Why Bitcoin faces a brutal liquidity trap because China’s $298B of US Treasuries are up for sale

China’s gradual retreat from US government debt is evolving from a quiet background trend into an explicit risk-management signal, and Bitcoin traders are watching the market for the next domino. The immediate trigger for this renewed anxiety came on Feb. 9 when Bloomberg reported that Chinese regulators were urging commercial banks to limit their exposure to US treasuries, citing concentration risk and volatility. This guideline immediately focuses attention on the massive pool of US bonds held by Chinese institutions. Data from the State Administration of Foreign Exchange show Chinese lenders’ holdings of dollar-denominated bonds at roughly $298 billion as of September. However, a critical unknown and the source of market jitters is exactly how much of that figure is allocated specifically to Treasuries versus other dollar debt. Meanwhile, this regulatory pressure on commercial lenders isn't happening in a vacuum. It compounds a year-long strategic retreat from US treasuries, already evident in Beijing's official accounts. The US Treasury’s “Major Foreign Holders” data show that mainland China’s official Treasury holdings fell to $682.6 billion in November 2025, the lowest level in the past decade. US Treasuries Held by China (Source: Trading Economy) This continues a trend that has accelerated over the past five years, as China has aggressively reduced its dependence on the US financial market. Essentially, the combined picture is stark: the bid from the East is drying up across both commercial and state channels. For Bitcoin, the threat isn’t that China will single-handedly “break” the Treasury market. The US market is simply too deep for that; with $28.86 trillion in marketable debt, China’s $682.6 billion represents just 2.4% of the stock. However, the real danger is more subtle: if reduced foreign participation forces US yields higher via the term premium, it will tighten the very financial conditions that high-volatility assets like crypto depend on. The ...