by Coinstrooper Crypto Articles
Quick Take
  • Despite a worrying dip on Friday, Bitcoin has survived the $100,000 crash test.
  • The longest US government shutdown in history has drained liquidity from financial markets — and by extension, from crypto.
  • Analysts argue that when the fiscal gridlock ends, the same mechanism that pulled liquidity out will push it back in, setting the stage for a recovery.
  • The government shutdown, which began on October 1, 2025, entered its sixth week after Congress failed to pass new funding.

What Happened

The government shutdown, which began on October 1, 2025, entered its sixth week after Congress failed to pass new funding.

The deadlock stems from disputes over healthcare subsidies and spending levels. Both parties are refusing to pass a “clean” budget bill.

The economic toll has been measurable. The Congressional Budget Office (CBO) estimates losses between $7 billion and $14 billion.

Market Context

Despite a worrying dip on Friday, Bitcoin has survived the $100,000 crash test. Now, attention turns to Washington. The longest US government shutdown in history has drained liquidity from financial markets — and by extension, from crypto.

Analysts argue that when the fiscal gridlock ends, the same mechanism that pulled liquidity out will push it back in, setting the stage for a recovery.

Since the US debt ceiling was raised in July, the TGA balance has swelled above $850 billion, draining liquidity by about 8%. Bitcoin mirrored the move, sliding roughly 5% in the same period.

This correlation, long observed by on-chain analysts, highlights crypto’s deep sensitivity to dollar liquidity.

Arthur Hayes calls this dynamic a “stealth QE in reverse.” As the Treasury hoards cash, liquidity tightens, risk assets fall, and Bitcoin corrects.

But once the government reopens and resumes spending, that liquidity will flood back through banks, money markets, and stablecoin systems — effectively reversing the drain.

Will Crypto Markets Recover When the Government Shutdown Ends?

The short answer is yes, the crypto market is very likely to recover or rally once the US government shutdown ends.

However, the timing and magnitude will depend on how liquidity is released back into the system.

Crypto — and Bitcoin in particular — trades as a liquidity-sensitive risk asset. When dollar liquidity tightens, crypto prices fall; when liquidity expands, they rise.

March 2020: Global liquidity injections drove the start of the COVID bull run.

2025: The correlation between Bitcoin and dollar liquidity (as measured by the USDLiq Index) remains near 0.85, one of the strongest among all asset classes.

Why It Matters

US Shutdown Standoff and Its Economic Impact

In fact, the US GDP growth in Q4 is likely trimmed by up to two percentage points.

How Did the US Government Shutdown Impact Crypto?

Details

Consumer sentiment is near record lows, air travel is disrupted due to air-traffic shortages, and state programs face funding stress.

The prolonged cash freeze has become a significant drag on the economy.

In financial terms, the shutdown has frozen hundreds of billions of dollars inside the Treasury General Account (TGA) — the government’s cash reserve. Every dollar parked there is a dollar not circulating in the financial system.

pattern has repeated across multiple cycles:

March 2023: The Fed’s balance-sheet expansion during the US banking crisis triggered a Bitcoin rebound from $20,000 to $30,000.

Bitcoin has closed above $100,000 for six straight months, and the RSI remains around 46, far below euphoric levels. Analysts call the current phase a “window of pain,” driven by temporary fiscal tightening.