Bitcoin has experienced a sharp 50% correction from its October 2025 all-time high of approximately $126,000, a decline that has persisted for about five months. This drop is occurring against a counterintuitive macroeconomic backdrop: global liquidity has increased by around $5 trillion since Bitcoin's peak, reaching nearly $190 trillion, according to data from Ainslie Wealth.
The key explanation for this divergence, according to Chris Tipper, chief economist and strategist at the Ainslie Group, lies in the source of the liquidity. He notes that the recent surge is primarily driven by the People's Bank of China (PBoC), which injected an estimated $1 trillion in 2025 and is expected to add another $1 trillion in 2026. "Chinese liquidity doesn't flow into Bitcoin (which is banned), it flows into gold reserves, domestic infrastructure, and the real economy," Tipper stated.
Consequently, when isolating the Western liquidity component that Bitcoin historically responds to, momentum actually peaked in October and has been decelerating since. This bifurcation explains the opposing performance of Bitcoin and gold. Gold markets, reacting to Chinese-driven liquidity, reached all-time highs in late January 2026 and remain near those peaks. Bitcoin, conversely, corrected in response to the slowing Western liquidity momentum.
Bill Barhydt, CEO of Abra and chairman of Algorand, commented that the US Dollar Index (DXY) acts as a "rough proxy for Western liquidity" and supports this argument. The DXY recently recovered from a low of 97.5 in late February to 99.6, driven by dollar strength following geopolitical tensions, which further pressures Bitcoin.
The outlook suggests Bitcoin's recovery is contingent on a re-acceleration of Western liquidity momentum. Tipper predicts this could be triggered by Federal Reserve intervention, such as rate cuts or quantitative easing in response to market stress, dollar weakness, or a "disorderly event." Until then, Bitcoin faces heavy resistance at the $70,000 level, struggling to break above it without improved Western liquidity conditions.
