How Bitcoin Liquidity Has Been Affected by the Government Shutdown

Bitcoin already looked close to the end of its long bull run when the US government shutdown accelerated the rate of decline, analysts said. Decrypt.

They noted that the increase in the General Treasury Account (TGA) of the government, which helped the asset markets, including crypto, of the necessary capital.

“The shutdown of the American government had pushed the TGA account of the Treasury to $ 1 trillion, taking about $ 700 billion from the market, and sent overnight repos, or SRF, used to record the maximum, starved of capital risk assets,” said BitMEX analysts. Decrypt.

Bitcoin was trading at around $102,600, down 3.3% in the last 24 hours. The largest cryptocurrency by market capitalization has fallen more than 10% in the past two weeks and is off 18% since its all-time high in early October.

During a government shutdown, federal agencies dramatically slow or stop discretionary spending. But the TGA maintained by the Federal Reserve, it continues to issue debt and collect tax revenue. ‘

The money held in the TGA represents money that has left the private financial system and is no longer sitting in banks, used for loans, or being invested in money market funds, therefore creating a liquidity crisis.

The SRF, or Standard repo establishmentis a tool used by the Fed to manage short-term financing and keep money markets stable. When SRF use is on the rise, analysts said, it’s typically a sign that banks and other financial institutions are running out of cash.

BitMEX analysts are optimistic that the US government shutdown will end soon. But it is already a day shy of pulling even with the record of 35 days for the longest shutdown in the country’s history.

When it does, analysts said that the TGA will begin to spend again and inject hundreds of billions into the markets.

“This massive liquidity ‘snap-back’ should trigger a strong rally of relief, aligning perfectly with Bitcoin’s historic year-end strength,” they said.

They added that the current turmoil is evidence that BTC’s last 4-year cycle is not over.

For months analysts said this cycle is it fine. They often note that in 2024, Bitcoin set a new all-time high after the approval of US Spot Bitcoin ETF and in front of his fourth half– an unprecedented event.

In the past, Bitcoin it usually sets a new all-time high after its half and then falls between 70-80% during the following year.

“We think the current crypto market correction is driven by a ‘perfect storm’ of Bitcoin’s 4-year cycle and a macro-liquidity crisis,” they said.

They added that there were already signs that the bull run was coming to an end, citing “profits from long-term OG holders in recent months.”