Bitcoin's 2025 rally was built on a liquidity base that looked solid until investors examined what changed in the final quarter.
Some analysts point out that global liquidity indicators have reached record highs and assert that the wave is still rising. Some, citing Cross Border Capital's high-frequency tracking, argue that momentum peaked in early November and that the U.S. cycle is now reversing.
Both sides are focused on real data. The question is whether liquidity levels matter more than direction, and what that split means for Bitcoin heading into 2026.
Record highs and declining momentum
Data from the Bank for International Settlements on global liquidity shows that 2025 has begun with a serious expansion. Cross-border bank credit in foreign currencies reached a record $34.7 trillion in the first quarter, with credit in dollars, euros and yen increasing 5% to 10% year-on-year.
At the end of June, foreign currency credit still grew by 6% in dollars and 13% in euros year-on-year, according to BIS' broader global liquidity index. This is why bulls say liquidity has hit new highs and remained high until mid-year.
But Crossborder Capital's proprietary tracking, which aggregates central bank balance sheets, shadow banking flows and credit impulses into a single global liquidity estimate, tells a different picture for the fourth quarter.
Michael Howell's October note said global liquidity “has reached an all-time high near $185 trillion, but is struggling to rise,” with momentum fading as the Fed's quantitative tightening, the People's Bank of China's slowing pace of injections, and a slowing dollar weakness eat into the shadow monetary base.
In the December 5 update, global liquidity was estimated at $187.3 trillion, an increase of $750 billion from the previous week, but still slightly below its peak in early November, indicating that growth has “recently stalled.”
By Dec. 23, the team had publicly stated that “global liquidity declined again last week,” estimating a decline of $592 billion to $186.2 trillion, noting that both short-term and long-term growth measures had rolled over.
Howell added that the U.S. liquidity cycle appears to have peaked, with liquidity levels down about $1.8 trillion since early November.
Howell's own numbers show that global liquidity is still near all-time highs, but the fourth quarter was in a flat to moderate contraction, with no consecutive monthly highs.
The level is high. The direction of the fourth quarter is down or sideways.
Net liquidity pressure
What crypto traders track as “net liquidity” (Fed balance sheet minus Treasury general account minus reverse repos) reveals what happened domestically.
Total assets fell by about $132 billion over the past two quarters to $6.6 trillion at the end of September, and securities holdings fell by $126 billion, according to the Fed's balance sheet report.
A separate Fed report notes that since the mid-year debt ceiling resolution, the Treasury's general account has increased by about $440 billion and, combined with quantitative tightening, reserve balances have fallen by about $450 billion.
At the same time, the Fed's overnight reverse repo facility, which held more than $2 trillion in 2022, has fallen to near zero for the first time in years, eliminating a large buffer.
Now, further stress is hitting reserves. This is why use of the Fed's standing repurchase facility sometimes spikes, and why the Fed has effectively ended quantitative tightening in recent weeks and resumed small purchases of short-term Treasuries.
The DXY index will decline by about 10% through 2025, with the dollar at the top. A weaker dollar typically increases global dollar liquidity, but Howell specifically cited the dollar's recent “recovery” from its absolute lows as one of the factors weighing on global liquidity momentum in November and December.
adjustment of claims
Taken together, the adjusted picture shows that global liquidity really surged from late 2024 to mid-2025 and remains at or near record levels, supporting the idea that this Bitcoin cycle has a real foundation of liquidity rather than being built on smoke.
But a big positive impulse is now behind the market, especially from the exhaustion of the Fed's reverse repo facility.
U.S. net liquidity was flat to slightly negative in the fourth quarter as quantitative tightening, expansion of the Treasury General Account and depletion of the reverse repo “piggy bank” offset earlier tailwinds.
According to Howell's high-frequency global liquidity estimates, global liquidity has stopped making new highs and has been in decline since early November.
Both parties are correct regarding their specific claims. While global liquidity hit a record high and continued to rise, US net liquidity remained flat and contracted in the fourth quarter.
Levels remain high, but the marginal change is from strong tailwinds to mixed or slightly soggy winds.
This split is important because Bitcoin tends to react more to the rate of change in liquidity than its absolute level. A high plateau can sustain the price, but it does not cause an explosive move. This requires market acceleration.
Signal important for direction
The Fed's quantitative tightening is over. The Fed effectively halted balance sheet shrinkage and resumed small bond purchases, reversing a steady decline in reserves and easing the US net liquidity squeeze.
The huge tailwind of reverse repo disappears.
Most of the additional fuel from money market funds drawing cash from the Fed's reverse repo facility has disappeared. The big rally from 2024 to early 2025 will not be repeated.
Changes in reserves from here will be primarily due to Treasury issuance and Fed operations, and the $2 trillion piggy bank will not be empty.
U.S. liquidity is no longer being intentionally squeezed harder, but it is no longer receiving the huge mechanical boost it once had.
The Treasury issuance mix and Treasury general account balances determine whether liquidity is added to or subtracted from the government's funding needs.
If the Treasury were to increase its reliance on paper money and lower the TGA, cash would effectively be returned to money markets and bank reserves, resulting in a slight liquidity boost. Mass issuance of coupons and increase in TGA balances tilt in the opposite direction.
Recent quarterly repayments have sought to keep this balance market-friendly, but that could change as funding demands or politics change.
The Fed will reduce the problem, but whether that helps or hurts risky assets depends on the situation. If the Fed cuts into a good backdrop of benign inflation, no obvious credit disasters, it will typically support risk, potentially steepening the curve again, and support shadow banking and collateral chains.
If something breaks and there is a write-down, there will be a liquidity injection on top of the de-risking, which makes things even trickier. At the moment, the options market and forwards are still pushing prices down, but not in a severe panic, so the baseline is a mild trend toward easing policy rather than emergency quantitative easing.
The continued weakness of the dollar is a de facto global relaxation. This eases constraints on non-U.S. borrowers with dollar-denominated debt and tends to go hand in hand with strengthening cross-border credit.
The sharp rebound in the dollar tightened the screws, and the dollar had already experienced a major decline. If this pause turns into a new uptrend, the liquidity peak has already passed.
The People's Bank of China and other emerging market central banks are quietly placing a premium on global liquidity through increased foreign exchange reserves, currency intervention, and credit impulses.
If the Chinese government moves further to stimulate the economy, including credit lines, support for local governments and lower reserve requirements, it would be another step in supporting global liquidity.
If they remain cautious, there will be one less offset to the peak of the U.S. business cycle.
What it means for Bitcoin
The road from here will likely be a high plateau with some wobbles. Global liquidity is still rising and could either slowly erode or re-accelerate depending on policy choices and the dollar.
Meanwhile, Bitcoin is still surfing the high level of liquidity built early in the cycle.
The slight change in the fourth quarter was from strong tailwinds to mixed or slightly damp winds. The next steps will depend less on monolithic talk of “global liquidity becoming vertical again” and more on how quickly the Fed actually cuts rates, whether the dollar returns to an upward trend, and whether major players outside the U.S. begin to scale up.
The data shows that the liquidity wave that started this cycle is still ongoing, but no longer as steep. Bitcoin is not fighting full-scale depletion from here, but unless the Fed, dollar, and major central banks collectively steer the economy toward expansion, new fuel is not guaranteed either.
That's not a weak decision. It's a recognition that the easy part of riding the mechanical boost of reverse repo drawdowns and early-cycle liquidity expansion is over. What happens next will be determined by policy, not plumbing.
