Analyst Thompson flagged an impending 20-25% liquidity squeeze that is already pressuring Bitcoin. Six months after hitting an all-time high of $126,000 in October 2025, the leading cryptocurrency plunged to around $63,000 by early 2026 — a brutal 50% drawdown. Accelerated selloffs, ETF outflows, and a broad risk-off shift in crypto markets marked the period.
Liquidity Crunch: From $126K to $63K
In his report, Thompson stated, “Even if developments in Iran are resolved quickly, absent strong external support, I do not expect a sustained upward move in risky assets.” Bitcoin has since stabilised near $75,600, but the extreme downward swings have given way to a calmer, yet fragile, consolidation.
Policy Tools Ready: Fed and Treasury in Focus
Thompson believes US policymakers will act aggressively when needed, with options including adjusting the supplementary leverage ratio, drawing down the Treasury General Account (TGA), and multiple rate cuts under a new Fed chair. TGA spending injects net liquidity, while increases drain it. He also emphasised the Treasury's substantial capacity to inject funds into financial markets and the real economy, predicting more proactive measures in the near term.
Market Awaits New Balance; Regulatory Clarity a Key Variable
After months of volatility, investors are turning to macro data and policy signals. Thompson expects major US legal frameworks to become clearer by early summer, and that further inflation declines could spur rapid Fed balance sheet expansion. Rising oil prices are curbing growth, while labour market weakness adds a deflationary undertone.
Bitcoin is expected to remain volatile in the short run, but medium-term improvement is likely. Thompson projects the current liquidity cycle could bottom out by 2027, with a renewed uptrend possibly reaching new all-time highs by year-end as recovery gains momentum. Despite the harsh correction and ongoing global uncertainty, eyes are on fiscal and monetary moves from Washington. Industry hopes hinge not just on policy pivots but also on clearer regulatory guidance to rebuild confidence in digital assets.
Experts note that the interplay of geopolitical events, inflation trends, and liquidity supply continues to dictate crypto valuation. Quick fixes may be elusive, but concerted policy action and regulatory progress could pave the way for a healthier market. The fate of Bitcoin and the wider crypto landscape remains tightly tied to decisions from Washington, where liquidity and sentiment depend on central bank actions and legislative clarity. Once macro risks subside and supportive policies take effect, the stage may be set for a new growth cycle.