the US short-term money market, forcing the Federal Reserve to reactivate temporary repurchase operations (Overnight Repo Operations), injecting nearly $30 billion of liquidity into the market on October 31st. This is the first time such operations have occurred since the 2019 repo crisis, signaling that liquidity shortages have shifted from a temporary phenomenon to a structural problem. Overall, the broad money supply (M2) remains abundant, but the reserve buffers of the banking system are being rapidly depleted, and the rise in interbank lending rates shows that liquidity pressure is no longer just an expectation, but a reality.
Analyzing Dollar Liquidity
Dollar Liquidity = Bank Reserves + Currency in Circulation = Federal Reserve's Total Balance Sheet - ON RRP (Overnight Reverse Repo) - Treasury General Account (TGA)
This is the core framework for monitoring the "available dollar balance in the US financial system." It reveals:
Total Dollar Liquidity = Federal Reserve's "Supply Side" - Treasury and Money Market's "Absorption Side."
* **Bank Reserves (Reserves):** Deposit balances of commercial banks at the Federal Reserve, the most direct liquidity in the system.
* When it increases ← easing liquidity
* **Currency in Circulation:** Cash held by companies and individuals.
* Usually grows steadily, short-term changes are small
* **ON RRP (Overnight Reverse Repo):** A short-term tool used by money market funds to "lend" funds to the Federal Reserve, which is equivalent to "withdrawing" liquidity.
* When it increases ← tightening liquidity
* **TGA (Treasury General Account):** The main account of the Treasury at the Federal Reserve, used for government expenses and revenues.
* When the TGA rises, it means that the Treasury is "absorbing" liquidity from the market.
* When it increases ← tightening liquidity
Logical Relationship
This equation actually describes the flow of funds between the Federal Reserve, the Treasury, and the money market:
Expansion of the Federal Reserve's balance sheet ← Increase in reserves and cash ← Increase in liquidity
For example, during the period of quantitative easing (QE), the Federal Reserve increased bank reserves by purchasing assets.
TGA rises ← Treasury issues bonds to withdraw funds ← Decrease in liquidity
When the government increases the issuance of bonds, tax revenues flow into the TGA, and market funds are "withdrawn."
ON RRP rises ← Money market funds deposit excess funds in the Federal Reserve ← Decrease in liquidity
Which is equivalent to money market funds "parking" market funds in the Federal Reserve, no longer circulating in the banking system.
Therefore:
Liquidity ↑ = Fed assets↑ + TGA↓ + RRP↓
Conclusion
The Treasury General Account (TGA), currently approaching $1 trillion, is the main reason for the recent liquidity squeeze. Later, with the government reopening and spending resuming, the TGA will decrease, dollar liquidity will recover, and risky assets such as Bitcoin are expected to receive support.
Before the government reopens, the Federal Reserve will continue to release liquidity through repurchase operations, temporarily reducing the spread between SOFR and Repo, and easing market liquidity stress.
Real money is betting on prediction sites that the government will reopen in mid-November, that is, from November 10th to November 15th. Institutions such as Goldman Sachs expect the government to open within two weeks.
Therefore, Bitcoin is likely to experience a "final dip," at least the government reopening and future interest rate cuts are certain, although the timing and pace are uncertain.
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