The Real Reason Bitcoin Has Struggled and Why It Can Surge to $180,000 in 2026, According to Citigroup

Bitcoin (CRYPTO: BTC), the largest cryptocurrency in the world, has stumbled as of late. After hitting an all-time high in early October of more than $126,000 per token, Bitcoin dipped pretty significantly, falling back to the $100,000 level and briefly into bear market territory. The token traded at about $103,000 as of Nov. 11. Some investors believe the decline can be attributed to the market anticipating fewer interest rate cuts by the Federal Reserve.

But the real reason for Bitcoin's decline is likely due to another reason, according to analysts at Citigroup, who are still largely bullish on the token. In fact, Citigroup sees the token rebounding and surging past $180,000 per token in roughly a year's time.

The real reason behind Bitcoin's descent

Falling interest rates tend to be a bullish indicator for the likes of crypto, Bitcoin, and tech stocks because for one, lower yields lead investors to reach for stronger returns in riskier assets. However, the strategists at Citigroup, led by Dirk Willer, believe one of the main culprits behind Bitcoin's descent is falling liquidity in the economy. This can be observed through bank reserves held at the Federal Reserve and the U.S. Department of Treasury's General Account (TGA), which is maintained at the Fed and accounted for as a liability on the central bank's balance sheet.

Image source: Getty Images.

"Traditionally, falling reserves have also impacted equities negatively, but this did not happen prior to this week. But it is plausible that bitcoin is a more sensitive instrument for pure liquidity, especially with equities caught up in the fundamentally driven AI narrative," Willer and his team said.

Investors can think of the TGA as the government's checking account that can send and receive payments from commercial banks. Bank partners have accounts at the Fed, where they hold funds to meet their daily liquidity needs. They can also receive interest from the Fed on these funds. Now, the TGA and bank reserves are inversely correlated because the TGA is a liability on the Fed's balance sheet, so if the TGA rises, bank reserves typically decline because the TGA's money is essentially coming from banks.

Another factor that has been affecting bank reserves is quantitative tightening, as the Fed has been reducing its balance sheet by letting bonds mature without reinvesting the proceeds. This essentially sucks money out of the economy. As you can see in the chart below, bank reserves have fallen significantly since 2022, and there is also clearly some correlation with bank reserves (aka liquidity) and the price of Bitcoin.

US Liabilities and Capital-Other Factors Draining Reserve Balances data by YCharts

But two factors may lead to the stabilization or even a rebound in reserves. The Fed has said that it will stop tapering its balance sheet come December because bank reserves are at or near what it believes to be "ample" levels. If bank reserves get too low, demand for liquidity can surge, leading to a jump in short-term overnight lending rates, a scenario that occurred in 2019 and forced the Fed to inject liquidity into the economy.

Additionally, raising the debt ceiling earlier in 2025 temporarily drained the TGA, forcing the Treasury to rebuild its account, contributing to the decline in bank reserves. The TGA has been rebuilt and exceeded more than $940 billion as of Nov. 5, a level Citigroup believes is sufficient.

"This would suggest that liquidity conditions should improve going forward, which should support bitcoin, and could also get the NDX (Nasdaq 100) Santa rally back on track," Willer and his team wrote.

Interestingly, Citigroup also issued a new price target for Bitcoin in October, assigning the token a $181,000 price target during the next year, primarily on the token's strength as a store of value and the digital gold narrative continuing to play out.

Be skeptical of crypto price targets

As I've always said and will say again, investors shouldn't take crypto price targets too literally. Remember, this is a relatively new asset class and cannot be valued in the same way as traditional stocks. However, I do think Bitcoin can continue to be a good long-term investment due to the digital gold narrative. Not many assets can serve as a unique diversifier like this, so I do think investors should allocate at least some capital in their portfolios to Bitcoin.

I also think the analysts at Citigroup raise some good points about overall economic liquidity and its impact on Bitcoin and crypto. The Fed regularly posts updates on its balance sheet, so this is something retail investors should be monitoring.

Citigroup is an advertising partner of Motley Fool Money. Bram Berkowitz has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.