US Liquidity Revival Fuels Crypto Rally Past $90K Bitcoin

The crypto market’s impressive rebound finds its roots not in sector-specific news but in the complex mechanics of US fiscal policy. According to analysis from asset management firm Ark Invest, the primary catalyst for the reversal was the normalization of liquidity following the recent conclusion of a six-week government shutdown. This shutdown had acted as a massive drain on the financial system, effectively siphoning approximately $621 billion in liquidity and hitting multi-year lows by October 30.

The reopening of federal operations has begun to reverse this dynamic, with roughly $70 billion already trickling back into the system. However, the real story lies in the Treasury General Account (TGA), which currently holds elevated balances near $892 billion against a historical baseline of $600 billion. This deviation suggests a massive cash deployment is imminent as the Treasury normalizes this account over the coming weeks, mathematically mandating that excess capital flow back into the banking sector and broader economy.

This liquidity injection coincides with a pivotal shift in monetary messaging from Federal Reserve officials. The ‘higher for longer’ narrative that capped upside earlier in the quarter effectively dissolved as Governor Christopher Waller, New York Fed President John Williams, and San Francisco’s Mary Daly telegraphed willingness to cut rates. This coordinated dovishness has repriced the probability of a near-term rate reduction to nearly 90%, creating a perfect storm of supportive conditions for risk assets like cryptocurrency.

The extent of the recent market capitulation becomes evident when examining trailing returns from Santiment data. Leading into the rally, average wallet investments in major digital assets were deeply underwater, with Cardano investors shedding 19.2% of their value and Chainlink traders down 13.0%. Even market leaders weren’t spared, with Ethereum and Bitcoin nursing losses of 6.3% and 6.1% respectively, while XRP fared slightly better but still declined 4.7%.

Against this backdrop, institutional flows have painted a nuanced picture of where allocators are positioning for year-end. Spot ETFs showed a distinct rotation toward Ethereum, with ETH products attracting net inflows of approximately $61 million for the fourth consecutive session according to SoSo Value data. Meanwhile, Bitcoin funds saw more modest inflows of around $21 million, while XRP investment vehicles added roughly $22 million. Conversely, Solana products faced headwinds with $8 million in redemptions.

This flow profile suggests the current bounce represents a ‘repair’ operation rather than speculative frenzy. As Timothy Misir of BRN noted, while buyers have re-engaged, volumes remain relatively thin and open interest hasn’t spiked significantly despite perpetual futures funding rates resetting to positive territory. This lack of froth is constructive, implying that weak hands have washed out and accumulation is occurring without the dangerous leverage that often precedes market crashes.

For crypto traders, the immediate focus is whether this liquidity-fueled bounce can transform into a sustained trend, as significant risks loom ahead. Misir identified the ‘swing factor’ as the macro environment, noting that a hot inflation print could force the Federal Reserve to walk back its dovish signaling, instantly tightening financial conditions. The upcoming holiday season adds another layer of complexity, as thinning order books often exacerbate volatility due to reduced liquidity.

Another critical indicator to watch is exchange deposit activity. A sudden spike would signal that whales are using this liquidity event as exit liquidity rather than an entry point, potentially undermining the rally’s sustainability. The timing of these developments is particularly significant, as the TGA cash injection aligns with the scheduled conclusion of Quantitative Tightening on December 1, removing a persistent dampener on liquidity that had constrained beta assets.

Looking ahead, Misir concluded that if Bitcoin can maintain the $90,000 support level, the top cryptocurrency could eye the $95,000 zone as the next major test. However, failure to hold this critical level would likely trigger a retreat to the $84,000 pivot area. The current setup represents a delicate balance between improving liquidity conditions and persistent macroeconomic uncertainties that could quickly reverse recent gains.