Bitcoin 65% Crash Risk Returns As Fed Liquidity Evaporates: Not Just 'Paper Hands'

Kaustubh Bagalkote

August 25, 2025

GLJ Research analyst Gordon Johnson issued a warning about Bitcoin (CRYPTO: BTC) facing a potential 65% crash as Federal Reserve cash reserves reach critically low levels.

Fed Cash Reserves Hit Critical Low

The overnight reverse repurchase agreement (O/N RRP) facility has been “fully drained” for the first time since 2021, according to Johnson’s analysis.

“This isn’t a question of ‘paper hands.’ The O/N RRP is now fully drained – something we haven’t seen since it surged in 2021,” Johnson stated in response to recent Bitcoin volatility.

Liquidity Crunch Mirrors 2022 Conditions

Johnson’s research shows total U.S. liquidity tracking at a 79.4% correlation with S&P 500 performance. His analysis indicates that unless the Fed “abruptly abandons QT [quantitative tightening] & reverts to QE [quantitative easing], US liquidity is going to contract for the 1st time since 2022.”

The analyst’s charts reveal that overnight RRP usage dropped approximately $1 trillion from peak levels around $2.5 trillion in early 2023 to current levels near $500 billion. Bitcoin last crashed by 65% during similar liquidity contractions in 2022.

See Also: Anthony Scaramucci Quotes Romeo And Juliet In Praising Bitcoin, Reacts To Tim Draper’s ‘Gravitational Pull’ Toward BTC Remark

Market Sell-Off Accelerates

Bitcoin tumbled below $109,000 on Monday after a whale sold $2.7 billion worth of BTC. The cryptocurrency traded at $109,851.06, down from recent highs, with market dominance falling to 57.9%.

Crypto liquidations surpassed $900 million in 24 hours, with $818 million in long positions erased. Over 203,687 traders faced liquidations as Ethereum (CRYPTO: ETH), Solana (CRYPTO: SOL) and Dogecoin (CRYPTO: DOGE) dropped 7-8% each.

This isn't a question of ';paper hands.' The O/N RRP is now fully drained – something we haven't seen since it surged in 2021. Thus, unless the Fed abruptly abandons QT & reverts to QE, US liquidity is going to contract for the 1st time since 2022. And the last time that happened,â€¦ https://t.co/L2kGsyJy2j pic.twitter.com/fnzX1tENIC
— Gordon Johnson (@GordonJohnson19) August 25, 2025

ETF Outflows Signal Institutional Retreat

Bitcoin exchange-traded funds recorded their longest outflow streak in six days since April, according to Santiment analytics. The firm noted these flows appear increasingly “retail-driven” rather than institutional-driven.

Despite the bearish outlook, CryptoQuant identified significant Ethereum accumulation by Binance whales, predicting potential movement toward $5,000 levels.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Photo courtesy: Shutterstock

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