Treasury to Drain $500B From Markets With TGA Refill, Crypto Faces Tight Liquidity Test

TLDR:

• Treasury will pull $500-600B from markets in its TGA refill, directly tightening crypto market liquidity.
• In 2023, $550B was absorbed easily, but today buffers like RRP and bank reserves are gone.
• Stablecoin supply may contract during the refill, creating stress for crypto assets such as ETH and BTC.
• Tether and Circle now hold $120B in Treasuries, with demand projected to reach $1T by 2028.

The U.S. Treasury is preparing to refill its General Account with $500-600 billion over the next two months. The move will draw cash from active market liquidity, creating pressure across assets. 

Unlike previous cycles, markets now lack the cushions that once softened the impact. Reverse repo balances are almost empty, bank reserves remain under strain, and foreign demand for Treasuries has weakened. Analysts warn that crypto could feel the squeeze first.

Crypto Price Risks Tied to Treasury Liquidity Drain

Market observer that1618guy wrote that every new Treasury dollar raised this fall will come directly from existing liquidity. 

In 2023, a $550 billion refill was absorbed thanks to strong buffers. Today, those defenses have largely disappeared. That leaves crypto traders facing a sharper test in the coming months.

The Fed is still reducing its balance sheet through quantitative tightening, which continues to drain liquidity. Banks remain constrained by losses and capital rules, limiting their ability to step in. With China and Japan also stepping back from heavy Treasury buying, the funding source looks narrower than before.

This backdrop could translate into tighter crypto conditions. In past cycles, stablecoin supply shrank during Treasury builds, cutting into digital asset flows. If that repeats, traders may see declines appear first in Ethereum and other higher-beta tokens.

Stablecoins Now Buyers of Treasuries

One major shift compared with past years is the new role of stablecoins. 

Instead of only being squeezed by liquidity shifts, they are now large holders of Treasuries themselves. Tether and Circle together own more than $120 billion in U.S. government debt. Treasury estimates suggest demand from stablecoin issuers could reach $1 trillion by 2028.

This dynamic creates a feedback loop. As stablecoin issuers grow, they directly absorb U.S. issuance. That reduces the need for some traditional buyers but also ties digital dollar rails more closely to Treasury supply. 

The balance between stablecoin expansion and Treasury demand may decide how crypto weathers the next few months.

The cycle will not play out in one moment. Based on past patterns, observers expect four phases. A short period of seasonal strength could give way to a sharp September shock. 

October and November may bring fatigue and stablecoin contraction risk. By December, the headwind could fade, setting conditions for recovery.

The key signal to watch, according to analysts, will be the relationship between stablecoin supply and the TGA balance. If supply grows while the account rises, crypto could absorb the hit. If supply contracts, the stress may hit markets harder and faster.

For now, the refill is set to shape capital flows through year-end. How stablecoins respond may determine whether crypto absorbs or amplifies the liquidity drain.

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