Analyst: U.S. shutdown liquidity drain is driving BTC decline

The recent drop in Bitcoin's price was primarily caused by a sharp contraction in U.S. dollar liquidity stemming from the U.S. government shutdown, according to an analysis by Wu Blockchain. The analyst firm explained that the U.S. Treasury General Account (TGA) balance approached $1 trillion, absorbing funds from the market. This financial market tension was further evidenced by the spread between the Secured Overnight Financing Rate (SOFR) and the Federal Funds Target Rate (FDTR) widening to 30 basis points. The situation arose as the Treasury issued bonds to secure funds in advance of the shutdown, which tied up dollar liquidity in the TGA. Wu Blockchain noted that Bitcoin is particularly sensitive to these liquidity shifts, citing BTC's weakness in mid-October—a period when the Nasdaq index reached an all-time high—as a result of a similar liquidity drain. The firm suggests Bitcoin could rebound once the shutdown concludes and the Treasury injects liquidity back into the market, a recovery that could be accelerated by increased fiscal spending and potential rate cuts by the Federal Reserve.