The AI and Crypto Liquidity Squeeze: Is the Bottom Near?

The markets for artificial intelligence (AI) and cryptocurrency have been gripped by a liquidity squeeze in late 2025, driven by macroeconomic volatility, regulatory uncertainty, and speculative overhangs. Yet, amid the turbulence, a compelling case is emerging for a near-term reversal. Cathie Wood, CEO of ARK Invest, has been a vocal advocate for this view, arguing that the current pullbacks are temporary and that structural tailwinds in innovation-driven sectors will soon reassert themselves. This analysis examines the evidence supporting her thesis, from Palantir's 121% year-over-year revenue growth to Naver's $700 million AI/blockchain investments, and explores how institutional sentiment in crypto-reflected in whale flows and Tom Lee's bullish forecasts-points to a potential inflection point.

Cathie Wood's Liquidity Reversal Thesis

Cathie Wood has consistently framed the current market dynamics as a "liquidity squeeze" rather than a fundamental collapse. In a recent post on X, she emphasized that the AI and crypto sectors are experiencing short-term volatility due to macroeconomic headwinds, including tightening monetary policy and shifting investor sentiment according to her recent post. However, she argues that these conditions are cyclical and will reverse in the coming weeks, unlocking renewed demand for innovation-driven assets. ARK Invest's Q3 2025 commentary reinforces this perspective, noting that structural tailwinds-such as favorable policy shifts and fiscal catalysts-are building momentum in the innovation space.

Wood's optimism is rooted in the belief that AI and crypto are not in a bubble but rather in the early innings of a transformative growth cycle. She points to the accelerating adoption of AI tools in both consumer and enterprise markets, including platforms like Palantir Technologies, as evidence of durable demand according to her analysis.

Palantir's 121% Growth: A Case Study in AI Demand

Palantir Technologies has emerged as a bellwether for the AI sector's resilience. In Q3 2025, the company reported a staggering 121% year-over-year increase in U.S. commercial revenue, driven by surging demand for its AI-powered data analytics platforms. This growth outpaced even its government segment, which saw a 52% year-over-year increase. Palantir's performance underscores a critical point: AI is not a speculative fad but a foundational technology reshaping industries.

The company's success is tied to its ability to address real-world problems, from supply chain optimization to cybersecurity. For instance, Palantir's AI chatbots and enterprise platforms have been adopted by major corporations and government agencies, reflecting a broader trend of AI integration. Analysts project that this momentum will continue, with Palantir forecasting fourth-quarter revenue of $1.327 billion to $1.331 billion-well above the $1.19 billion average estimate.

Naver's $700M AI/Blockchain Push: A Global Bet

South Korea's strategic investments in AI and blockchain further validate the sector's long-term potential. The South Korean government has announced a $700 million initiative to develop a homegrown ChatGPT alternative, including the acquisition of 8,000 GPUs by mid-2026. This effort is part of a broader push to establish the country as a global AI leader, with a focus on artificial general intelligence (AGI) and large language models (LLMs).

Meanwhile, private players like Naver are doubling down on AI infrastructure. The company has committed over $690 million to GPU procurement, including a landmark $690 million order of 60,000 Nvidia Blackwell GPUs-the largest single purchase by a South Korean firm. Naver's fintech subsidiary, Naver Financial, has also expanded into blockchain through its $14.5 billion acquisition of Upbit, South Korea's largest cryptocurrency exchange according to reports. These moves highlight a growing convergence between AI and blockchain, with both technologies reinforcing each other's adoption.

Crypto's Liquidity Squeeze and Institutional Sentiment

The cryptocurrency market has faced its own liquidity challenges, but signs of stabilization are emerging. Tom Lee, a prominent crypto analyst, remains bullish on Bitcoin, forecasting a price target of $250,000 by year-end 2025. His optimism is grounded in supply-demand imbalances and the maturation of institutional adoption. Lee argues that Bitcoin's traditional four-year cycle is giving way to a longer-term trend driven by macroeconomic forces and ETF inflows according to his analysis.

On-chain data from platforms like Hyperliquid also suggests a shift in institutional sentiment. In Q3 2025, large investors injected $100 million into leveraged longs on Bitcoin and Ethereum, despite a 28% drop in Ethereum's price over the past month. Notably, one whale opened a 25x long on 7,000 ETH ($20.49 million), while another took a 20x long on 346 BTC ($30.09 million) according to market data. These aggressive positions indicate confidence in a potential rebound, even as others hedge with shorts.

However, the market remains fragile. A November 2025 crash saw Bitcoin plummet from $126,000 to $80,000, exacerbated by thin order books and whale liquidations. Yet, some analysts argue that the market is nearing a bottom. For example, David Bailey of Bitcoin Nakamoto predicts Bitcoin could surge to $150,000 once major whale sellers complete their liquidations.

The Case for Near-Term Entry

The confluence of AI and crypto fundamentals, coupled with evolving institutional sentiment, presents a compelling case for near-term entry. Cathie Wood's liquidity reversal thesis is supported by Palantir's 121% growth and Naver's $700 million AI/blockchain investments, which demonstrate robust underlying demand. Meanwhile, Tom Lee's Bitcoin forecast and Hyperliquid's whale flows suggest that crypto markets are poised for a rebound, albeit with short-term volatility.

For investors, the key is to balance caution with conviction. While the liquidity squeeze has created headwinds, it has also created opportunities to access innovation-driven assets at discounted valuations. As ARK Invest and other institutional players continue to build positions in AI and crypto, the stage is set for a potential breakout in early 2026.