Macro investor Raoul Pal has a theory about why Bitcoin (BTC) hasn't been performing like everyone expected: it's not the story that's broken, it's the money supply. And according to him, that's about to change in a big way.
The Year That Should Have Worked
In an interview with Scott Melker, Pal explained that 2025 was supposed to be crypto's breakout moment. Institutions showed up. Adoption exploded. Everything was in place for a major bull run.
Instead, prices stalled out, liquidity dried up, and crypto ended up looking like "the really uncool kids at the party."
What went wrong? Liquidity vanished. In July, the Treasury started rebuilding its general account by $700 billion while simultaneously draining the reverse repo facility. That pulled the rug out from under crypto, which sits at the far end of the risk curve. Then came the December government shutdown, followed by tariff threats with China.
According to Pal, liquidity explains 90% of all price action. Everything else is just noise.
The Coming Flood of Money
Here's where things get interesting. Pal's math is straightforward: the U.S. needs to create $7-8 trillion in liquidity over the next 12 months just to service the interest on existing debt.
He breaks down the sources. Changes to the Supplementary Leverage Ratio (SLR) could unlock $3-4 trillion alone. Fiscal stimulus adds another $1.5 trillion. Balance sheet rebuilding and Treasury General Account drawdowns contribute another $1 trillion, bringing the total to $5.5 trillion. If the government eliminates all risk weighting, that number jumps immediately to $8 trillion.
Why would they do this? Pal points to the 2026 midterm elections. The Trump administration needs the economy running hot to win those races, so they'll pull every lever available. Policies like eliminating taxes on tips—which affects millions of service workers—will likely roll out sooner rather than later to pump money into the economy.
The administration is openly discussing fiscal dominance, which is essentially a polite way of saying currency debasement.
Smart Contracts Are Where the Real Action Lives
But here's Pal's more provocative point: Bitcoin holders fixated on Wall Street announcements are missing the bigger picture. The real action is moving to smart contract platforms, not pristine collateral.
The DTCC has stated that by the end of 2026, they'll be tokenizing every security on the planet. Every time an equity gets tokenized, it creates demand for blockspace, which drives value to the underlying token network.
Pal notes that institutions in the Middle East all have Bitcoin exposure but remain wildly underweight on smart contracts. Once they catch on to this narrative shift, demand for Ethereum (ETH), Solana (SOL), and other layer-one networks will explode.
He adds that altcoins typically take off when the ISM manufacturing index turns positive. With 2026 pointing toward stronger economic growth, the upside phase for altcoins tends to arrive quickly after deep corrections.
So if Pal's right, the setup for crypto isn't just good—it's historic. The question is whether the liquidity actually shows up when and how he expects.
