The Liquidity Cycle: Why Bitcoin Can Crash While Money Is Being Debased | Part 7

Why can Bitcoin collapse by 50%, 60% or even 70% while governments are still borrowing, currencies are still being debased and Bitcoin’s maximum supply remains permanently limited?

In Part 7 of our Daily Crypto Deep Dive series , we examine the liquidity cycle—the powerful financial force that can send Bitcoin and other risk assets surging during one period and crashing during the next.

We explain how interest rates, central-bank policy, credit conditions, the strength of the US dollar, institutional capital and investor psychology affect the amount of money available to enter the crypto market.

We also revisit the dramatic Bitcoin crashes of March 2020 and 2022 to show why Bitcoin can initially fall during periods of economic stress—even when the long-term case for scarce assets may be growing stronger.

Bitcoin’s scarcity provides the foundation. Adoption creates demand. Liquidity determines how much financial power that demand currently has—and psychology amplifies the movement in both directions.

Understanding that distinction is essential for anyone attempting to hold Bitcoin through an entire market cycle rather than reacting emotionally to every rise and fall.

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