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Thanks for reading The BlockByte Weekly, where we summarise the key updates in crypto over the last week and provide our perspective on what you need to know as an investor.
Weekly Snapshot
- BTC: US $101,981 (-7.4%)
- ETH: US $3,420 (-11.7%)
- Crypto Market Cap: US $3.39T (-7.4%)
- Gold: US $4,000/oz (-0.6%)
- S&P 500: 6,728 (-2.1%)
- ASX 200: 8,769 (-1.3%)
What Happened This Week
Over the last week, the crypto markets fell by 7.4% with equities also taking a dive, the S&P down by 2.1% and the Nasdaq lower by 3.8%. The drivers of the market pullback are a combination of factors ranging sticky inflation, reduced market liquidity as well as bearish near-term sentiment driven by fears of an AI bubble as well as more structural shifts created by long-term Bitcoin holders taking profits. In this week's newsletter, we'll do a deep-dive on liquidity, specifically: the Fed balance sheet and the treasury general account (TGA) as well as touch on some of the other headlines throughout the week.
Tighter Liquidity: A Declining Fed Balance Sheet & a Rising TGA
Generally speaking, the more money (liquidity) in a financial system, the higher the prices of things will be. This can be offset if the production of goods and services or even the construction of assets like houses matches or outpaces liquidity. Most times though, liquidity increases faster and more easily than the rate of production, leading to inflation.
To support businesses and individuals that were out of work during COVID, the Federal reserve injected ~$US 4.8 trillion of capital into the financial system by expanding its balance sheet from ~$4.2 trillion to US $9 trillion over a 2-year period. The Fed does this by buying government bonds - this is an expansion of the Fed's balance sheet and is known as quantitative easing or 'QE'.
Since April 2022, the Fed has been undertaking a form of quantitative tightening (QT), reducing liquidity in the market by letting the bonds and mortgage backed securities it holds on its balance sheet mature, and not buying new bonds to replace them - this is known as 'rolling off the balance sheet'.
For example, if the Fed purchases a 1-year government bond at 3.6%, at the end of the 1-year period, the treasury must repay the initial value of the bond plus the 3.6% coupon to the Fed. When the Fed receives that money, if it chooses to not re-invest the cash back into another 1-year bond, it has removed that liquidity from the system, or more accurately, rebalanced to the level of liquidity before the treasury issued the bond.
Why This Matters for Your Crypto Portfolio
It all comes back to liquidity. Bitcoin and crypto more broadly are highly correlated with the amount of liquidity sloshing around in the financial system. QT is bad for liquidity but helps keep a lid on inflation. Now that inflation is close the target range, albeit still a little high at 3%, the Fed has stated it intends to reduce its QT program on December 1st of this year. The outcome will be to slow the balance sheet run-off (QT) from US $60B of treasuries per month, to just US $5B. That means that the rate of liquidity being drained from the financial system will be reduced by ~US $55B per month - a potentially bullish catalyst for markets.
Understanding the Treasury General Account (TGA)
In addition, while little understood, another force working quietly in the background is the US Treasury’s General Account, or TGA. This is the government’s main cash account held at the Federal Reserve. The TGA is where federal money is stored before it’s spent on things like Social Security, defence, and public projects / salaries etc.
When the government needs to top-up or refill this account, it raises money by issuing new Treasury bills and bonds. Investors, such as banks, money-market funds, or foreign buyers purchase those securities using their own cash. That cash then moves out of the banking system and into the Treasury’s account at the Fed thereby reducing liquidity (more QT).
As you can see below, the TGA is now sitting at ~US $950B, well above the US $400B-$600B balance typically seen. The reason for this is believed to be the cash needed to both support the repayment of treasuries to the Fed, but also the eventual backpayment of ~1.4M furloughed US government employees in what is now the longest standing US government shutdown in history.
Once the Treasury finishes topping up the TGA and the government shutdown ends, spending begins again, that money flows back into the economy to contractors, workers, and benefit recipients. Effectively re-injecting liquidity. However, since the government is still shutdown, the TGA is still being loaded which has made markets more nervous, liquidity tighter, and risk assets like crypto and equities have drawdown as a consequence in recent weeks.
To summarise our thoughts on liquidity, the recent weeks of the US government shutdown, the expansion of the TGA and the consistent decrease in the Fed's balance sheet have all combined to be liquidity reducing events that have deliberately taken the edge off of markets that were surging from the COVID liquidity booms. We think that as the period of QT slows towards the end of this year, and new spending bills are eventually passed when the US government shutdown ends, we could see a return to a pro-liquidity market, potentially creating a bullish year-end santa rally. The main downside risk we see is that if labour conditions continue to worsen, market sentiment may be more bearish and the sell-off could continue.
Other Key Stories This Week
JPMorgan Increases Bitcoin Holdings to US $342 Million - Values Bitcoin at US $170K
JPMorgan analysts estimate Bitcoin’s “fair value” at US $170,000, based on a comparison with gold’s market capitalisation relative to investment demand. The model assumes Bitcoin will achieve parity with private sector holdings of gold, viewed by the bank as its closest analogue store of value. With Bitcoin currently near US $101,000, the projection implies roughly 68% upside if the asset continues to capture capital inflows traditionally reserved for gold.
Our take: Over the last 12 months, gold has risen by 71.8% compared to 59% for Bitcoin. JPMorgan’s valuation framework underscores Bitcoin’s growing status as a macro hedge rather than a speculative asset. Institutional investors are increasingly weighing Bitcoin alongside gold in diversified portfolios.
Ripple Secures US $500 in Funding as New Mastercard Partnership Emerges
Earlier this week, Ripple raised US $500 million in a Fortress- and Citadel Securities-led round valuing the company at US $40 billion, as it simultaneously announced a partnership with Mastercard, WebBank and Gemini to pilot its RLUSD stablecoin for credit card settlements on the XRP Ledger.
Our take: This is a solid fund raising round for Ripple who have been making headlines throughout 2025 with their billion dollar acquisition of prime broker Hidden Road as well as their attempt to buy out stablecoin issuer Circle for as much as US $20B which fell through. We'll be keeping a close eye on the Ripple ecosystem and its growth, but find the XRP token to be expensive for the current number of users compared to market cap.
Long-term Bitcoin Holders Selling
Accordin to Bloomberg, long-term Bitcoin holders have reportedly sold US $45B in Bitcoin in just the last month. Charles Edwards, CEO of Capriole Investments, notes that several holders have sold US $100M - $500M lots of Bitcoin throughout 2025 as opposed to near the cycle tops seen in prior years.
Our take: Whale distribution adds short-term pressure near the key $100K threshold. Whether these moves represent genuine exits or custody reshuffling will determine if the correction deepens or sets up a stronger base for the next leg higher. Overall, we view profit taking as a normal part of the journey of Bitcoin and its upward trajectory, we're long Bitcoin and think the set-up for price momentum when liquidity returns to the market looks bullish.
Until next week,
James
James Brannan
Managing Director
BlockByte
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