Raoul Pal Explains Why the Crypto Market Isn’t Broken Despite Recent Downturn

The ongoing crypto sell-off has rattled investor confidence, but macro investor Raoul Pal believes the narrative around crypto being “broken” is deeply flawed. According to Pal, the current downturn has little to do with crypto-specific issues and everything to do with a severe liquidity crunch in the United States, triggered by repeated government shutdowns and broader structural drains in the financial system.

U.S. Liquidity, Not Crypto, Is the Core Problem

In a recent X post, the Global Macro Investor founder explained that markets should be trending higher this cycle, but U.S. liquidity constraints are holding them back. Pal pointed to two U.S. government shutdowns as a major shock to liquidity, combined with issues in what he described as “U.S. plumbing.” Notably, the Reverse Repo facility drain was largely completed in 2024, removing a key source of excess liquidity that had previously supported risk assets.

The most recent shutdown began last Friday, despite the Senate reaching a funding deal. With the House not in session until later this week, liquidity conditions tightened further, creating what Pal described as a temporary “air pocket” for markets. Still, he remains optimistic that the shutdown could be resolved soon, removing what he believes is the final major hurdle for liquidity to return.

Debunking the Fed and Warsh Narrative

Pal also dismissed growing concerns around former Federal Reserve Governor Kevin Warsh, who has been nominated as the next Fed chair. Some market participants have labeled Warsh as hawkish, suggesting rate cuts may be delayed or avoided altogether. Pal called this narrative “baseless,” arguing that Warsh’s mandate aligns with a Greenspan-style playbook.

According to Pal, Warsh is expected to cut rates and largely stay out of the way while fiscal authorities and banks drive liquidity. He emphasized that balance sheet tightening is unlikely due to existing reserve constraints, warning that aggressive moves could destabilize lending markets.

Bitcoin Slides as ETF Outflows Accelerate

While macro pressures dominate, Bitcoin remains under pressure in the near term. BTC is down another 2%, trading near $76,000 at press time, marking a sharp reversal from the upward momentum seen earlier this month. Heavy spot Bitcoin ETF outflows have amplified the weakness.

Over the past two weeks alone, spot BTC ETFs recorded roughly $2.8 billion in net outflows, making January one of the worst months on record for institutional selling. Total assets under management across Bitcoin ETFs have now fallen about 31% from their October peak, dragging sentiment lower across the broader crypto market.

Looking Ahead: Patience Over Panic

Despite the brutal price action, Pal ended on a bullish note. He believes the forces suppressing liquidity are nearly exhausted and that markets are approaching a turning point. In his view, time, not short-term price moves, matters most in full-cycle investing. If liquidity begins to flow again as expected, Pal sees the groundwork being laid for a powerful bull phase heading into 2026.

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