China’s Treasury Fire Sale: Why Bitcoin and US Dollar Liquidity Are Now Joined at the Hip

If you want to understand why Bitcoin is stuck in the mud near $70,000, look no further than Beijing’s $298 billion game of chicken with the US Treasury market. China’s slow-motion unwind of its Treasury hoard isn’t just a quirky footnote for macro nerds. It’s the new elephant in the crypto room, and the liquidity trap it’s creating could be the most underpriced risk in digital assets right now.

Let’s not sugarcoat it: Bitcoin’s price action over the last two weeks has been a masterclass in disappointment. After a face-melting run to nearly $90,000 in late January, the world’s favorite digital asset has been ground down by relentless selling, now clinging to the $70,000 handle like a hungover trader to their last espresso. The selloff has been sharp, with $BTC shedding more than -22% from its highs. The culprit? Not just overleveraged degens or ETF inflows stalling. The real story is a macro liquidity squeeze with Chinese characteristics.

According to CryptoSlate, China’s retreat from US government debt is no longer a background hum. It’s an explicit signal. Beijing is offloading Treasuries, and that means fewer dollars sloshing around the global system. For Bitcoin, which has become the world’s favorite liquidity barometer, this is a problem. The old narrative was simple: Bitcoin is a hedge against fiat debasement. But when the world’s second-largest economy starts draining dollar liquidity, even the hardest money can get caught in the undertow.

The numbers are staggering. China now holds just $298 billion in Treasuries, down from over $1.2 trillion at the peak. The unwind has accelerated since late 2025, with monthly sales running at a $30-40 billion clip. That’s not just a macro footnote. It’s a direct hit to global risk appetite. Every dollar Beijing pulls from Treasuries is a dollar not recycling into global markets, including crypto. The result? Bitcoin’s vaunted “digital gold” status is running headfirst into the reality of cross-border liquidity plumbing.

This isn’t just about China. The US Treasury market is the backbone of global collateral. When a whale like China steps back, the knock-on effects ripple everywhere. Funding costs rise, dollar liquidity tightens, and risk assets lose their safety net. Bitcoin, for all its decentralization, is still a high-beta play on global liquidity. When the tide goes out, it gets exposed.

The data backs it up. Coinpedia reports Bitcoin is struggling to hold $70,000, a far cry from the late January euphoria. ETF inflows have slowed to a trickle. Spot volumes are down -18% week-on-week. The bid is thin, and every rally attempt has been met with fresh supply. The selloff isn’t just technical. It’s structural. As China sells Treasuries, US yields rise, the dollar strengthens, and Bitcoin’s dollar-based liquidity pool shrinks.

If you’re looking for a historical parallel, think back to 2015’s “yuan shock.” Back then, China’s devaluation sent shockwaves through global markets. Today, the mechanism is subtler but no less potent. Instead of FX fireworks, we’re getting a slow, grinding drain on liquidity. For Bitcoin, which has thrived in an era of abundant dollars, this is unfamiliar territory.

The cross-asset correlations are telling. Bitcoin’s rolling 30-day correlation with the DXY has flipped negative, now at -0.42, the lowest since 2022. When the dollar rallies, Bitcoin wilts. The old “digital gold” narrative is being stress-tested in real time. If you’re a macro trader, this is the moment you’ve been waiting for. If you’re a crypto bull, it’s time to learn some new tricks.

Meanwhile, the broader crypto complex is feeling the pinch. Ethereum is clinging to $2,000 support, but flows are anemic. Altcoins are in witness protection. Even the perma-bulls at Bernstein are starting to hedge, calling the current selloff the “weakest bear case in history” but reaffirming a $150,000 target for year-end. That’s a nice soundbite, but in the here and now, the market is starved for liquidity.

Strykr Watch

Technically, Bitcoin is at a crossroads. The $70,000 level is acting as a psychological floor, but the real support sits lower, near $67,500 (the January breakout zone). Below that, it’s a quick trip to $62,000, where the 200-day moving average lurks. Resistance is stacked at $74,200 (recent swing high) and $78,000 (where the last rally failed). RSI on the daily is at 41, not quite oversold, but definitely not bullish. Spot volumes are running -18% below the 30-day average, a sign that conviction is missing on both sides.

On-chain, the picture is just as murky. Exchange balances are creeping higher, up +2.7% since the start of February, a classic sign of sidelined capital waiting for better entries. Funding rates have normalized after last week’s liquidation cascade, but open interest is still -9% off the highs. The path of least resistance is lower, unless a fresh catalyst emerges.

The risk? If $BTC loses $67,500, the next real support is $62,000. That’s where the forced sellers start to get nervous. On the upside, a close above $74,200 would invalidate the bear case and set up a run at $80,000. Until then, it’s a trader’s market, not a hodler’s paradise.

The bear case is simple: China keeps selling Treasuries, dollar liquidity tightens further, and Bitcoin gets dragged lower in the crossfire. If the dollar index (DXY) breaks above 104.5, expect more pain. The bull case? US yields stabilize, ETF inflows resume, and the macro narrative shifts back to “digital gold.” But that’s a lot of ifs.

For traders, the opportunity is in the volatility. Play the range, fade the extremes, and keep stops tight. If $BTC holds $67,500, a bounce to $74,200 is in play. If it breaks, don’t try to catch the falling knife until $62,000. For the macro crowd, watch the US Treasury auctions and China’s FX reserves like a hawk. The next move in Bitcoin will be written in the bond market, not on Crypto Twitter.

Strykr Take

The real story isn’t Bitcoin’s price. It’s the global liquidity plumbing. As China unwinds its Treasury stash, the ripple effects are hitting crypto where it hurts: dollar liquidity. The days of easy money are over, at least for now. For traders, this is a market that rewards discipline and punishes complacency. The next big move will come when the macro tide turns. Until then, respect the range and keep your powder dry. Strykr Pulse 48/100. Threat Level 4/5.