Bitcoin experienced another flash crash in the early morning, leaving many people stunned and shouting that this drop is too outrageous. In fact, at the core, it all comes down to liquidity tightening, as funds start to flow out. There are two logical reasons behind this.

One is the draining caused by U.S. Treasury auctions. Currently, the government is not functioning normally, and the TGA account has long been depleted, leaving market liquidity already tight. Although the Federal Reserve is trying to inject liquidity into banks, the bond market, a huge black hole for capital, has an incredible capacity to absorb funds. The recent three-month and six-month U.S. Treasury auctions actually totaled over 170 billion, and after deducting reinvestment portions, the market was forcibly drained of 1,630 billion. During a tightening cycle, this number is enough to put significant pressure on risk assets, and the decline in Bitcoin is a direct reflection of capital outflow.

The other reason is that the Federal Reserve's attitude has changed. Goolsby’s recent statements continued the hawkish tone, and market expectations for a rate cut in December have sharply diminished, with the probability dropping from nearly 70% to even lower. The expectation of rate cuts was originally a strong boost for risk assets, but now that boost is gone, how can the market not be cooled down?

Liquidity tightening combined with low market sentiment has directly overwhelmed Bitcoin, and the selling wave has intensified the decline.

But don’t get confused; liquidity is like the four seasons in nature. After the government resumes operations, the TGA will refill, and the Fed’s reverse repurchase agreements will follow suit. The pressure will eventually be released.

Instead of staring at candlestick charts and getting dazzled, it’s better to understand the direction of liquidity. If this path is correct, returns can then accumulate.