Bitcoin's recent decline is being attributed to Jerome Powell's upcoming Jackson Hole speech, but the real issue is liquidity reduction.
How the Treasury’s Bank Account Works
The Treasury General Account (TGA) serves as the U.S. government's savings account. When the Treasury spends from it, that cash circulates back into the economy, boosting market liquidity. However, when the Treasury decides to rebuild the account, it sells bonds and removes money from the system. In the coming months, officials aim to raise $500–$600 billion, resulting in one of the largest liquidity squeezes in recent memory.
Impact on Bitcoin and Other Cryptocurrencies
Bitcoin, which recently touched highs above $124,000, has dropped more than 8% to near $113,500. Ethereum, XRP, and Solana followed suit. Liquidations totaled over $270 million, including $170 million in ETH and $104 million in BTC. Nearly 95% of these were long bets, triggered by moderate 2–3% pullbacks.
Liquidity and Jerome Powell's Speech
While the liquidity drain is the main story, traders can’t ignore Jerome Powell’s remarks at Jackson Hole. Odds of a September rate cut have dropped sharply, and a hawkish tone could spark further corrections. David Duong from Coinbase noted that Powell’s speech is more of a convenient excuse for risk trimming ahead of the anticipated liquidity drain.
The primary pressure on Bitcoin's prices is the significant liquidity drain rather than just the actions of Federal Reserve representatives. In the absence of strong buffers, the current situation is proving to be more tense for the market.
