Bitcoin has experienced a significant decline of approximately 19% from its all-time high reached in October. Analysts attribute this downturn primarily to a U.S. government shutdown, which has reportedly drained around $700 billion from financial markets through the Treasury General Account (TGA). As a result, the TGA has ballooned to $1 trillion during this period, creating a liquidity crisis that has restricted cash flow from the private financial system, limiting available resources for lending and investment.
Currently, Bitcoin is trading at about $102,600, reflecting a 3.3% decrease over the past 24 hours and more than 10% drop in the last two weeks. Since its peak earlier in October, Bitcoin’s value has decreased by 18%. Analysts from BitMEX pointed out that the increase in the TGA has exerted a significant impact on asset markets, including cryptocurrency, by sapping much-needed capital. They highlighted that the U.S. government shutdown has elevated the Treasury’s TGA account, resulting in historically high overnight repo usage. This surge indicates that banks and financial institutions are encountering cash shortages, which further exacerbates the liquidity crisis affecting risk assets.
Traditionally, during a government shutdown, federal agencies curb discretionary spending drastically. However, the TGA, maintained by the Federal Reserve, continues to receive revenue through tax collections and the issuance of debt, effectively removing cash from circulation within the private financial system. This move has critical implications, as it prevents funds from being utilized for lending or investments, leading to strained liquidity within the market.
Looking ahead, BitMEX analysts maintain a cautiously optimistic perspective, suggesting that the current government shutdown, which is nearing the length of the longest in U.S. history, might conclude soon. They expect that upon resolution, the TGA will begin expending capital again, injecting hundreds of billions back into the markets. This influx is anticipated to trigger a robust relief rally which may coincide with Bitcoin’s proven seasonal strength toward the end of the year.
Despite this optimistic outlook, analysts caution that there have been signs indicating the end of Bitcoin’s lengthy bull run. In previous months, profit-taking activities among long-term holders have reportedly increased, suggesting that the cycle might be reaching its culmination. Many in the industry also believe that the dynamics leading to the current market correction stem from a combination of Bitcoin’s historical four-year cycle and the ongoing macro-liquidity crisis.
There remains the possibility that Bitcoin will achieve new all-time highs in 2024, particularly with the anticipated approval of U.S. spot Bitcoin ETFs and the upcoming fourth halving event. Historically, Bitcoin tends to witness a significant surge following halving events, though it also has experienced considerable declines in the year after. Currently, analysts are observing a “perfect storm” of influences driving the market, inciting essential discussions within the cryptocurrency sector regarding the future trajectory of Bitcoin and overall market conditions.
