Cryptocurrency and stock markets have been left reeling by a significant liquidity drain from the U.S. Treasury’s General Account (TGA), rather than the much-anticipated Jackson Hole meeting. The TGA, which functions as the federal government’s checking account at the Federal Reserve, is experiencing a substantial buildup, triggering widespread market jitters. Since last Thursday, Bitcoin (BTC) has tumbled over 8% to $113,500, with other prominent tokens like Ether (ETH), XRP, and Solana (SOL) also taking a hit. Meanwhile, the CoinDesk 80 Index has seen a 13% slide, and Wall Street’s Nasdaq has declined nearly 1.40%. This downturn aligns with recent trends, as detailed in Digital Asset Treasury Firms Plunge as Bitcoin Tumbles Below $117K, ETH Slides to $4.4K.
The TGA’s Impact on Markets
While many have pointed fingers at the upcoming Jackson Hole event as the catalyst for market declines, some experts argue that the true culprit is the anticipated liquidity drain from the TGA. David Duong, head of institutional research at Coinbase, suggests this is a key factor: “Jackson Hole and PPI are just excuses for market players to trim risk ahead of the U.S. Treasury’s TGA liquidity drain (~$400B) in the weeks ahead. This explains why Bitcoin has lost trend alongside many equity names. But we think the path forward looks clearer in September.”
The TGA serves as the government’s operating account, handling everything from tax receipts to public debt proceeds. Its balance fluctuates daily, much like a savings account. Recently, the TGA has ballooned from about $320 billion to over $500 billion since late July, indicating a significant build-up.
Fragile Financial Conditions Persist
The timing of the TGA’s refill isn’t ideal, occurring as it does under fragile financial conditions. Marcus Wu, a research analyst at Delphi Digital, notes, “Compared to 2023, the financial system now faces fewer liquidity buffers, tighter balance sheet capacity, and a diminished foreign bid for Treasuries. The structural ability to absorb large-scale issuance has weakened across all major channels.”
This presents a stark contrast to the last significant TGA rebuild in late 2024, which was counterbalanced by positive liquidity developments such as hefty reserves in the Fed’s Reverse Repo facility and strong foreign demand for U.S. debt. Since then, these buffers have eroded, leaving the current liquidity environment vulnerable to disruptions. This vulnerability is further highlighted in Bitcoin, Ethereum Fall as PPI Shock Squashes Hopes for Jumbo Rate Cut.
A Cautious Path Forward
For crypto enthusiasts, the liquidity crunch presents a formidable challenge. BTC bulls aiming for a substantial year-end rally may find the road to be bumpy. As the U.S. Treasury potentially issues new debt to the tune of $500-$600 billion over the coming months to bolster the TGA, markets could face increased volatility.
The Federal Reserve’s stance will also play a crucial role. Should the Fed maintain its current tightening approach, it could exacerbate the supply-demand mismatch, affecting funding rates and spilling over into risk assets, including cryptocurrencies.
As we look ahead, the market’s reaction to the TGA’s liquidity drain raises questions about its resilience. While some experts see potential clarity in September, others caution that the path forward remains fraught with uncertainty. The interplay between fiscal policy, market liquidity, and investor sentiment will be critical in shaping the crypto landscape in the coming months.
Source
This article is based on: Bitcoin, Stocks Hit by $400B Liquidity Drain From U.S. Treasury Account, Not Jackson Hole: Analysts
Further Reading
Deepen your understanding with these related articles:
- Volatility Vanishes Across Markets as Traders Brace for Powell’s Jackson Hole Speech
- Bitcoin Steadies at $118K as Analysts Flag Deeper Pullback Risks and Altcoin Rotation
- Is Bitcoin’s Bull Run Losing Steam? Here’s What Crypto and Nasdaq Market Breadth Indicates
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
