Bitcoin (BTC) could be poised for a powerful rally as U.S. bank reserves at the Federal Reserve approach critically low levels, according to author and market commentator Adam Livingston.Data highlighted by The Kobeissi Letter — a widely followed macro research outlet — shows that bank cash at the Fed fell to roughly $2.93 trillion last week, signaling what some analysts view as tightening liquidity conditions across financial markets.Liquidity Pressure Nears Critical LevelsIn an October 25 post, The Kobeissi Letter noted that the balance of reserves — effectively the cash that banks keep on deposit at the central bank — has declined toward the lower end of its recent range.When these balances shrink, dollar liquidity tightens, short-term funding rates rise, and risk assets such as Bitcoin often become more sensitive to policy signals.Livingston described the current level as being “within five weeks of the danger zone,” arguing that liquidity is “bleeding” while spot Bitcoin ETFs are ‘hoovering supply’ from the market.He characterized the setup as a “mother-of-all liquidity pivots,” suggesting that the next inflection point in central bank policy could trigger a sharp upward move in Bitcoin.Three Forces Driving the Liquidity SqueezeLivingston attributes the decline in reserves to three overlapping dynamics:Treasury Rebuilding Its Cash Balance:The U.S. Treasury has been replenishing its Treasury General Account (TGA) by selling bills, effectively pulling cash out of the private sector.Federal Reserve’s Quantitative Tightening (QT):The Fed continues to shrink its balance sheet by allowing bonds to mature without replacement, further reducing reserves in the system.Other Fed Liabilities Growing:Components such as currency in circulation expand over time, consuming balance-sheet capacity and indirectly squeezing bank cash unless offset by policy adjustments.Livingston says these structural drains on liquidity tend to push the financial system closer to stress points, which historically have prompted the Fed to intervene — a dynamic that often benefits Bitcoin.Liquidity Turning Points and Bitcoin RalliesThe author draws parallels with previous liquidity inflection points, including:The 2019 repo market stress,The 2020 COVID-era emergency easing, andThe 2023 regional banking turmoil —each of which, he notes, coincided with significant Bitcoin price surges as liquidity conditions reversed.He argues that once policymakers slow or halt QT to stabilize markets, Bitcoin tends to outperform, reflecting its sensitivity to global liquidity shifts.ETF Demand Adds to the Supply SqueezeIn addition to macro forces, Livingston points to steady demand from spot Bitcoin ETFs as a structural tailwind.As ETFs absorb Bitcoin into custodial holdings, the tradable supply on exchanges declines, tightening available liquidity and magnifying the impact of any policy-driven easing.“In plain English,” Livingston said, “less easily available supply plus friendlier liquidity can make rallies sharper.”
Kikyo
