Bitcoin May Face Further Losses as US Treasury Sales Drain $150 Billion of Liquidity

Expanded US Treasury issuance could put additional downward pressure on Bitcoin by pulling liquidity out of financial markets, CoinDesk reported on May 28.

Michael Kramer, chief executive officer of Mott Capital Management, wrote in a report that Bitcoin is more sensitive to liquidity conditions than most assets. If Treasury settlements absorb market liquidity, the token could fall further.

The Treasury issues notes and Treasury bills to fund government spending. As investors pay for those securities, cash moves into the Treasury's account at the Federal Reserve, reducing liquidity in broader financial markets.

Kramer estimated that about $150 billion of liquidity will be drained from markets between May 28 and June 5.

The schedule includes a $15 billion Treasury-bill settlement on May 29, a $47 billion Treasury settlement on May 30, $68 billion on June 1 and a $16 billion Treasury-bill settlement on June 2.

Risk assets such as cryptocurrencies tend to perform well when market liquidity is abundant, he wrote. When cash is absorbed, investor demand for riskier assets can weaken.

Bitcoin is down about 11% from its peak near $82,500 earlier in May. Kramer also said the cryptocurrency's recent break below $75,000, a level viewed as key support, signaled tighter liquidity conditions.

"Bitcoin is not an asset that moves independently," Kramer wrote. "Macroeconomic variables such as increased government borrowing can also have a significant impact on prices."