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As risk assets wobble and investors reassess macro risks, the bitcoin liquidity squeeze is testing conviction even as some institutional voices stress that the long-term thesis remains intact.
Summary
Short-term pain as volatility spikes and sentiment fractures
Bitcoin‘s price swings are likely to remain elevated in the near term, and values could fall further, according to Sygnum Bank chief investment officer Fabian Dori. However, he argues this turbulence reflects a liquidity-driven setback rather than a structural breakdown in bitcoin’s underlying fundamentals.
“We can see volatility remaining high in the short term, and prices could even go lower from here,” Dori told CoinDesk in an interview. “Sentiment has collapsed. Trust and confidence for investors to build exposure are very limited.” That said, he maintains the long-term picture is still constructive.
The recent divergence between gold, which has held firm, and innovation assets such as Nasdaq tech stocks and bitcoin highlights how fragile the current environment has become. Moreover, Dori cautions against searching for a single explanation behind that split, stressing that several forces have converged in recent months.
“There isn’t one single cause, indicator or driver behind this gap,” he said. “It’s a number of elements that have been building over recent months.” Crypto markets have trended lower over that period, with bitcoin and other major tokens retreating from earlier highs as macro headwinds and uneven institutional flows weigh on sentiment.
Sticky inflation and shifting expectations for Federal Reserve rate cuts have curbed risk appetite, while periodic geopolitical flare-ups reinforce a broader move out of speculative assets. At the same time, choppier exchange-traded fund (ETF) flows, thinner liquidity and bouts of leveraged liquidations have magnified downside moves, leaving prices repeatedly testing key support levels.
On thin ice: liquidity stress and cautious long-term holders
Crypto, Dori argues, has been “on thin ice” for some time. Long-term holders have grown wary of bitcoin’s four-year cycle and the risk of entering a correction phase. As a result, the ecosystem stands on more fractured footing, with fewer strong hands willing to absorb volatility when selling pressure spikes.
Layered on top are crypto-specific liquidity stresses and broader macro pressures. Since June last year, the U.S. Treasury’s issuance of bills and notes has significantly increased balances in the Treasury General Account (TGA) at the Federal Reserve. When those bills are issued, liquidity is effectively pulled from markets and parked in the TGA.
“They are non-productive assets,” Dori said. “And crypto, being one of the most liquidity-sensitive asset classes, was among the most affected.” Moreover, he notes that this drain in cash availability amplified pressure just as risk appetite was already deteriorating across global markets.
A record liquidity event on Oct. 10 further dampened risk appetite among investors and market makers, accelerating the deterioration in crypto market depth. Funding rates collapsed and liquidity conditions worsened, impairing the ability of the market to absorb even modest flows without sharp price swings.
At the same time, concerns ranging from bitcoin’s store-of-value narrative to quantum computing risks, forced selling of reserves by digital asset treasuries and delays around U.S. legislation, including the much-anticipated Clarity Act, have compounded uncertainty. With sentiment already fragile, even minor headlines can now trigger outsized market reactions.
“The ecosystem was already on thin ice because of the cycle dynamics,” Dori said. Then you add additional liquidity constraints and collapsing sentiment, and that is a very vulnerable setup, he added. Since early October, bitcoin has suffered drawdowns of roughly 40% to 50% from its recent highs.
The last time markets experienced declines of that magnitude was during the systemic crisis of 2022, prompting renewed fears of broader structural risk. However, Dori rejects the comparison, pointing to a markedly different macro and institutional backdrop today.
“From a macro perspective, regulatory clarity, institutional adoption and counterparty soundness, the picture today is totally different from 2022,” he said. “This is not the same systemic risk environment.” In his view, the current turbulence is best understood as a bitcoin liquidity squeeze layered on fragile psychology, not a replay of the last crisis.
Liquidity turn on the horizon?
In Dori’s assessment, the current weakness reflects a short-term liquidity squeeze rather than a shift in core fundamentals. Market data, he said, shows empirical signs of improvement beneath the surface, even if headline prices remain under pressure for now.
The U.S. business cycle is broadening. ISM services activity has expanded in recent months, and manufacturing prints have surprised to the upside. Historically, those conditions are prerequisites for improving risk appetite as investors move out along the risk curve.
At the same time, headline inflation remains above the Federal Reserve’s 2% target but is far from the levels that previously fueled acute concerns around trade policy or tariffs. Moreover, the trend appears subdued enough, Dori said, to allow the Fed to continue its rate-cut cycle in coming months without reigniting inflation fears.
“That would improve liquidity conditions again,” he said. Treasury-driven liquidity pressures could also ease, setting the stage for a faster-than-expected turn ahead of the next Federal Open Market Committee meeting, according to Dori. Such a shift would help alleviate some of the most acute pressures on crypto markets.
From a crypto-native perspective, the fundamental backdrop remains constructive. Stablecoin growth continues, integration into traditional finance is expanding, and the number of native tokens locked on networks such as Ethereum and Solana remains robust. Moreover, the underlying technology base continues to evolve despite price volatility.
Institutional adoption, while uneven, is still progressing. “Once sentiment normalizes and liquidity conditions improve, the gap between traditional assets and crypto should narrow again,” Dori said. That would support a renewed convergence between bitcoin, equities and other risk assets over time.
Sentiment, triggers and the search for a catalyst
For now, however, sentiment is the dominant force. Fear-and-greed indicators sit at extreme fear levels, underscoring how little appetite there is to rebuild exposure. “That clearly indicates that trust and confidence are very limited,” Dori said. “We need some kind of trigger.”
What that catalyst might be is less clear. The passage of comprehensive U.S. crypto legislation, such as the Clarity Act, would be “an extremely positive development,” he said. A normalization of geopolitical tensions could also help restore broader investor appetite toward risk assets.
Improvement in concerns tied to artificial intelligence and sustainability narratives could provide additional tailwinds. Meanwhile, a further recovery in liquidity conditions, combined with continued institutional inflows, would reinforce the constructive case, according to Dori.
Until then, markets remain exposed. “The short-term view, because of sentiment, is not great,” Dori said. However, he remains confident that the structural foundation is stronger than it appears when judged purely by recent price action.
“Fundamentally, we see improving business cycle data, stablecoin growth, institutional participation and stronger counterparty risk management,” he said. “That’s very different from what we saw in 2022.” In Dori’s assessment, bitcoin’s current slump is less a verdict on its long-term viability and more a function of liquidity mechanics and shaken confidence.
Volatility may intensify before it subsides. Prices may even test lower levels. Yet if liquidity conditions ease and macro data continue to firm, Dori believes the turn could come sooner than many expect, especially if a clear policy or macro catalyst emerges.
Dollar strength and geopolitical risk hit crypto
Macro and geopolitical forces are adding another layer of stress. Risk assets fell across the board on Tuesday as the U.S. dollar strengthened to a near two-month high following renewed military escalation in Iran, pressuring the crypto market further.
The DXY dollar index rose 0.5% to its highest level since Jan. 19 after Israel launched fresh strikes on Tehran and Beirut and Iranian drones hit the U.S. embassy in Riyadh. That series of events prompted broad declines in crypto, equities and metals as investors moved toward perceived safe havens.
Bitcoin rallied to $70,000 on Monday alongside gold before retreating to $66,500, remaining rangebound since early February. However, altcoins such as ADA, ZEC and DASH dropped more than 4% since midnight UTC, underscoring how sensitive smaller tokens remain to macro shocks.
CoinDesk’s Memecoin and DeFi indices posted modest gains, while NEAR jumped 13.3% from oversold levels. In addition, DeFi tokens JUP and MORPHO extended weekly gains of 23% and 20%, highlighting that idiosyncratic flows and sector-specific themes can still generate pockets of resilience even in a risk-off tape.
Overall, Dori’s message is that crypto remains on edge in the short term, with sentiment fragile and liquidity constrained. Yet beneath the surface, he argues, business cycle data, stablecoin expansion and institutional engagement suggest that the industry’s long-term fundamentals are quietly improving.
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