Mohammedia – Bitcoin’s wild week has left global markets buzzing, after the world’s largest cryptocurrency briefly shattered a new record above $126,000 before tumbling sharply.
The rapid swing caught traders off guard and triggered a fresh debate over what is actually driving Bitcoin’s movements in the current macro climate. While many investors were quick to blame shifting expectations about US interest rates, new analysis from Citigroup suggests something deeper is at play.
According to Citi strategists, the sell-off is tied less to fears about the Federal Reserve and more to a squeeze in overall liquidity inside the US financial system.
Their research shows that bank reserves held at the Fed have been falling in recent months, a trend that has historically lined up with declines in Bitcoin.
When liquidity tightens, assets that depend heavily on speculative flows tend to react first, and Bitcoin, with its global following and fast-moving market, is often the earliest barometer.
Analysts point to a surge in the US Treasury’s General Account as one of the triggers. As the government rebuilt its cash balances following the debt-ceiling standoff earlier this year, the Treasury’s account climbed past $940 billion.
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This type of increase often pulls liquidity out of the banking system. Citi argues that Bitcoin is sensitive to even small changes in these flows, sometimes reacting before stock indexes or other asset classes.
The bank also highlights the continued impact of the Federal Reserve’s balance-sheet reduction program. Since 2022, the Fed has been shrinking its holdings of bonds and reducing the amount of money circulating in the system.
As reserves drift lower, analysts say the crypto market becomes more vulnerable to sharp pullbacks, even after major rallies like the one that pushed Bitcoin to its new all-time high this month.
Despite the recent drop, Citi remains optimistic about Bitcoin’s long-term direction. The bank expects liquidity conditions to improve in the months ahead, noting that the Fed has signaled a pause in further balance-sheet tightening by December.
If reserves stabilize, Bitcoin could regain momentum as investors return to risk assets and broader markets settle. Citi also believes the asset’s growing reputation as a form of digital gold continues to attract institutional buyers, especially during periods of uncertainty.
On that basis, Citi has set a twelve-month target of $181,000 for Bitcoin. It is a striking figure coming so soon after a sudden correction, but analysts say the same dynamics that caused the recent fall could help fuel the next climb once liquidity flows shift back into positive territory.