The collapse of Bitcoin raises fear, but Raoul Pal warns that the liquidity drought resulting from the government shutdown — not the fundamentals — is what caused the crash.
Arthur Hayes predicts that the Federal Reserve will implement "secret quantitative easing" through repurchase facilities, injecting liquidity without officially labeling it as easing.
Tom Lee still targets $200,000 for Bitcoin / $7,000 for Ethereum by year-end, anticipating a quick rebound once liquidity opens up in the markets.
Bearish sentiment is rising after the sharp decline in price $BTC . Despite this trend, many prominent influencers in the cryptocurrency world argue that hope for a bullish reversal remains strong.
They cite the expansion of global liquidity and expected actions from the Federal Reserve (Fed) as potential catalysts for the upcoming rise.
Government shutdown drains market liquidity
Raoul Pal, founder of Real Vision, analyzed the decline on Wednesday on his X account. He primarily attributed the crash to tightening liquidity in the market, linking the pressure specifically to the Federal Reserve's excessive implementation of quantitative tightening (QT) and the ongoing U.S. government shutdown.
Pal explained the mechanism: "Currently, the government shutdown has forced a sharp tightening in liquidity with the public treasury account increasing without spending it anywhere. This affects the markets, especially cryptocurrencies, which heavily rely on liquidity." He warned that continued liquidity drainage would significantly impact stocks as well.
Pal believes that the current situation is unsustainable and expects an imminent correction in the trajectory. He anticipates that once the government shutdown ends, the Treasury will start spending $250 billion to $350 billion within a few months. Quantitative tightening ends and the financial balance technically expands.
Hayes predicts hidden quantitative easing via SRF
Arthur Hayes, the co-founder and former CEO of BitMEX, stated that he updated his blog post on Tuesday to reaffirm concerns about liquidity depletion. However, he does not expect the Federal Reserve to officially announce quantitative easing (QE) due to political concerns regarding inflation responsibility.
Instead, Hayes expects the Federal Reserve to adopt a hidden approach: "to lend freely to the repo market via the Standing Repo Facility [SRF]." The SRF is a liquidity window for the Federal Reserve where institutions can exchange U.S. Treasury securities for cash. Ultimately, it will function as a silent quantitative easing system to address market liquidity stress.
Analysts maintain ambitious year-end targets
Despite short-term volatility and geopolitical factors such as the recent trade friction between the U.S. and China, some prominent figures maintain aggressive year-end forecasts.
Tom Lee, CEO of Fundstrat and Bitmain, recently stated that he expects the S&P 500 index to reach 7,500, $BTC will reach 200,000, $ETH will reach 7,000 by the end of the year. Lee pointed to the stable fundamentals of Ethereum, including rising stablecoin volume and application revenues as key reasons for the potential rise of cryptocurrencies by year-end.
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