Bitcoin Faces $500 Billion Liquidity Drain as Treasury Refills Cash Balance

Bitcoin's liquidity lifeline, which has supported risk assets since the start of 2025, is now reversing. According to macro analyst Tomas, the six-month upswing in Federal Reserve liquidity has ended, and a potentially destabilizing wave of debt issuance by the US Treasury is about to begin. Tomas warned that the Federal Reserve liquidity upswing that began on January 1, 2025, is now over.

The catalyst behind this reversal is the recent $5 trillion debt ceiling increase passed by Congress. This legislative decision allows the Treasury Department to aggressively rebuild its cash balance at the Federal Reserve, known as the Treasury General Account (TGA), which had been intentionally drained to inject liquidity into the system during the first half of the year. The refill target is currently set at $850 billion, up from recent levels around $350 billion, implying roughly $500 billion in liquidity will be removed from the system in the coming months.

The implications for Bitcoin are stark. Risk assets have historically benefited from rising dollar liquidity, particularly in the context of elevated ETF inflows, corporate adoption, and a weakening US dollar. However, this backdrop is now shifting. A strengthening dollar, when coupled with falling bank reserves, is generally a bearish environment for Bitcoin. The pressure on liquidity won’t necessarily come all at once, but the mechanics are clear. The Treasury will issue large volumes of new short-term debt, primarily T-bills, to finance the TGA refill. This issuance will compete with other dollar-denominated assets for funding, draining cash out of banks and money markets.

Tomas notes that this dynamic could be softened if money market funds rotate their cash out of the Fed’s Overnight Reverse Repo Facility, which still holds about $214 billion. It’s possible that Treasury Secretary could lower the target level, meaning less of a refill. Tomas expects the overall effect to reduce reserve balances—bank reserves as a percentage of GDP are likely to fall below 10%. While this is not as dire as the 7% level reached in 2019, it represents a sharp tightening compared to the first half of this year. There could be some funding stress around the end of September.

Bitcoin’s performance has coincided with the exact window Tomas outlines as a liquidity upswing. Bitcoin’s price has closely tracked the direction of aggregate G5 central bank balance sheets and the level of US bank reserves. When those reserves shrink—especially in the face of stronger Treasury issuance and a rebounding dollar—Bitcoin has historically struggled to sustain upside momentum. This concern is compounded by Tomas’s warning that speculative short positioning against the dollar has reached extremes. Such a reversal in the dollar would mark a critical macro headwind for Bitcoin. The 90-day rolling correlation between Bitcoin and the US Dollar Index (DXY) remains firmly negative. In environments where the dollar strengthens—especially when driven by tightening liquidity—Bitcoin has rarely outperformed.

The next several weeks will be critical. If the Treasury proceeds with aggressive issuance and market participants demand higher yields, liquidity could tighten faster than anticipated. While Tomas does leave open the possibility that the Treasury Secretary may adjust the TGA target downward, the baseline scenario remains a $500 billion net liquidity drain—directly reversing the conditions that allowed Bitcoin to surge.