Bitcoin Slides Below $109K as Tightening Liquidity Weighs on Crypto

Bitcoin (BTC) has tumbled roughly 2% over the past hour to around $108,800, giving up most of its rebound from last Friday’s crash. Other major cryptocurrencies are seeing even steeper losses, with Ether (ETH) at $3,824, XRP at $2.30, and Solana (SOL) at $183.95, all down about 3% in the last hour.

Meanwhile, precious metals continue to rally. Gold is up 2%, touching a new record just below $4,300 per ounce, while silver has jumped 3.6%, also reaching fresh highs.

Liquidity Crunch Weighing on Risk Assets

The primary factor keeping bitcoin and other crypto assets under pressure appears to be tightening liquidity in the broader financial system. This is evident in the widening spread between the secured overnight financing rate (SOFR) and the effective federal funds rate (EFFR), which rose to 0.19 from 0.02 in just one week—the highest since December 2024.

SOFR reflects the cost of overnight borrowing using U.S. Treasury securities as collateral, while EFFR shows the rate at which banks lend excess reserves to each other. When SOFR exceeds EFFR, it signals scarce liquidity and rising short-term borrowing costs, making riskier assets like bitcoin less attractive.

Signs of Funding Stress

Additional indicators point to tightening conditions. On Wednesday, banks drew $6.75 billion from the standing repo facility (SRF), the largest amount since the end of the COVID-19 pandemic (excluding quarter-end periods). The SRF, introduced in 2021, provides overnight liquidity against U.S. Treasuries to ease potential funding shortfalls.

While the SOFR-EFFR spread remains far below the 2.95 peak seen during the 2019 repo crisis, the combination of tightening rates and elevated repo draws underscores short-term stress. Many in crypto communities hope that central banks may intervene soon, potentially reigniting a bullish rally in BTC, but whether that occurs remains uncertain.