Bearish sentiment is rising following a sharp decline in Bitcoin’s price. Despite this trend, several prominent cryptocurrency influencers argue that the hope for an upward reversal remains strong.
They cite expanding global liquidity and anticipated Federal Reserve (Fed) actions as potential catalysts for the next rally.
Government Shutdown Draining Market Liquidity
Raoul Pal, founder of RealVision, analyzed the downturn on his X account on Wednesday. He attributed the crash primarily to market liquidity tightening, specifically linking the pressure to the Fed’s excessive Quantitative Tightening (QT) execution and the ongoing US government shutdown.
Pal detailed the mechanism: “Currently, the government shutdown has forced a sharp tightening of liquidity as the TGA builds up with nowhere to spend it. This is hitting markets, and in particular crypto, which is the most liquidity-driven.” He warned that continued liquidity drainage would heavily impact stocks as well.
Pal believes the current situation is unsustainable and predicts an imminent course correction. He expects that as soon as the government shutdown ends, the Treasury will begin spending $250 billion to $350 billion in a couple of months. QT ends, and the balance sheet technically expands.”
Hayes Predicts Stealth QE via SRF
Arthur Hayes, co-founder and former CEO of BitMEX, updated his blog post on Tuesday to echo the liquidity depletion concern. However, he does not expect the Fed to formally announce Quantitative Easing (QE) due to political concerns over inflation responsibility.
Instead, Hayes predicts the Fed will resort to a stealth approach: “to lend freely to the repo market via the SRF [Standing Repo Facility].” The SRF is a Fed liquidity window where institutions can swap US Treasuries for cash. Ultimately, it will effectively serve as a silent QE mechanism to address the market’s strained liquidity.
Analysts Maintain Aggressive Year-End Targets
Despite the short-term volatility and geopolitical factors like the recent US-China trade friction, some prominent figures maintain aggressive year-end forecasts.
Tom Lee, CEO of Fundstrat and Chairman of Bitmine, recently projected that the S&P 500 will reach $7,500, Bitcoin will hit $200,000, and Ethereum will get $7,000 by year-end. Lee pointed to Ethereum’s stable fundamentals—including rising stablecoin volume and app revenue—as a key reason for the potential year-end crypto rally.
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