Why does the Bitcoin need the U.S. government to open for it to rise?

Written by: EeeVee

The U.S. government shutdown officially enters its record 36th day.

In the past two days, global financial markets have plummeted. The Nasdaq, Bitcoin, tech stocks, the Nikkei index, and even safe-haven assets like U.S. Treasury bonds and gold have not been spared.

Panic in the market is spreading, while politicians in Washington continue to argue over the budget. Is there a connection between the U.S. government shutdown and the decline in global financial markets? The answer is coming to light.

This is not an ordinary market correction, but a liquidity crisis triggered by a government shutdown. When fiscal spending is frozen and hundreds of billions of dollars are locked in Treasury accounts and cannot flow into the market, the blood circulation of the financial system is being cut off.

The “real culprit” of the decline: the “black hole” of the Ministry of Finance

The Treasury General Account (TGA) of the U.S. Department of the Treasury can be understood as the central checking account that the U.S. government holds at the Federal Reserve. All federal revenue, whether from taxes or proceeds from issuing national debt, is deposited into this account.

All government spending, from paying civil servant salaries to defense expenditures, is also allocated from this account.

Under normal circumstances, TGA acts like a transit station for funds, maintaining a dynamic balance. The Treasury collects money and then quickly spends it, channeling funds into the private financial system, turning into bank reserves, and providing liquidity to the market.

The government shutdown has broken this cycle. The Treasury is still collecting money through taxes and issuing bonds, and the balance of the TGA continues to grow. However, since Congress has not approved a budget, most government departments are closed, and the Treasury is unable to spend as planned. The TGA has become a financial black hole with only inflows and no outflows.

Since the suspension began on October 10, 2025, TGA's balance swelled from about $800 billion to over $1 trillion by October 30. In just 20 days, more than $200 billion was withdrawn from the market and locked in the Federal Reserve's vault.

TGA balance of the US government | Source: MicroMacro

Analysis has pointed out that the government shutdown has withdrawn nearly $700 billion in liquidity from the market within a month. This effect is comparable to the Federal Reserve conducting multiple rounds of interest rate hikes or accelerating quantitative tightening.

After the reserves of the banking system are heavily siphoned by the TGA, both the capacity and willingness of banks to lend significantly decline, leading to a sharp rise in the cost of capital in the market.

The first to feel the chill are always those assets most sensitive to liquidity. The cryptocurrency market plummeted on October 11, the day after the halt, with liquidations nearing $20 billion. This week, tech stocks are also shaky, with the Nasdaq index falling 1.7% on Tuesday, and Meta and Microsoft experiencing sharp declines after their earnings reports.

The decline of the global financial market is the most direct reflection of this invisible tightening.

The system is 'overheating'

TGA is the “cause” of the liquidity crisis, and the soaring overnight borrowing rates are the most direct symptoms of the financial system “running a fever.”

The overnight interbank lending market is where banks lend short-term funds to each other, serving as the capillaries of the entire financial system. Its interest rate is the most accurate indicator of the “money supply” tightness among banks. When liquidity is abundant, banks find it easy to borrow from each other, and the interest rates remain stable. However, when liquidity is drained, banks start to lack funds and are willing to pay a higher price to borrow money overnight.

Two key indicators clearly show how severe this fever is:

The first indicator is SOFR (Secured Overnight Financing Rate). On October 31, SOFR surged to 4.22%, marking the largest daily increase in a year.

This not only exceeds the upper limit of the federal funds rate set by the Federal Reserve at 4.00%, but is also 32 basis points higher than the effective federal funds rate of the Federal Reserve, reaching its highest point since the market crisis in March 2020. The actual borrowing costs in the interbank market have spiraled out of control, far exceeding the central bank's policy rate.

Secured overnight financing rate ( SOFR ) index | Source: Federal Reserve Bank of New York

The second more astonishing indicator is the usage of the SRF (Standing Repo Facility) by the Federal Reserve. The SRF is an emergency liquidity tool provided by the Federal Reserve for banks, allowing them to pledge high-quality bonds to the Federal Reserve in exchange for cash when they cannot borrow money in the market.

On October 31, the usage of SRF surged to $50.35 billion, setting a new record since the pandemic crisis in March 2020. The banking system has fallen into a severe dollar shortage and had to ring the final rescue bell to the Federal Reserve.

Standing Repo Facility (SRF) Usage｜Source: Federal Reserve Bank of New York

The high fever of the financial system is transmitting pressure to the weak links of the real economy, igniting long-hidden debt landmines. The two most dangerous areas at present are commercial real estate and auto loans.

According to data from research firm Trepp, the default rate of CMBS commercial real estate mortgage-backed securities for U.S. office buildings reached 11.8% in October 2025, not only setting a historical high but also surpassing the peak of 10.3% during the 2008 financial crisis. In just three years, this figure surged nearly tenfold from 1.8%.

Default rate of CMBS commercial real estate securitized products in U.S. office buildings | Source: Wolf Street

The Bravern Office Commons in Bellevue, Washington, is a typical case. This office building, which was fully leased by Microsoft, was valued at $605 million in 2020. Now, following Microsoft's departure, its valuation has plummeted by 56% to $268 million and has entered default proceedings.

The most severe commercial real estate crisis since 2008 is spreading systemic risk throughout the financial system via regional banks, real estate investment trusts (REITs), and pension funds.

On the consumer front, alarms have also been sounded for auto loans. The average price of new cars has surged to over $50,000, with subprime borrowers facing loan rates as high as 18-20%. A wave of defaults is on the horizon. By September 2025, the default rate for subprime auto loans is approaching 10%, and the delinquency rate for overall auto loans has increased by more than 50% over the past 15 years.

Under the pressure of high interest rates and high inflation, the financial condition of low-income consumers in the United States is rapidly deteriorating.

From TGA's invisible tightening to the feverish overnight interest rates, and then to the debt explosion in commercial real estate and auto loans, a clear crisis transmission chain has emerged. The unexpected spark ignited by the political deadlock in Washington is now triggering the structural weaknesses that have long existed within the U.S. economy.

What do traders think about the market outlook?

In the face of this crisis, the market has fallen into a huge divergence. Traders stand at a crossroads, fiercely debating the future direction.

The pessimists represented by Mott Capital Management believe that the market is facing a liquidity shock comparable to that of late 2018. Bank reserves have fallen to dangerous levels, very similar to the situation when the Federal Reserve's balance sheet reduction caused market turmoil in 2018. As long as the government shutdown continues and the TGA continues to absorb liquidity, the market's pain will not end. The only hope lies in the quarterly refinancing announcement QRA to be issued by the Treasury on November 2. If the Treasury decides to lower the target balance of the TGA, it could release more than $150 billion in liquidity to the market. However, if the Treasury maintains or even increases the target, the market's winter will become even longer.

Renowned macro analyst Raoul Pal, representing the optimists, has proposed an intriguing theory of the “pain window.” He acknowledges that the current market is in a painful window of liquidity tightening, but he firmly believes that it will be followed by a torrent of liquidity. In the next 12 months, the U.S. government has up to $10 trillion of debt that needs to be rolled over, which forces it to ensure market stability and liquidity.

31% of the U.S. government debt (approximately $7 trillion) will mature within the next year, along with new debt issuance, potentially reaching a total scale of $10 trillion | Source: Apollo Academy

Once the government shutdown ends, the suppressed hundreds of billions of dollars in fiscal spending will flood into the market like a deluge, and the Federal Reserve's quantitative tightening (QT) will also technically end, and may even reverse.

In order to welcome the mid-term elections in 2026, the U.S. government will spare no effort to stimulate the economy, including lowering interest rates, relaxing banking regulations, and passing cryptocurrency legislation. With China and Japan also continuing to expand liquidity, the world will see a new round of monetary easing. The current pullback is merely a shakeout in a bull market, and the real strategy should be to buy on dips.

Mainstream institutions such as Goldman Sachs and Citigroup hold relatively neutral views. They generally expect that the government shutdown will end within the next one to two weeks. Once the deadlock is broken, the huge amount of cash locked in the TGA will be quickly released, alleviating liquidity pressure in the market. However, the long-term direction still depends on the Treasury's QRA announcement and the Federal Reserve's subsequent policies.

History seems to repeat itself. Whether it's the taper tantrum of 2018 or the repo crisis of September 2019, it ultimately ended with the Fed's capitulation and re-injection of liquidity. This time, faced with the dual pressures of political deadlock and economic risks, policymakers seem to have reached a familiar crossroads once again.

In the short term, the fate of the market hangs on the whims of Washington politicians. But in the long term, the global economy seems to be trapped in a cycle of debt - quantitative easing - bubbles from which it cannot escape.

The crisis triggered unexpectedly by the government shutdown may only be a prelude to the next, larger wave of liquidity frenzy.