Bitcoin crashed again in the early morning, and many people stared blankly at the candlestick chart: Why did this drop come out of nowhere?

But if you sort out the logic, you'll realize—this crash was not accidental at all. The core issue boils down to two words: lack of money. More precisely, liquidity has been drained.

**First, let's look at the first "vampire": U.S. Treasury auctions**

Recently, with the government shutdown, the Treasury's purse (the TGA account) is basically empty. The Federal Reserve has tried to inject liquidity from the banking system, but the bond market is a bottomless pit that keeps sucking up money.

This time, the three-month and six-month Treasury auctions were nominally $163 billion, but actual sales reached nearly $170.7 billion. Even after subtracting the Fed's own reinvestment, the market still had $163 billion in liquidity drained in the short term.

In an easing cycle, this kind of liquidity drain might not matter much. But we’re already in a tightening environment—pulling out such a large amount of funds all at once puts risk assets on edge. Bitcoin, being highly volatile, naturally bears the brunt—just like a person gets dizzy from blood loss, the market can't hold up when money dries up.

**Now, the second cooling factor: the Fed’s hawkish stance**

Goolsbee's recent speech maintained a hawkish tone, and the market's expectation of a rate cut in December took a big hit—the probability dropped from nearly 70% to an even lower level.

Rate cut expectations are like a lifeline for risk assets. Investors were hoping for a policy turn to jump in, but instead, they got a cold shower—expectations were dashed, and selling pressure followed.

**With these two heavy blows, Bitcoin couldn't hold up**

Tight liquidity combined with cooling sentiment, and together these two factors put risk assets in a tough spot. Bitcoin, being the most volatile, naturally fell the hardest. Once the market turns pessimistic, sell-offs accelerate the drop, and a vicious cycle sets in.

**But don’t panic too much**

Tight liquidity isn't permanent. Once the government gets back to work, replenishing the TGA account will inject funds back into the market, like refilling a dried-up pool. Also, if the Fed adjusts the pace of overnight reverse repos, short-term liquidity pressure will ease.

Liquidity cycles are never set in stone—after winter comes spring, and the toughest times for the market often hide the best opportunities.

At the end of the day, when it comes to trading crypto, understanding the flow of funds is far more important than watching the candlestick chart jump around.