Bitcoin’s anticipated resurgence in 2025 appears to rest upon a foundation of liquidity that, while seemingly robust, reveals critical nuances when scrutinized in light of developments from the final quarter of the year. Differing analytical perspectives illuminate this complex landscape: some experts assert that global liquidity indices have reached unprecedented heights, suggesting an ongoing momentum conducive to price appreciation. Conversely, others reference CrossBorder Capital’s high-frequency liquidity tracking, positing that momentum may have peaked in early November, indicating a potential downturn as the U.S. economic cycle transitions.
The core inquiry emerges: does the absolute level of liquidity hold greater significance than its directional trajectory? This distinction bears considerable implications for Bitcoin as we transition into 2026.
Record Highs Versus Fading Momentum
Data from the Bank for International Settlements (BIS) reveals that 2025 commenced with notable liquidity expansion. Specifically, cross-border bank credit denominated in foreign currencies surged to an all-time high of $34.7 trillion in the first quarter, with year-on-year growth rates oscillating between 5% and 10% for credit extended in USD, EUR, and JPY.
By mid-year, the BIS’s broader global liquidity index indicated a continued upward trend, with foreign currency credit witnessing growth rates of 6% in dollars and an impressive 13% in euros compared to the previous year. Proponents of this narrative argue that the sustained elevation of liquidity levels forms a compelling backdrop for bullish sentiments surrounding Bitcoin.
However, CrossBorder Capital’s proprietary analysis—an aggregation of central bank balance sheets, shadow banking flows, and credit impulses—paints a contrasting picture regarding fourth-quarter dynamics. In an October report, Michael Howell noted that while global liquidity had “touched record highs around $185 trillion,” it was struggling to achieve further growth due to factors such as the Federal Reserve’s quantitative tightening measures and reduced injections by the People’s Bank of China (PBOC). Moreover, a strengthening dollar is exerting pressure on the shadow monetary base.
A subsequent update on December 5 indicated that global liquidity had risen to $187.3 trillion; however, this represented only a marginal increase of $750 billion within the week and remained slightly below its early-November zenith. By December 23, reports confirmed a further decline in global liquidity—estimating a drop of $592 billion to $186.2 trillion—while highlighting a trend of stagnation or mild contraction in both short- and long-term growth metrics.
Howell’s assessments suggest that although global liquidity hovers near historical peaks, the fourth quarter has not experienced a series of escalating highs but rather has shown signs of flattening or contraction.
Net Liquidity Squeeze
The concept of “net liquidity,” which encompasses the Federal Reserve’s balance sheet minus Treasury General Account (TGA) balances and reverse repurchase agreements (reverse repos), elucidates recent domestic developments. Federal Reserve data indicates that total assets have diminished by approximately $132 billion over the past two quarters, settling at $6.6 trillion as of late September, with securities holdings specifically contracting by $126 billion.
A separate report from the Fed highlights an increase in the TGA by approximately $440 billion since resolving mid-year debt ceiling issues. This uptick has contributed to a reduction in reserve balances by roughly $450 billion alongside ongoing quantitative tightening measures.
Moreover, the Fed’s overnight reverse repo facility—a mechanism that previously held over $2 trillion in assets during 2022—has dwindled to nearly zero for the first time in years, effectively removing a significant buffer within the financial system.
This situation exacerbates stress on reserve balances within financial institutions. Consequently, there have been sporadic spikes in utilization of the Fed’s standing repo facility. Additionally, recent actions by the Fed suggest an end to quantitative tightening as it resumes small-scale purchases of short-dated Treasuries.
The DXY index has experienced a decline of approximately 10% throughout 2025. A weaker dollar typically enhances global dollar liquidity; however, Howell identified a recent recovery of the dollar from its absolute lows as an additional variable constraining global liquidity momentum into late November and December.
Reconciling Divergent Perspectives
An integrated analysis indicates that global liquidity genuinely surged from late 2024 into mid-2025 while maintaining levels at or near historical highs. This observation lends credence to assertions that Bitcoin’s current trajectory is underpinned by substantive liquidity rather than transient factors.
Nevertheless, any substantial positive impetus derived from depleting the Fed’s reverse repo facility is now largely behind us. In contrast, U.S. net liquidity during the fourth quarter has remained stagnant or slightly negative due to quantitative tightening measures coupled with an expanding Treasury General Account and diminished reserves resulting from previous policies.
Howell’s high-frequency global liquidity estimates indicate that since early November, global aggregates have ceased reaching new highs and instead exhibit signs of regression. Both factions possess valid claims regarding their positions; while global liquidity has indeed achieved record levels and remained elevated overall, U.S. net liquidity has demonstrated stagnation and contraction during this period.
This phenomenon is significant; although the absolute level remains substantial, the marginal shift now reflects a transition from robust tailwinds to mixed or slightly unfavorable conditions.
Signals Influencing Directionality
The Federal Reserve’s quantitative tightening appears to have come to an end. The central bank has effectively halted its balance sheet reduction while initiating minor Treasury purchases—actions which mitigate prior pressures on reserves and alleviate U.S. net liquidity constraints.
The substantial benefits conferred by reverse repos have been exhausted; moreover, most additional capital influxes from money market withdrawals from reverse repo facilities are no longer forthcoming. The remarkable boost experienced during late 2024 through early 2025 is unlikely to be replicated moving forward.
The evolution of reserves is now primarily contingent upon Treasury issuance strategies and Federal Reserve operations rather than relying on an extensive reservoir being depleted.
U.S. liquidity is no longer subject to aggressive contraction; however, it also lacks access to prior mechanical advantages previously enjoyed. The mix of Treasury issuance alongside TGA balances will determine whether governmental funding requirements will contribute positively or negatively towards liquidity dynamics.
If Treasury management favors short-term bills while allowing TGA balances to decrease gradually, this would effectively inject cash back into money markets and enhance bank reserves—yielding mildly positive effects on liquidity conditions. Conversely, heavy coupon issuance coupled with elevated TGA balances could exert opposite pressures on market dynamics.
The implications of potential Federal Reserve rate cuts are contingent upon contextual factors influencing risk assets; if cuts occur within a stable environment characterized by subdued inflation without evident credit discrepancies, they typically bolster risk sentiment and can lead to re-steepening yield curves—thereby benefiting shadow banking operations as well as collateral chains.
If rate reductions arise amidst distress signals indicating systemic failures within financial markets—a scenario that typically engenders risk aversion—the resultant liquidity injections may exacerbate turbulence rather than facilitate stability. Presently available data from options markets indicate expectations surrounding rate cuts without overt panic signals; thus suggesting a gradual shift towards looser monetary policy rather than immediate emergency quantitative easing measures.
Implications for Bitcoin
The trajectory ahead for Bitcoin is likely characterized by a relatively high plateau interspersed with fluctuations—a scenario wherein sustained yet elevated global liquidity may either gradually diminish or experience renewed acceleration based upon forthcoming policy decisions and currency trends.
Notably, Bitcoin continues to leverage elevated levels of liquidity accrued earlier within this cycle. The marginal changes observed during fourth quarter activities transitioned away from strong tailwinds towards more mixed or lackluster conditions. Future price movements will thus depend less on an overarching narrative suggesting renewed vertical growth in global liquidity but more critically on factors such as the pace at which Federal Reserve implements rate cuts; whether the dollar commences another ascent; and how major international players respond with reflationary efforts moving forward.
The prevailing data suggests that while the momentum fueling this cycle persists at elevated levels, it lacks inclination towards steepening trends moving forward. Consequently, Bitcoin finds itself not contending against an outright depletion but simultaneously lacking guarantees for additional upward momentum unless coordinated policy actions across key economic players favor expansionary measures once again.
This assessment does not convey bearish sentiments but rather acknowledges that Bitcoin’s initial phase benefitted significantly from mechanical advantages stemming from reverse repurchase drawdowns alongside early-cycle liquidity expansions; what lies ahead is contingent upon policy decisions rather than pure structural shifts within financial plumbing systems.
