Key Takeaways
U.S. Treasury’s $500–$600 billion bond issuance to refill its cash reserves could trigger a major liquidity squeeze, with stablecoins and crypto facing early stress.
The U.S. Treasury is preparing to inject a massive wave of bond issuance as it looks to replenish its General Account (TGA) with an estimated $500–$600 billion in the coming months.
While the move is aimed at shoring up federal cash reserves, analysts warn it could strain an already fragile liquidity backdrop – One of the weakest in over a decade.
Interestingly, the ripple effects won’t be confined to Wall Street.
Marcus Wu of Delphi Digital weighs in
As Marcus Wu of Delphi Digital noted, stablecoins could find themselves caught in the crossfire, serving as both the earliest victims of tightening liquidity and, paradoxically, a potential buffer against it.
Wu said,
“In 2023, a $550B TGA rebuild was cushioned by over $2T in the Fed’s Reverse Repo Facility, healthy bank reserves and strong foreign Treasury demand. Those buffers are now gone.”
Unlike previous liquidity cycles, this round of Treasury funding will pose a sharper challenge.
Every fresh dollar raised in the coming months will be pulled directly from market liquidity, intensifying pressure on risk assets.
Remarking on the same, Wu pointed out that crypto may be the first to feel the squeeze, with stablecoins standing at the frontline.
He contrasted today’s environment with 2021, when stablecoin supply continued to expand even as the Treasury’s cash balance grew – A reflection of the extraordinary post-COVID liquidity that is no longer present.
He added,
“In 2023, stablecoin supply contracted by more than $5B and crypto stalled, showing how the drain hit digital dollar rails. In 2025, conditions are tighter still, making crypto the first place where funding stress could surface.
How will Bitcoin and Ethereum be affected?
However, it’s important to note that the looming liquidity shock won’t hit all assets equally.
Bitcoin [BTC] may hold up better, but Marcus Wu warned that higher-beta tokens like Ethereum [ETH] could face sharper losses in thin conditions. Especially if stablecoin supply contracts during the Treasury refill.
Stablecoins, however, are no longer passive, with Tether and Circle holding over $120 billion in U.S. Treasuries. Their demand could hit $1 trillion by 2028, making them pivotal buyers of government debt.
Wu outlined a timeline wherein he pictures resilience into late August, a sharp drain in September, contraction risks through October–November, and potential relief by December and early 2025.
“The signal to watch is simple: stablecoin supply versus TGA balance. If stablecoins expand while the TGA climbs, crypto may absorb the shock better than past cycles. If supply contracts, the drain will transmit faster and more forcefully.”
What is the reality?
For now, Wu highlighted that this is not an endlessly bearish outlook, but rather a temporary headwind. One that will shape liquidity dynamics through Q4.
“The eventual completion may set the stage for the next rally. Until then, liquidity deserves more respect than headlines.”
At the time of writing, Bitcoin was trading at $112,922 (Down 0.6%) while Ethereum was priced at $4,281.
Since 14 August, the total crypto market cap has shed nearly $220 billion, with BTC losing $130 billion and ETH about $40 billion.
Both now sit below cycle peaks, with ETH sliding by 8% compared to BTC’s 5%. This finding simply underlines Wu’s point that liquidity strains hit higher-beta assets harder.
