Bitcoin Confronts Liquidity Squeeze as U.S. Government Shutdown Pulls $1 Trillion from Financial System
Bitcoin has dropped 19% since its high in October, a decline worsened by the U.S. government shutdown, which has withdrawn $700 billion from markets through the Treasury General Account (TGA), according to a
Bitget report
. The TGA, serving as the government's main checking account, has surged to almost $1 trillion, creating a liquidity shortfall that has deprived risk assets of capital. This tightening, caused by the Treasury's strategy of accumulating cash to maintain essential functions during the shutdown, has sped up Bitcoin's downturn and led to unprecedented use of the Federal Reserve's overnight repo tools.
Bitget observed that the TGA's rapid growth—from $800 billion to over $1 trillion since October 10—has effectively trapped liquidity within the Federal Reserve, stopping it from circulating in the broader banking sector. This has pushed banks to borrow at higher costs, with the SOFR–FDTR gap widening to +30 basis points, the largest since March 2020. In response, the Federal Reserve has provided $30 billion in liquidity via temporary repo measures, marking the first such move since the 2019 repo turmoil. Experts suggest this marks a transition from passive balance sheet reduction to more active liquidity intervention, and anticipate further support if the shutdown continues past mid-November.
According to a
Decrypt report
, BitMEX analysts expect a "significant relief rally" after the shutdown ends, as Treasury spending resumes and the TGA balance falls, injecting hundreds of billions back into the markets. They connect this to Bitcoin’s usual year-end strength, suggesting the 4-year bull run is still ongoing. Arthur Hayes, BitMEX’s co-founder, agreed, saying
Bitcoin
is currently in the "final drop" of its correction, with a possible surge ahead as government spending restarts and interest rates are cut.
Market confidence has eroded further as the shutdown approaches 36 days—the longest in U.S. history—according to
Yahoo Finance
. On November 5, Bitcoin briefly slipped below $100,000, its lowest since June, as worries over liquidity and economic prospects grew. Large holders have increased their selling, moving over 1 million
bitcoins
to exchanges in recent months, indicating profit-taking by long-term investors. Sean Farrell of Fundstrat pointed out that the lack of TGA drawdowns has postponed the liquidity boost that was expected to benefit risk assets by year-end, but he remains hopeful for a recovery after the shutdown.
Odaily
reported that the liquidity crunch has also revealed weaknesses in the wider financial sector. Defaults in commercial real estate have reached their highest since 2008, with office CMBS default rates at 11.8%, and subprime auto loan delinquencies have spiked. The Fed’s SRF usage climbed to $50.35 billion on October 31, showing banks’ urgent need for cash. These challenges, combined with the government’s fiscal stalemate, have created a “perfect storm” for Bitcoin, which is especially vulnerable to liquidity changes.
Optimists such as Raoul Pal believe the current difficulties are short-lived, as he discussed in a
Yahoo Finance article
. He predicts a major liquidity surge in 2026 as the U.S. refinances $10 trillion in debt and central banks worldwide ramp up quantitative easing. On the other hand, pessimists caution that the shutdown could worsen the crisis, with Mott Capital Management likening the liquidity shock to the 2018 market upheaval. The resolution depends on whether the Senate can reach a deal before Thanksgiving, with Goldman Sachs forecasting an agreement by November 15.
As the political standoff continues, Bitcoin’s outlook remains closely tied to the TGA’s path. Renewed government spending could spark a fresh liquidity cycle, but until then, the cryptocurrency continues to face challenges from a cash-strapped system.
