Bearish sentiment is intensifying amid a sharp drop in the price of Bitcoin. But despite the decline, well-known representatives of the crypto industry are confident: the chances for a reversal are still high.
They link possible growth to a global influx of liquidity and actions by the Federal Reserve, which could push the market upward.
The US government shutdown is squeezing liquidity from the market
The founder of RealVision Raoul Pal shared his analysis of the situation on X on Wednesday. According to him, the current drop is due to a sharp reduction in market liquidity — triggered by the aggressive policy of quantitative tightening (QT) by the Fed and the ongoing shutdown in the US.
Pal explained how this works:
‘Because of the shutdown, the government can’t spend money, and funds accumulate in the Treasury’s account. This sharply reduces liquidity and puts pressure on all markets, especially crypto. Crypto depends most on free money.’
He added that if the outflow of liquidity continues, stock markets will also be hit. At the same time, Pal calls the current situation temporary:
‘As soon as the shutdown ends, the US Treasury will start spending actively, from $250 to $350 billion in a couple of months. QT will end, and the balance will start to grow again.’
Hayes predicts covert QE through repo deals
Co-founder and former BitMEX CEO Arthur Hayes updated his blog on Tuesday, supporting concerns about declining liquidity. However, he believes that the Fed is unlikely to officially announce a new round of quantitative easing — the political risk is too high due to rising inflation.
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Instead, Hayes expects the regulator to launch a ‘covert’ version of QE: to begin actively supplying the market with liquidity through the SRF, the Fed’s standing repo facility. It allows financial institutions to exchange government bonds for dollars. In essence, this scheme will become an unpublicized way to inject money into the market to at least somewhat ease the tension.
Analysts stick to bold year-end forecasts
Despite volatility and geopolitics, including the recent escalation of trade relations between the US and China, a number of experts are still making ambitious forecasts for the end of the year.
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The head of Fundstrat and chairman of Bitmine Tom Lee recently voiced his targets: S&P 500 could reach 7500, Bitcoin — $200,000, and Ether — $7,000. He noted that Ethereum is showing stable dynamics: volumes in stablecoins and application revenues are growing. All this, in Lee’s opinion, creates a good foundation for a powerful rally by year-end.
