Liquidity crisis signals: A systematic interpretation from SOFR decoupling to BTC big dump

In the third week of November 2025, the global financial markets experienced significant turbulence, with risk assets generally undergoing a pullback and liquidity pressure indicators deteriorating across the board. The main phenomena include:

1. Bitcoin's largest weekly drop exceeded 22% (November 10-16), falling from around $108,500 to $83,900;
2. The U.S. stock market experienced the most severe weekly volatility since 2022, with the Nasdaq 100 index briefly falling nearly 7%;
3. SOFR (Secured Overnight Financing Rate) continues to be unanchored, with the weighted median reaching 5.34% on November 14, 4 basis points higher than the IOER (Interest on Excess Reserves) of 5.30%, and the 95th percentile rising to 5.60%;
4. The usage of the Federal Reserve's Overnight Reverse Repurchase Agreement (ON RRP) fell sharply by more than $120 billion on November 13-14, indicating that some traditional cash holders were forced to leave the safest parking spot.
5. The WTI crude oil futures curve briefly exhibited a complete flat “super contango” between the near month and far month (from November 11 to 12), with the front-end M1-M2 spread at one point only +0.03 USD/barrel, marking the flattest state since April 2020;
6. The offshore dollar financing market (Eurodollar) pressure is also evident, with the 3-month dollar Libor-OIS spread widening to 38bp, the highest since the banking crisis in March 2023.

These phenomena are not isolated, but rather a “classic combination” of the three liquidity crises that occurred in September 2019, March 2020, and March 2023, which have fully reappeared, with an intensity that exceeds the previous three.

1. The Real Meaning of SOFR Decoupling: It's Not About Insufficient Reserves, But Refusal to Lend

The current excess reserve balance of the U.S. banking industry is approximately $3.28 trillion (data as of November 12, 2025), which is 126% higher than the $1.45 trillion during the repo crisis in September 2019, and still 17% higher than the $2.8 trillion during the crisis in March 2023. Simply from the perspective of “total reserves,” the system does not lack money.

However, the SOFR percentile charts released daily by the New York Fed show:

• The 5th percentile interest rate has risen to 5.20% (still below IOER);
• The 95th percentile interest rate has risen to 5.60%—5.75%;
• The volume-weighted dispersion (95-5 percentile difference) has widened to 55bp, reaching the highest level since June 2022.

This indicates a systemic right skew in the entire market: institutions willing to lend cash at low interest rates have significantly reduced, and a large number of cash holders prefer to place their money in the Federal Reserve's ON RRP (5.30%) or simply not lend at all, rather than lending to most counterparties at 5.30%—5.35%. The decoupling of SOFR is not due to “lack of reserves,” but rather “refusal to lend”—the market has developed a general skepticism regarding the quality of collateral and the creditworthiness of counterparties.

2. The Fundamental Reason for Refusal of Loans: The Credit Cycle Entering the Post-Leverage Phase

The ultra-low interest rates from 2021 to 2024, combined with the “resilient narrative,” have led to extreme irrationality in this round of credit expansion:

1. The scale of the U.S. private credit market has expanded from $850 billion in 2019 to $2.1 trillion by the third quarter of 2025, with a large portion being “covenant-lite” loans and PIK (Payment-in-Kind) structures;
2. In the leveraged loans issued in 2024-2025, over 72% are “maintenance covenants-free” loans, significantly higher than the 48% in 2007;
3. In commercial real estate (CRE) loans, the LTV (Loan-to-Value ratio) for office assets generally exceeds 85%, with some cities even reaching 110% (including mezzanine debt);
4. In the consumer finance sector, as of the third quarter of 2025, the serious delinquency rate for auto loans in the U.S. over 60 days has reached 7.9%, surpassing the historical peak of 7.6% in the fourth quarter of 2009; the delinquency rate for credit cards over 90 days is 5.8%, also nearing the levels of 2008-2009.

More crucially, the default rate has already reached its post-crisis peak in advance, despite the unemployment rate not having deteriorated significantly, which is completely contrary to all previous credit cycles. Typically, the default rate lags behind the unemployment rate by 6 to 12 months, but this time the default rate has led, indicating that once the unemployment rate rises to 5.5% to 6.0% in the first quarter of 2026, credit losses will increase exponentially.

3. The Failure and Revalidation of Bitcoin as the Global Liquidity “Canary”

Bitcoin has gradually evolved from “digital gold” to a high beta risk asset from 2021 to 2025, with a long-term correlation coefficient with the Nasdaq 100 remaining above 0.75. From November 10 to 16, 2025, the correlation coefficient between Bitcoin and the Nasdaq 100 further rose to 0.91, indicating that it has completely become a “Liquidity thermometer.”

During this pullback, Bitcoin rebounded by 8% during the US stock market trading on November 13, but it plummeted again in the late trading and night session of the US stock market, showing characteristics of “buy and immediately sell off.” This is completely in line with Bitcoin's performance during the three liquidity crises in June 2022, November 2022, and March 2023: the brief rebound of risk assets is often quickly extinguished by forced liquidations and redemption sell-offs.

The leading decline of Bitcoin indicates that marginal funds with a high-risk appetite are rapidly withdrawing globally, and these funds have been the core force driving the valuation expansion of all risk assets over the past four years.

4. WTI Curve “Super Contango” Decline Confirmation Signal

From November 11 to 12, 2025, the WTI near-month to 12-month price spread narrowed to just +2.8 USD/barrel, with the near-month to far-month curve being almost completely flat. This is the flattest state since April 2020, and historically, similar structures have only occurred in October to December 2008 and March to April 2020.

A flattened contango curve means:

1. Spot demand is extremely weak, and traders are unwilling to hold physical inventory;
2. The forward demand expectation has been significantly revised downwards, and the market is no longer willing to pay storage costs for future delivery;
3. Financial investors are selling near-month contracts and buying far-month contracts to carry out roll-over arbitrage, further pushing down near-month prices.

This is one of the clearest pricing signals from the oil market regarding the global recession, with reliability surpassing that of traditional indicators such as OECD leading indicators and the copper-gold ratio.

5. The Federal Reserve's Policy Dilemma: QE Cannot Solve Credit Contraction

John Williams, the president of the New York Federal Reserve, and Roberto Perli, the head of open market operations, both hinted in mid-November speeches that “it may soon be necessary to restart asset purchases” (QE). However, both history and logic indicate that QE is almost ineffective for this crisis:

1. September 2019 Crisis: After the Federal Reserve restarted “non-QE”, SOFR quickly fell back, but the real economy did not decline;
2. The March 2020 Crisis: Unlimited QE + Fiscal Deficit Prevented Collapse;
3. March 2023 Crisis: BTFP (Bank Term Funding Program) resolved the regional bank run instead of QE.

The essence of this crisis is a contraction of credit in the private sector, rather than insufficient interbank reserves. QE can only increase bank reserves, but cannot force banks or shadow banks to lend money to borrowers who already face substantial default risks. On the contrary, QE will further push up the prices of U.S. Treasury bonds, lower the term premium, leading to an inversion of the value of collateral (U.S. Treasury bonds) and financing costs, exacerbating the risk of breakage in the refinancing chain.

VI. The Hidden Crisis of the Offshore Dollar Market

SOFR only reflects the onshore U.S. dollar collateralized repo market, while over 80% of global U.S. dollar financing occurs offshore (in places like London, the Cayman Islands, Hong Kong, Singapore, etc.). Currently observable offshore pressure indicators include:

• The 3-month U.S. dollar cross-currency basis swap (CCS) has widened to -45bp, the widest since March 2023;
• Hong Kong offshore RMB Hibor - USD Libor spread rises to 280bp, indicating signs of USD shortage;
• The dollar financing premium of Japan Trust Bank (TIBOR—SOFR) has risen to 35bp.

Once the offshore dollar market is fully frozen, it will be transmitted back to the onshore market through foreign exchange swap lines, making it difficult for the Federal Reserve to quickly alleviate the global dollar shortage even if it launches QE.

Conclusion and Outlook: A Systemic Credit Event May Occur in the First Half of 2026

Considering all leading indicators (SOFR dislocation, Bitcoin crash, WTI super contango, delinquency rate peaking in advance, offshore dollar basis widening), the global financial system is experiencing the most severe credit contraction since 2008.

Possible evolution path:

1. December 2025 - January 2026: Wave of corporate profit warnings + more large-scale layoffs → further deterioration of consumer credit;
2. Q1 2026: Large-scale redemptions occur in private credit funds → Forced asset sales → Collateral value spirals down.
3. Q2 2026: If a single large private credit fund or regional bank goes bankrupt, it may trigger a comprehensive Liquidity crisis similar to March 2020.

At that time, the Federal Reserve may be forced to restart unlimited QE and cooperate with the monetization of fiscal deficits. However, since credit contraction has entered an irreversible stage, the effectiveness of the policy will be significantly lower than in 2020. Risk assets may experience a systematic pullback of 20%-40%, and the yield on 10-year U.S. Treasuries may briefly drop below 2.5%, followed by a rebound due to the collapse of inflation expectations.

The most dangerous illusion in the current market is to continue attributing liquidity pressure to “insufficient reserves” or “excessive Fed QT,” while expecting a “dovish announcement” to turn the situation around. The fact is that the pendulum of the credit cycle has swung to its end, and any efforts to mask solvency issues with liquidity will ultimately be ruthlessly exposed by the market.