Recently, the cryptocurrency market has fallen along with the U.S. stock market, causing many newcomers to panic. In fact, the culprit is the U.S. government — which has been shut down for 37 days, tying the historical record!
Simply put, the two parties in the U.S. couldn't agree on the budget, the government has no money to operate, and the Treasury can only 'suck money' from the market in emergency situations, pulling nearly $700 billion in total over the past two months.
It's like the market's 'money bag' has been emptied, banks have no money, liquidity has directly dried up, and the Federal Reserve's bank reserves have dropped to the lowest level since 2021.
With less money, the cost of borrowing has increased, for example, the secured overnight financing rate suddenly rose by 22 basis points, which is much higher than the rate maintained by the Federal Reserve.
The Fed's rate cut was intended to relieve the market, but the Treasury's 'siphoning' effectively negated that, returning the market to its previous tense state.
At this time, the market is particularly fragile; even a small disturbance can cause capital flight, which is why both U.S. stocks and the crypto market have collectively pulled back.
Practical advice for beginners: Don't act rashly now; patiently wait for the U.S. government to reopen.
Once the government resumes operations and stops 'siphoning funds,' market liquidity will return, and capital will flow back into cryptocurrencies.
During this time, don't blindly buy the dip; stabilize your positions first, and act when the situation becomes clearer—it’s much more reliable than random speculation!
If you currently feel helpless and lost in trading and want to learn more about cryptocurrency knowledge and first-hand cutting-edge news, follow me @戊戌散人.
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0 Adapt the above content into your own original article. You are a seasoned crypto analyst blogger emphasizing your personal views! The introduction should particularly entice readers to click in and browse, the middle section should contain substantial content while avoiding sensitive terms from Binance Square, and the conclusion should attract followers, keeping them engaged. The similarity should not exceed 50%, while incorporating emotion and humor.
Deeply contemplated (took 8 seconds)
Hmm, the user wants me to adapt an analysis article about the cryptocurrency market's pullback into original content, requiring my personal views while avoiding sensitive vocabulary. This article mainly discusses how the U.S. government shutdown affects liquidity in the cryptocurrency market.
I need to first check what information I can use from the search results. Oh, there are quite a few relevant reports. Bitcoin has recently dropped significantly, even falling below the $100,000 mark, the first time since late June. The U.S. government has been in a shutdown for 37 days, setting a record, which has led to a surge in the Treasury General Account (TGA) balance and withdrawn a large amount of liquidity from the market.
Regarding the specific manifestations of tightening liquidity, search results show that the secured overnight financing rate (SOFR) has surged to 4.22%, exceeding the Federal Reserve's rate cap. At the same time, the usage of the Federal Reserve's Standing Repo Facility (SRF) has also reached a new high, indicating that the banking system is severely lacking in dollars.
This liquidity crisis has a significant impact on the cryptocurrency market, with over 438,000 liquidations totaling $7.3 billion. Moreover, funds from the U.S. Bitcoin spot ETF are also flowing out, further exacerbating the market decline.
However, there are also some positive signals. For example, once the U.S. government ends the shutdown, the enormous cash locked in TGA accounts may be released into the market, which is expected to boost a rebound in risky assets. Some analysts believe this could become a catalyst for a strong rebound in risk assets like Bitcoin.
I want to make the article more vivid, possibly incorporating some metaphors and humorous elements. For instance, comparing the government shutdown to a 'financial black hole,' or using 'The Hunger Games' to describe the market situation. This way, it remains professional yet interesting.
In terms of content structure, I can first analyze the current market situation and the reasons for the liquidity crisis, then explain its impact on cryptocurrencies, and finally provide some investment suggestions and future outlooks. I will ensure that each point is supported by search results and correctly cite sources at the end of each paragraph.
I want to avoid directly copying the original text, but rather express it in my own words while retaining the core information. This way, I can create an original article that is both deep and has my personal style.
The U.S. government shutdown has lasted 37 days, sucking $700 billion out of the market! When will Bitcoin rebound after its plunge?
The cryptocurrency market is bleeding, but the real players are quietly positioning themselves.
"This is not just an ordinary market correction, but a liquidity crisis triggered by the government shutdown," a Wall Street trader wrote on Twitter. Over the past month, Bitcoin has dropped more than 20% from its historic high in early October, even briefly falling below the psychological barrier of $100,000.
Meanwhile, the balance of the U.S. Treasury General Account (TGA) has surged to $1 trillion, setting a new high for nearly five years.
This means that over the past three months, more than $700 billion in funds has been withdrawn from the market, locked up in the Federal Reserve's vault—this is the true 'culprit' behind this round of cryptocurrency plummet.
01 The liquidity black hole; how the U.S. government shutdown has drained the market?
As the U.S. government shutdown entered its 37th day due to budget disputes, Wall Street traders realized that the situation might be more serious than anticipated. The government shutdown not only means the suspension of some public services but also unexpectedly triggered a liquidity crisis.
The mechanism of the U.S. Treasury General Account (TGA) is quite simple: the government collects money through taxes and bond issuance and then injects money into the market through fiscal spending. Normally, this account maintains a dynamic balance.
However, the government shutdown has broken this cycle. The Treasury is still receiving funds, but due to the lack of an approved budget, normal fiscal expenditures cannot occur. The TGA has become a financial black hole of 'only incoming, no outgoing.'
Data shows that since the government shutdown began on October 1, the TGA balance has skyrocketed from approximately $300 billion to over $1 trillion. This process has effectively withdrawn more than $700 billion in liquidity from the market.
This siphoning effect is comparable to the Federal Reserve conducting multiple rounds of rate hikes or accelerating quantitative tightening. After a large amount of reserves was siphoned from the banking system, both the ability and willingness of banks to lend decreased significantly, causing the cost of funds in the market to soar.
02 Digital gold fades; why is Bitcoin at the forefront?
In a tightening liquidity environment, cryptocurrencies like Bitcoin become the earliest and most sensitive victims. This is closely related to their nature as risk assets.
In the past month, Bitcoin prices have plummeted over 18%, with the price of a single Bitcoin dropping over $22,400. Bitcoin's total market value has shrunk by over 2.62% this month, equivalent to a loss of about $60 billion in market capitalization within a month.
Not only has Bitcoin performed poorly, but other cryptocurrencies have also seen a faster decline. Ethereum has dropped over 29% in a month, and XRP has fallen over 25%.
Cryptocurrencies are 'very sensitive' to the banking liquidity situation. A Citi report pointed out that research shows the weekly price changes of Bitcoin are synchronously correlated with changes in U.S. bank reserves; a decline in bank reserves is often accompanied by Bitcoin's weak performance.
Worse still, during periods of tight liquidity, funds often flow from high-volatility assets to relatively stable ones. Compared to U.S. stocks and gold, cryptocurrencies are at a disadvantage.
So far this year, Bitcoin has grown by 9.6%, ETH by 2.7%, while the S&P 500 has grown by 15.55%, and the Nasdaq has increased by 21.88%. Gold has risen by about 50%. Trading cryptocurrencies has become the lowest yielding category.
03 Market signal interpretation; when will liquidity tightening bottom out?
The high fever of the financial system has clear symptoms. The first alarm was sounded by the overnight lending market, a place where banks lend each other short-term funds, and also the capillaries of the entire financial system.
On October 31, the secured overnight financing rate (SOFR) surged to 4.22%, marking the largest daily increase in a year. This rate not only exceeds the Federal Reserve's set federal funds rate cap of 4.00%, but is also 32 basis points higher than the effective federal funds rate.
Meanwhile, the usage of the Federal Reserve's Standing Repo Facility (SRF) has surged to $50.35 billion, reaching the highest level since the pandemic crisis in March 2020. This data indicates that the banking system is in a severe dollar shortage, having to rely on the Federal Reserve's emergency liquidity tools.
These signals indicate that liquidity tightness has reached a critical point. Historical experience shows that after such extreme situations, policymakers usually take measures to alleviate market pressure.
04 Current state of the crypto market; liquidation of leverage and institutional withdrawals
In the context of tightening liquidity, the structural issues within the crypto market have also been amplified. The most obvious is the chain liquidation of high-leverage positions.
On October 11, the market experienced an 'epic liquidation.' According to data tracking agency CoinGlass, nearly $20 billion worth of cryptocurrency bets were forcibly liquidated within 24 hours, affecting over 1.6 million traders, the vast majority of whom were long positions.
This largest liquidation event in history has caused many investors to lose their earnings and principal overnight. Buying has become noticeably more cautious.
Even some well-known whales have not been spared. On-chain analysts have detected that a '100% win rate whale' cleared its remaining long positions at dawn, incurring a loss of $39.37 million. Meanwhile, the long positions of 'Big Brother' Huang Licheng were completely liquidated again, leaving only $1,718 in his account.
On the other hand, institutional investors are also withdrawing funds. Data shows that last week, the U.S. Bitcoin spot ETF experienced a net outflow of $799 million, and the Ethereum spot ETF saw net outflows for three consecutive days, totaling $363 million.
05 A glimmer of hope in the darkness; the government reopening will unleash liquidity
Although the current situation is dire, the roots of the crisis are also key to potential market turning points. Since the government shutdown is the main driver of liquidity tightening, once it ends, the suppressed liquidity will be released into the market.
Goldman Sachs predicts that the government shutdown is most likely to end around the second week of November. Prediction markets show a roughly 50% chance of the government reopening before mid-November, with less than a 20% chance of dragging past Thanksgiving.
Once the U.S. government reopens, the Treasury will begin to consume its vast TGA cash balance, releasing hundreds of billions of dollars in liquidity into the economy. This liquidity release could be akin to 'invisible quantitative easing.'
A similar scenario unfolded in early 2021 when the accelerated consumption of the Treasury's cash balance drove a significant rise in the stock market. Once the government reopens, the release of pent-up liquidity coinciding with year-end could propel liquidity-sensitive assets like Bitcoin to experience a rebound.
Historical data also supports this view. After three longer government shutdowns in 1995-1996, 2013, and 2018-2019, risk markets saw significant increases. Following the end of the 2018-2019 shutdown, U.S. stocks rose by 4.9% in one month and grew by 18% three months later.
Faced with the impending end of the government shutdown, market analysts have shown significant divergence. The pessimists believe that if Bitcoin falls below $107,000, it will drop below $100,000, potentially testing the low point of around $74,000 from April.
Conversely, the optimistic camp, such as Bitwise Chief Investment Officer Matt Hougan, believes that Bitcoin's bottom is about to appear and that it will come sooner than expected. He even stated that it would not be impossible for Bitcoin to reach a new all-time high by the end of the year amidst the current severe sell-off.
Regardless of short-term trends, one investment truth remains: the market always finds a bottom in fear, rises in hesitation, and collapses in frenzy. When the crypto fear and greed index drops into the 'extreme fear' zone, it is often a good opportunity for long-term investors to gradually position themselves.
If you want to learn more about cryptocurrency knowledge and cutting-edge news, feel free to follow this account. We will continuously bring you unique market analysis and investment strategies. Remember, in this market, surviving is more important than short-term profits—only the players who stay in the game can seize the next opportunity for explosive growth.
