Is the crypto boom over? Don't give up, liquidity rescue is coming soon.

Original author:Raoul Pal, CEO of Real Vision and GMI

Original compilation: CryptoLeo (@LeoAndCrypto)

This morning, Raoul Pal, CEO of Real Vision and GMI (Raoul Pal’s investment bible), published an article titled False Narratives…and Other Thoughts, explaining the recent downturn and crises in the crypto industry through data comparison and macro analysis. He stated that the industry winter will pass quickly, and everyone needs to stay patient and not lose confidence in the industry. Odaily Planet Daily translates it as follows:

This is the insight I came to over the weekend while writing for GMI, hoping to give you some confidence. In the past, I would save these thoughts for GMI and Pro Macro discussions, but I know you all need these to relax your tense nerves.

Mainstream Narrative: Crypto is Over?

The mainstream view believes that Bitcoin and cryptocurrencies have collapsed, the current cycle is over, and everything is finished—things can’t go back to how they were before. Cryptocurrencies have decoupled from other assets, and this is CZ’s fault, BlackRock’s fault, etc. This is undoubtedly an attractive narrative trap, especially with mainstream coins’ prices plummeting daily.

But yesterday, a GMI hedge fund client sent me a message asking whether they should buy SaaS stocks on dips, or as everyone is saying now, has Claude Code already killed the SaaS industry?

So I started researching SaaS, and during the process, I found that the conclusions I reached not only contradict the mainstream narrative about Bitcoin but also challenge the narrative about the SaaS industry. The chart of SaaS and BTC prices looks exactly the same?

UBS SaaS Index vs. Bitcoin Price

Indicating there’s another overlooked factor influencing both trends.

This factor is: Due to two halts and issues in the US financial system (liquidity from reverse repurchase agreements only fully replenished in 2024), US liquidity has been suppressed. Therefore, the TGA (Treasury General Account) rebuilds in July and August lacked corresponding monetary offset measures, leading to reduced liquidity.

So far, low liquidity has been the reason the ISM Manufacturing Index has remained low.

We usually use the global total liquidity indicator because it has the highest long-term correlation with BTC and the NASDAQ, but at this stage, US total liquidity seems more important because the US is the main provider of global liquidity.

In this cycle, the GMI Global Total Liquidity Index leads the US Total Liquidity Index and is about to rebound (which will also boost the ISM index).

This is exactly the factor affecting both SaaS and BTC. Both assets are among the longest-dated assets and have fallen due to temporary liquidity withdrawals.

The rise in gold has essentially drained the marginal liquidity that could have flowed into Bitcoin and SaaS markets, leaving insufficient liquidity to support these assets. As a result, high-risk assets are under pressure and declining—there’s nothing we can do about it.

Now, the US government is again facing a shutdown, and the Treasury has taken precautionary measures: after the last shutdown, no TGA funds were used, and instead, asset holdings increased (further draining liquidity). This is the current crisis, causing sharp price swings, and our beloved cryptocurrencies still lack liquidity.

However, all signs indicate that this government shutdown will be resolved this week, clearing the last liquidity hurdle.

Odaily Note: House Speaker Johnson said in an NBC News “Meet the Press” interview on Sunday that he believes he has enough support from Republicans to ensure the partial government shutdown ends before Tuesday.

I’ve mentioned the risk of this shutdown multiple times before, but it will pass quickly, and we can then continue to prepare for the upcoming liquidity injection, which includes measures like partial reflows from eSLR, TGA, fiscal stimulus, rate cuts, etc., all related to the midterm elections.

Odaily Note: U.S. regulators passed legislation to relax leverage requirements to ease capital pressures on major banks like BAC.US.

In a full trading cycle, time often matters more than price. Prices may be severely hit, but over time and as the cycle evolves, everything will be resolved and settled.

That’s why I keep emphasizing patience: Events need to unfold, and focusing solely on risk-reward ratios only affects your mental health, not your portfolio.

The Fed’s False Narrative

Regarding rate cuts, another misconception is that Kevin Warsh is hawkish. That’s complete nonsense—these comments are mainly from 18 years ago.

Warsh’s role and task are to implement strategies from the Greenspan era. Trump and Bessent have both said (not detailed here, but the main direction is rate cuts) that they want to keep the economy hot, assuming that productivity gains from AI will suppress core CPI increases (similar to the 1995-2000 period).

Odaily Note: Greenspan was one of the longest-serving Fed Chairs in history. His monetary policy (controlling inflation + promoting maximum employment) was highly flexible but actually more anti-inflationary, with active liquidity injections during crises.

He doesn’t like balance sheets, but the system is constrained by reserve requirements, so he’s unlikely to change his current approach, or it could destroy the credit market.

Warsh will cut rates, and nothing else. He won’t interfere with Trump and Bessent’s actions managing liquidity through banks. Fed Governor Mullan is likely to push for a comprehensive eSLR reduction to accelerate this process.

Don’t believe me? Then trust Druck ↓

The chart shows “Investment guru” Stanley Druckenmiller’s views on Warsh’s monetary policy philosophy and his alignment with Bessent after becoming Fed Chair.

I know how difficult it is to hear optimistic narratives when crypto markets look so bleak. My holdings in SUI are terrible, and we don’t know what or who to trust anymore. First, we’ve been through this many times before. When BTC drops 30%, altcoins can fall 70%. But high-quality altcoins tend to rebound faster.

My Apologies (Mea Culpa)

GMI’s mistake was not recognizing US liquidity as the current driving factor; usually, global total liquidity dominates throughout the cycle. But now, everything is possible.

They are not unrelated. It’s just that we couldn’t predict a series of events (reverse repo exhaustion > TGA rebuild > government shutdown > gold rally > shutdown again) or their combined impact.

It’s finally ending soon, and we’ll be back to normal operations shortly.

We can’t guarantee every link won’t make mistakes (we now have a deeper understanding), and we remain very optimistic about 2026 because we understand Trump/Bessent/Warsh’s strategies. These three keep telling us: just listen and be patient. In full-cycle investing, time is more important than price.

If you’re not a cycle investor or don’t have strong risk tolerance, that’s perfectly fine. Everyone has their style, but Julien (GMI Macro Research Director) and I are not good at swing trading (we don’t care about short-term ups and downs), but we have proven track records in full-cycle investing, leading the industry for the past 21 years. (Warning: we also make mistakes, like in 2009.) Now is not the time to give up. Good luck, and let’s aim for bigger gains in 2026.

Liquidity cavalry is on the way!