Crypto Markets Rebound: Understanding the Recent Surge
Crypto markets have staged a significant comeback, breaking a prolonged period of stagnation as a key shift in liquidity in the United States forced capital back into risky assets. The recent rally has provided much-needed relief to a market that has been on the decline for a month. As of November 27, Bitcoin rose 5% and reclaimed the psychologically important $90,000 mark, while Ethereum broke above $3,000 for the first time in a week.
The extent of the recent capitulation can be seen in trailing yields. Data from Santiment shows that losses on average wallet investments in major digital assets had fallen well short as of this week. Cardano investors had lost an average of 19.2% of their value, Chainlink traders lost 13.0%, and even the market leaders were underwater, with ETH and Bitcoin recording only small losses of 6.3% and 6.1%, respectively. XRP performed slightly better but was still at 4.7%. This undervaluation of crypto assets suggests that the current 3.7% increase in total crypto market cap appears to be due less to industry-specific news and more to a structural reopening of the budget tap, coupled with a sudden thawing of risk appetite among institutional allocators.
Why the Crypto Market Recovered
To understand the mechanics of this rally, one must look beyond the order books and to the US Treasury balance sheet. The six-week government shutdown that recently ended placed a massive strain on the financial system and resulted in a liquidity loss of around $621 billion. This decline left markets dry, with liquidity reaching a multi-year low on October 30th. However, the resumption of federal operations has begun to reverse this dynamic. Although around $70 billion has flowed back into the system so far, the “tank” is still overflowing; The Treasury General Account (TGA) currently has elevated balances close to $892 billion.
Compared to a historical baseline of $600 billion, this deviation suggests that a massive deployment of cash is imminent. As the Treasury normalizes this account in the coming weeks, it is mathematically mandated that excess capital flows back into the banking sector and the broader economy. For macro-conscious crypto traders, this represents a predictable wave of liquidity that has historically buoyed risk assets. Meanwhile, fiscal policy tailwinds come with a reversal in monetary policy messaging. Ark pointed out that the “longer-term higher” narrative all but evaporated at the start of the quarter when a chorus of Federal Reserve officials, including Gov. Christopher Waller, New York Fed President John Williams and San Francisco’s Mary Daly, signaled their willingness to cut rates.
Institutional Interest and Rate Returns
Aside from the sharp reduction in liquidity, institutional inflows have painted a nuanced picture of where allocators are positioning themselves for year-end. Spot ETFs saw a significant rotation towards Ethereum. According to data from SoSo Value, ETH products recorded net inflows totaling around $61 million for the fourth consecutive day. Meanwhile, Bitcoin funds saw more modest inflows of about $21 million, while XRP investment vehicles added about $22 million. In turn, Solana products faced headwinds, recording $8 million in redemptions. This flow profile suggests that the current upswing is more of a “repair” operation than a speculative frenzy.
BRN’s Timothy Misir told CryptoSlate that while buyers have re-engaged, volumes remain relatively low. At the same time, he noted that open interest has not increased significantly, although perpetual futures funding rates have returned to positive territory. This lack of foam is constructive because it suggests that weak hands have been washed out and that accumulation is occurring without the dangerous leverage that often precedes a crash.
Risks Ahead
For crypto traders, the immediate focus is on whether this liquidity-driven upswing can turn into a sustainable trend, as significant risks loom. Misir noted that the “swing factor” remains the macroeconomic environment, as hot inflation pressures could force the Fed to scale back its dovish signals and tighten conditions immediately. Additionally, the upcoming holiday season often results in a reduction in order books, which means lower liquidity can increase volatility. At the same time, a sudden increase in FX deposits would indicate that whales are using this liquidity event as exit liquidity rather than an entry point.
With this in mind, Misir concluded that if Bitcoin can hold the $90,000 mark, the top asset could eye $95,000 as its next big test. However, failure here would likely result in a pullback to the $84,000 pivot area. For more information, visit https://cryptoslate.com/why-is-bitcoin-pumping-how-us-liquidity-lifted-bitcoin-above-90000-and-ethereum-over-3000/
