First Coin

Bitcoin Isn’t Broken: The Real Reason Behind the Drop, Says Raoul Pal

Bitcoin has fallen a lot. It was at about $126,000 at its peak. Now it trades a little above $77,000. That means the price has dropped roughly 40 percent from the top. The fall has been sharp, and many investors worry it could fall further. This kind of drop can feel serious. But some experts say the story isn’t that Bitcoin or the crypto market have failed. They say the bigger force at work is something called liquidity. Liquidity is a big word for how much money is available in the market to buy and sell things like stocks or Bitcoin.

Raoul Pal is a well known investor. He runs Global Macro Investor, a company that studies big economic trends. He has a view about why Bitcoin is moving the way it does now. He says the idea that Bitcoin and the entire crypto market are “broken” is not true. He describes that idea as a simple, tempting story. This story focuses on problems inside crypto like exchange issues or big investors pulling out. Pal says this view ignores a bigger, common factor that affects many assets.

In his words, the big factor is US liquidity. Liquidity means the amount of money that is easily available to buy things. If liquidity is high, it’s easier for people to buy assets like Bitcoin. If liquidity is low, there is less money to buy, and prices can fall. Pal argues that the current situation began with a squeeze in US liquidity. Several technical and policy steps reduced the amount of cash in the system for a while. He points to a few specific events in 2024 and 2025 that drained cash from the market and did not bring new money back in quickly enough.

One important idea Pal mentions is that Bitcoin and another group of assets called Software as a Service (SaaS) stocks have moved in a similar way recently. SaaS is a way of delivering software over the internet. Think of it like paying a monthly fee to use a program online, instead of buying a box with software on a disk. When Pal looked at prices, he found that Bitcoin and the UBS SaaS Index (an index that tracks many SaaS stocks) have followed very similar price patterns. This similarity, he says, shows they are not falling for the same inside problems alone. Instead, they both respond to the same big factor: liquidity in the market. In simple terms, both Bitcoin and many SaaS companies are highly sensitive to how much cash is available to invest.

Pal explains that the factor behind the current liquidity is mostly about the United States. The US is the center of global money flow. When the US has more money circulating in its financial system, money tends to flow into many assets around the world. When the US system has less money, investors pull back. Pal says that in this cycle, US liquidity has been tight for reasons both technical and fiscal. Technical reasons are related to how financial tools and accounts are used. Fiscal reasons are about government spending and how the government manages its cash flow.

A key event Pal mentions is the end of something called the United States Reverse Repo drain in 2024. A reverse repo is a short-term borrowing tool used by the central bank to manage money. It is a way to pull money out of the economy for a short time. When the drain ends, it means less cash is being pulled out, but other steps still affect the overall cash available in the system. After this period, the Treasury General Account (TGA) in July and August did not get a matching amount of new cash back into the market. The TGA is like the government’s big checking account. If it grows without new cash coming in, it takes money out of the economy. That reduces liquidity. Pal says this created a lasting effect: less money in the markets overall.

Pal also notes that this shortage of cash shows up in weaker readings from the economy, like the Institute for Supply Management (ISM) data, which tracks manufacturing activity. When liquidity is tight, businesses may slow down procurement and production, which can push ISM numbers lower. In his view, the overall measure Global Total Liquidity (the total amount of cash available globally) usually has a strong link to Bitcoin and to US stocks. But right now, the most influential liquidity is US liquidity because the US is the main source of money for the world. If US liquidity improves, it tends to help other markets too. Pal believes that US liquidity is starting to turn higher again. If that continues, it should start to show up in US economic indicators and prices of risky assets like Bitcoin and SaaS stocks.

Another point Pal makes is about how banks and governments interact with money. Bitcoin and SaaS are called longer-duration assets. That means their prices depend more on long-term money conditions, not just short-term news. When money is scarce, riskier assets can suffer more. Pal says that a surge in gold prices had already absorbed some liquidity that would otherwise have gone into riskier assets like Bitcoin. In simple terms, if people buy gold instead of Bitcoin, there is less money available to push up Bitcoin’s price. This leaves Bitcoin and similar assets more vulnerable if liquidity keeps falling.

The current U.S. government shutdown has added to liquidity problems. In a shutdown, some government operations slow down. In this case, the Treasury did not reduce the TGA after the last shutdown. Instead, the government added to the TGA. This action creates what Pal calls an temporary “air pocket” in liquidity. This pocket puts extra pressure on prices for a short time because there is less cash moving through the market. Pal believes this is a temporary situation. He expects the shutdown to be resolved soon and sees this moment as the last major hurdle for liquidity in this cycle. Beyond the shutdown, he points to other factors that can influence liquidity in the future. These include adjustments to the enhanced supplementary leverage ratio (eSLR), partial TGA drawdowns, fiscal stimulus programs, and eventually rate cuts by the Federal Reserve.

Some people worry about the pace of rate cuts from the Federal Reserve (the central bank of the United States). They have suggested that upcoming new leaders or policy shifts might be “hawkish,” meaning they would push rates down more slowly or even raise them. Raoul Pal does not share this worry about the next chair. He says the idea that Kevin Warsh would be hawkish is old and not supported by recent comments. Pal argues Warsh would likely favor rate cuts and continued economic growth, while also keeping the central bank’s balance sheet stable. He notes that reserve constraints—limits on the central bank’s ability to hold a lot of assets—play a role in these decisions. In Pal’s view, the policy path still supports lowering rates rather than raising them.

Despite all the market ups and downs, Pal remains optimistic about Bitcoin and the broader market in the longer term. He says he is bullish about 2026. This means he expects prices to recover and move higher as liquidity conditions improve and as the economy adapts to new economic reality. He emphasizes that the story here is not that crypto has failed, but that liquidity holes in the system are the main driver of recent price moves. If liquidity improves, Bitcoin and related assets could regain ground.

In summary, Raoul Pal’s view is simple. He believes the current drop in Bitcoin is not because the technology failed or because the crypto market is broken. It is because there is less money available in the market to buy riskier assets. He points to the quiet period in US liquidity, the government’s cash flow choices, and the way large investors move money as the core reasons for the pain in Bitcoin and SaaS stocks. He also says that the situation should start to improve as the shutdown ends and as liquidity measures he expects begin to move higher. If that happens, he expects Bitcoin and other assets to recover, with 2026 looking notably better for those who stay patient and pay attention to liquidity signals rather than only price moves.

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