A sharp market sell-off that erased about $250 billion from the crypto market over the weekend is being driven by tightening U.S. liquidity, not flaws within crypto itself, according to Raoul Pal, founder and CEO of Global Macro Investor.
— Raoul Pal (@RaoulGMI) February 1, 2026
Pal pushed back against claims that Bitcoin and the broader crypto cycle are “broken,” noting that traditional tech stocks, particularly Software-as-a-Service (SaaS) firms, have declined in near lockstep with crypto. The parallel move, he argued, signals a macro-driven shock rather than a sector-specific collapse.
Both Bitcoin and SaaS stocks are considered long-duration assets, meaning their valuations depend heavily on future growth and adoption. As liquidity dries up and interest rate expectations shift, these assets tend to suffer together.
Gold Rally and U.S. Treasury moves drain market liquidity
According to Pal, the recent surge in gold prices has absorbed much of the marginal liquidity that would normally flow into riskier assets like Bitcoin and growth stocks. With limited liquidity available, the riskiest assets were hit hardest.
The situation has been worsened by temporary U.S. government shutdowns and ongoing issues in the country’s financial plumbing. Pal pointed to the Reverse Repo Facility (RRP), a tool that parks excess cash overnight, and which was largely depleted in 2024.
Previously, when the U.S. Treasury rebuilt its General Treasury Account (TGA), liquidity drained from markets was offset by funds exiting the RRP. Now that the RRP is effectively empty, TGA rebuilds have become a direct drag on liquidity with no buffer.
Pal shrugs off Fed Chair fears, stays bullish on 2026
Some market participants blame the downturn on expectations that a potential new Federal Reserve chair, Kevin Warsh, could maintain a tougher stance on interest rates. But Pal dismissed that narrative.
He argued that Warsh would follow a “Greenspan-style” approach, cutting rates while allowing economic growth to run hot, relying on AI-driven productivity to keep inflation in check. In Pal’s view, broader liquidity support would instead come through banks under the Trump administration’s economic strategy.
Pal ended on an optimistic note, saying the worst of the liquidity squeeze appears to be nearing an end.
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