The liquidity lens: lessons from 2025 and a look ahead

Dollar liquidity was the story of 2025. Not narrative, not regulation, not institutional adoption. Liquidity. The availability of credit flowing through the U.S. financial system shaped everything, and Bitcoin made this visible in real time.

The relationship is mechanical: Bitcoin functions as a proxy for the U.S. balance sheet. When the Federal Reserve's balance sheet contracts, Bitcoin reprices. When it expands, Bitcoin moves. In 2025, the balance sheet contracted. Bitcoin responded exactly as the framework predicted. This matters because it clarifies what Bitcoin actually is in a portfolio context. The "digital gold" framing has become misleading. Gold and Bitcoin operate on different timelines and respond to different forces. Gold rallies on geopolitical tension and huge sovereign demand, independent of credit conditions. Bitcoin rallies on monetary expansion, the grassroot of monetary debasement. They're both stores of value, but answers to distinct catalysts even if sometimes there is a perfect overlap. 

It is no secret that in 2025, gold outperformed Bitcoin substantially. For investors who had internalised the digital gold narrative without understanding the mechanics underneath, this was confusing. But there's nothing confusing about it. Gold responded to geopolitical stress. Bitcoin responded to liquidity contraction. Different inputs lead to different outputs. The short-term dynamic favors gold during periods of tension. The long-term dynamic favors Bitcoin during periods of sustained monetary debasement. Understanding which regime you're in determines which asset makes sense. In 2025, we weren't in a liquidity expansion regime phase. Headlines are one thing but statistics are stubborn. We were in a contraction regime with elevated geopolitical risk. The market priced accordingly.

What happens when the balance sheet expands again

The setup for 2026 looks different. Trump's policy agenda requires liquidity expansion. The political pressure to lower rates, to expand the balance sheet, to support economic growth ahead of electoral considerations. All of this points toward a reversal of the 2025 dynamic.

Trump's public campaign against Powell isn't just theater: it's strategic. He wants Powell gone as quickly as possible so he can install a Fed chair willing to cut rates and expand the balance sheet. The moment that happens, Bitcoin becomes interesting again. Not because of narrative or adoption metrics, but because the primary input variable, dollar liquidity,  shifts direction. Meantime volatility contracts, whales sale calls to generate yield and bitcoin ends up in a coil compressed by market maker gamma hedging strategy. 

Since 2018, the Bitcoin-to-silver ratio bottoms out every 14 months before reversing. We're approaching that timing now. Let’s see if History repeats.

The altcoins question

Liquidity fragmentation hit altcoins harder than Bitcoin in 2025. Bitcoin dominance reasserted itself as liquidity contracted, and most altcoins saw dramatic outflows. Yet, the relevant question isn't whether there's a narrative for crypto assets broadly but where capital is actually going. Altcoins are a function of liquidity availability. When liquidity is abundant, fast money rotates into mid-cap crypto projects looking for momentum. When liquidity contracts, that same fast money exits just as quickly. It moves to AI stocks, it moves back to Bitcoin, it moves to gold. It's fast money behaving like fast money.

Most altcoin projects remain fundamentally weak. The liquidity crunch exposed this and project curation is not for the faint hearted. The vast majority of projects will go to zero or become zombie blockchain. The task for serious allocators isn't to buy the entire basket for optionality but to identify the handful of legitimate projects with real utility and staying power. In a sense, stock-picking does matter. 

Regulatory clarity and market pricing

The regulatory environment in the U.S. is shifting. A new Fed chair is coming. The Clarity Act will pass eventually. The question is whether these developments are already priced in. My view is that they're not because there's too much uncertainty across multiple dimensions. The US currently faces enough structural uncertainty that it's difficult to price any single variable with confidence. That uncertainty creates hesitation. It keeps capital on the sidelines, however people do study and invest time in understanding this new paradigm and how blockchain will impact the way financial services are consumed. 

But uncertainty resolves eventually. When it does, the assets that re-priced fastest on the way down will move fastest on the way up. Bitcoin is among them. Whilst the timing is uncertain, the direction isn't. For institutional allocators, this means treating Bitcoin not as a standalone position or a digital replacement for gold, but as a liquidity barometer with asymmetric upside during periods of monetary expansion. Narrative does matter but not as much as the credit impulse.

If the policy environment shifts as expected (think about yen potential intervention as a recent illustration), the credit impulse will favor Bitcoin once again.