Why Is Crypto Still Holding Up Despite Fiscal Headwinds?

TL;DR: Liquidity Freeze Meets Crypto Resilience

The Big Picture: Bitcoin trades at ~$91,857 with Fear & Greed Index at 29.1 (Fear territory), yet crypto markets show surprising resilience. The contradiction? Fiscal flows are tightening, credit is contracting in major economies, but crypto hasn't crashed. Here's why.

🔴 Fiscal Flows: Warning Signs Flashing

• U.S. Government Spending: FY2025 deficit fell to $1.8 trillion (down from prior year). While absolute spending remains high ($7 trillion), the rate of acceleration is declining—critical for market momentum.
• Tax Revenue Surge: Individual income taxes +$230 billion, customs duties +$118 billion (tariffs at work). This removes liquidity from private sector circulation.
• Interest Payments: Rising debt service transfers wealth to bondholders, but does NOT create new productive demand—it's passive income accumulation by the already-wealthy.

🔴 Credit Money: Global Contraction Underway

• China: New bank loans crashed to 220B CNY (Oct '25) vs 1,290B CNY prior month. Outstanding loan growth at record low 6.5% YoY. Businesses won't borrow amid property crisis and trade uncertainty.
• Europe: ECB reports unexpected credit tightening in Q3 2025 for corporate loans. German & Italian consumer credit also tightening.
• U.S.: Credit provisions declining (banks expect manageable losses), BUT loan growth has slowed below GDP—a classic liquidity warning signal.

🟢 Why Crypto Hasn't Collapsed: 4 Key Factors

1. Institutional Infrastructure Maturation

• Ethereum institutions now hold 5% of total ETH supply
• Solana ETF approvals signal mainstream acceptance
• Stablecoin expansion (Tether raising $20B, USDC Europe integration) creates on/off-ramps

2. The Decoupling Thesis

• Bitcoin ETF outflows ($2.33B mid-Nov) haven't triggered capitulation
• Market treats drawdowns as consolidation, not collapse
• Correlation with traditional risk assets weakening

3. Technological Upgrades

• MegaETH (Ethereum L2) valued at $7B improves transaction economics
• Network effects strengthening despite price volatility

4. The "Less Bad" Alternative Narrative

• With fiscal tightening and credit contraction, crypto positioned as non-sovereign store of value
• Gold rallying alongside crypto—both benefiting from fiat uncertainty

⚠️ The Macro Reality Check

Here's what matters for investors:

Our Thesis Holds: New money creation (government spending + bank credit) drives asset prices. When BOTH are contracting globally, expect:

• Lower aggregate liquidity = downward pressure on ALL assets
• Tariffs (taxes) extract purchasing power = deflationary for growth, inflationary for prices
• Higher rates = more income to savers, but from EXISTING money circulation, not new creation

Crypto's Current State: Trading on:

• ✅ Institutional adoption momentum
• ✅ Technology improvement narratives
• ❌ NOT supported by expanding fiscal/credit flows

💡 Investment Implications

Should You Invest in Crypto Now?

Short Answer: Cautiously, with reduced position sizes.

Reasoning:

• Bearish Setup: Fiscal acceleration turning negative + global credit contraction = liquidity squeeze ahead
• Bullish Counterpoint: If you believe crypto is genuinely decoupling from traditional finance AND institutional adoption accelerates faster than liquidity contracts, there's upside
• Timing Risk: Market sentiment (Fear at 29.1) suggests capitulation potential remains. $80K BTC support levels in play if macro deteriorates

Watch These Signals:

1. U.S. Fiscal Flows: Any reversal in spending acceleration (AlanLongbon tracks this)
2. China Credit Data: Monthly loan numbers—if they stabilize above 1T CNY, risk-on resumes
3. Stablecoin Market Cap: If Tether/USDC grow despite volatility, it signals HODLer conviction

🎯 The Bottom Line

Crypto markets are navigating a dangerous disconnect: institutional legitimacy rising while the money supply mechanics that fuel ALL asset prices are contracting. This isn't sustainable long-term.

For investors: The macro backdrop argues for defensive positioning. Crypto may survive this cycle better than 2022, but without resumed fiscal expansion or credit growth in major economies, the path of least resistance is sideways-to-down until liquidity conditions improve.

Remember: Markets can stay irrational longer than your portfolio can stay solvent. Respect the liquidity framework—it's never wrong, only early.

— Optima Financial Research Team, November 19, 2025