BTC Drops Below $109K as Reduced Liquidity Pressures Crypto Prices

Bitcoin Drops Below $109K Amid Tightening Liquidity

Bitcoin (BTC) fell roughly 2% in the past hour to $108,800, giving back most of its rebound from last Friday’s leverage-driven sell-off. Other major cryptocurrencies also slipped, with Ether (ETH) at $3,824, XRP at $2.30, and Solana (SOL) at $183.95, each down about 3%.

In contrast, precious metals continue to shine. Gold climbed 2% to just below $4,300 per ounce, while silver surged 3.6%, both reaching new record highs.

Liquidity Tightening Pressures Crypto

The main driver behind the crypto pullback appears to be tightening liquidity in the financial system. The spread between the secured overnight financing rate (SOFR) and the effective federal funds rate (EFFR) widened to 0.19 from 0.02 in one week—the highest level since December 2024.

SOFR measures the cost of overnight borrowing secured by U.S. Treasuries, while EFFR tracks the rate at which banks lend excess reserves overnight. A higher SOFR relative to EFFR signals scarce liquidity and higher short-term borrowing costs, weighing on risk assets like bitcoin.

Funding Stress Signals

Further signs of stress emerged as banks drew $6.75 billion from the standing repo facility (SRF) on Wednesday—the largest draw since the pandemic (excluding quarter-end periods). The SRF, launched in 2021, provides overnight liquidity against U.S. Treasuries to alleviate funding shortages.

Although the SOFR-EFFR spread remains well below the 2.95 peak observed during the 2019 repo crisis, the combination of tighter funding conditions and elevated repo draws underscores short-term market pressure. Traders are watching for potential central bank intervention that could rekindle a BTC rally, though the timing and impact remain uncertain.