In the early morning, Bitcoin suddenly experienced a 'cliff-like' plunge. Countless investors were left in a daze: how could this good market suddenly collapse? In fact, behind this crash lies a clear logic, the core of which is the capital flight caused by the liquidity tightening that most people overlook.

The US Treasury auction can be described as a 'super blood-sucking machine.' Currently, with the government shutdown, the TGA account funds are running low, and the market is already lacking liquidity.

Although the Federal Reserve injects emergency funds from the banking side, the bond market, this 'bottomless pit,' has an astonishing ability to attract capital. This time, the nominal scale of the three-month and six-month US Treasury auctions was 163 billion, but the actual reached 170.69 billion. After deducting the Federal Reserve's reinvestment portion, the financial market was instantly drained of 163 billion.

During times of loose liquidity, this amount of funds is not significant, but in a tightening cycle, the large withdrawal of funds makes it difficult for risk assets to withstand. The decline in Bitcoin is a direct reflection of capital outflow.

The Federal Reserve's 'hawkish cold air' is further adding to the woes. Goolsbee's latest speech continues the hawkish tone, directly shattering the market's fantasy of a rate cut in December, with the probability of a cut plummeting from nearly 70%.
The expectation of a rate cut was originally a 'stimulant' for risk assets, but now that expectation has weakened, and the short-term market has instantly cooled, resulting in a surge in selling pressure.

With tightening liquidity and cooling emotions, risk assets are being suffocated, and Bitcoin, as a highly volatile asset, is the first to bear the brunt. The market's pessimistic sentiment is spreading, triggering a new round of selling, intensifying the decline.

However, there is no need to panic excessively. Signals of a breakthrough are already evident: after the government resumes operations, TGA replenishment will 'transfuse blood' to the market, gradually improving liquidity; if the Federal Reserve slows down the absorption of overnight reverse repos, releasing short-term liquidity, the pressure will also ease.

The liquidity cycle is unpredictable; there will surely be spring after the harsh winter. Understanding the direction of liquidity is far more reliable than just watching the ups and downs of K-lines.
In difficult market times, there often lie huge opportunities.
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