Liquidity shock warning: "Cryptocurrencies may take the first hit"

Delphi Digital research analyst Marcus Wu expects a significant tightening of global dollar liquidity in the coming period due to the balance increase in the account of the American treasury at the Fed, (TGA). This process means that about 500–600 billion dollars will be withdrawn from the market within approximately two months. Wu emphasizes that this cycle is occurring in one of the most fragile liquidity environments of the last 10 years, stating, "In 2023, the RRP (reverse repo program) stock and healthy bank reserves allowed us to weather it comfortably, but this time those buffers are absent."

According to Wu, the Fed's continuation of monetary tightening (QT), the near depletion of RRP, banks being squeezed by capital rules and bond losses, and the withdrawal of foreign buyers are differentiating the picture. In such an environment, every dollar the Treasury collects through issuance will subtract from the liquidity that is currently operating in the market.

"The first blow may reflect on crypto"

The analyst argues that the transmission channels of liquidity shocks have changed compared to previous cycles. Even while TGA was rising in 2021, the supply of stablecoins had expanded, and abundance had continued. However, in 2023, a contraction of over 5 billion dollars in the supply of stablecoins was observed, and the cryptocurrency market had stagnated. Wu points out that the conditions in 2025 are even tighter, and therefore, funding stress may first become apparent on the stablecoin side.

In this context, Wu points out that high-beta tokens tend to experience significant declines, stating that in the absence of structural inflows from ETFs or corporate treasuries, ETH and assets under the risk curve could face more severe price pressure compared to BTC. He warns that position size and capital rotation will be critical in a weak liquidity environment.

Wu is creating a four-phase roadmap by combining past cycles and current conditions:

• Stage 1 (Beginning of August–End of August): Seasonality and rise in BTC and ETH until FOMC.
• Stage 2 (September): Pulling forward of issuances with a severe liquidity shock.
• Stage 3 (October–November): Fatigue, risk of stablecoin contraction, pullback in M2.
• Stage 4 (December–January): The turnaround of the wind and recovery potential.

Wu suggests that the joint tracking of stablecoin supply and TGA balance will provide a good signal. According to him, if the supply expands and TGA also rises, the cryptocurrency market may absorb this shock better than in previous cycles.

The analyst states that this is not a one-way decline story and that the completion of the process could create a new upward ground for cryptocurrencies. Wu emphasizes that during this period, focus should be on liquidity indicators rather than headlines.

Published: August 21, 2025 13:10