Bitcoin has historically followed M2 peaks with performance lags, particularly when paired with large Treasury issuance that removes liquidity from the financial system.
Treasury appears poised to begin pulling cash from markets within weeks to rebuild its General Account (TGA) at the Federal Reserve, a process potentially requiring $500 billion to $600 billion in net new debt issuance over two to four months.
Treasury’s borrowing projection for the third quarter, released July 29, forecasts over $1 trillion in net marketable debt for the quarter. The amount reflects a lower starting balance of $457 billion and weaker cash inflows than expected.
The liquidity drain operates differently than previous cycles due to depleted absorption buffers.
The Federal Reserve’s Reverse Repo Facility, which cushioned the 2023 refill with over $2 trillion in excess cash, now holds just $28.8 billion as of mid-August.
The Fed continues quantitative tightening at $60 billion monthly while foreign Treasury buyers have retreated substantially, forcing domestic markets to absorb the full issuance impact.
The report noted that the 2023 TGA refill demonstrates Bitcoin’s sensitivity to Treasury-driven liquidity removal.
As the Treasury rebuilt $550 billion between June and August 2023, aggregate stablecoin supply contracted to $5.15 billion. At the same time, Bitcoin finished the period essentially unchanged.
The stablecoin contraction preceded crypto market stagnation as fewer dollars circulated through on-chain rails. Stablecoins now hold over $120 billion in Treasury debt, making them both liquidity gauges and absorption mechanisms.
When Treasury pulls cash for its refill, stablecoin issuers face redemption pressure that directly impacts crypto liquidity conditions.
The report stressed that the upcoming cycle faces weaker structural support than 2023, with bank balance sheets constrained by $482 billion in unrealized securities losses and diminished foreign demand.
Furthermore, China and Japan have collectively reduced Treasury holdings by over $400 billion since 2021, leaving domestic players to absorb heavier issuance volumes.
M2’s potential September peak, combined with accelerated Treasury issuance, could create conditions for Bitcoin underperformance through the fall.
The liquidity headwind would temporarily but substantially limit crypto enthusiasm until the refill is completed in late 2025.
