Bitcoin’s current adjustment: At the end of the “four-year cycle”, the government shutdown intensified the liquidity impact

# Bitcoin Market Undergoes Deep Correction: The End of the Four-Year Cycle and the Impact of Liquidity Crises  

By: He Hao  

Source: Wall Street CN  

The cryptocurrency market is experiencing a round of deep correction. Since reaching an all-time high in early October, the price of Bitcoin has fallen by approximately 20%. This correction comes at the end of Bitcoin’s "four-year mega-cycle," and the liquidity crisis triggered by the ongoing U.S. government shutdown is exacerbating both the depth and duration of the correction.  

## The Historical Trajectory of Bitcoin’s Four-Year Mega-Cycle  

Bitcoin’s four-year cycle theory is based on its halving mechanism. Every time 210,000 blocks are mined (roughly every four years), the block reward for miners is halved, thereby reducing the supply of newly minted Bitcoin. This mechanism creates predictable supply shocks, which have historically triggered periodic price surges on multiple occasions.  

Looking back at history, Bitcoin’s four-year cycle has shown striking regularity:  

- After the first halving in November 2012, Bitcoin’s price soared from $12 to approximately $1,100.  

- After the second halving in July 2016, its price rose from around $650 to nearly $20,000.  

- After the third halving in May 2020, the price climbed from roughly $8,700 to over $67,000.  

- In April 2024, Bitcoin completed its fourth halving, with the block reward reduced from 6.25 BTC to 3.125 BTC.  

Approximately 12 to 18 months after each halving, Bitcoin reaches a cyclical peak, followed by a bear market correction. Currently, 18 months have passed since the April 2024 halving event.  

However, some research institutions point out that the Bitcoin market may be gradually breaking free from the typical four-year cycle previously tied to "halvings." In its long-term Bitcoin research report, Bitwise notes that as institutional investors continue to enter the market and spot ETFs provide new demand channels, the market structure is becoming more mature, and price fluctuations may no longer strictly follow the traditional four-year rhythm.  

Meanwhile, the impact of the 2024 halving on the supply side has weakened significantly compared to earlier cycles. According to data from Glassnode and Galaxy Research, this halving reduced Bitcoin’s annualized issuance rate from approximately 1.7% to around 0.85%. However, since nearly 19.7 million Bitcoins (out of a total supply cap of 21 million) have already been mined, the proportion of newly issued Bitcoins in the total existing supply is now very small, and their marginal impact on the market is diminishing. This means market pricing will depend more on capital inflow structures (especially from institutions and long-term holders) rather than being driven primarily by changes in new supply.  

## "Whale" Selling: A Typical Feature at the End of the Cycle  

Citigroup’s latest report identifies a key driver behind the current correction: on-chain data shows that Bitcoin "whales" (large holders) are gradually reducing their holdings, while the number of Bitcoin held in small "retail" wallets is increasing. This phenomenon is highly consistent with the four-year cycle theory—namely, at the end of a cycle, "smart money" typically sells Bitcoin to new entrants.  

On-chain data reveals that since August, whales have sold a total of 147,000 Bitcoins, worth approximately $16 billion.  

Citigroup states in its report that the number of addresses holding more than 1,000 Bitcoins is declining, while the number of retail investors holding less than 1 Bitcoin is increasing. Glassnode’s stratified analysis of Bitcoin holdings shows that entities holding more than 10,000 Bitcoins are in a clear "distribution" phase, while the group holding 1,000–10,000 Bitcoins remains generally neutral. Net purchases are mainly coming from smaller-scale investors who tend to hold for the long term.

There is a deep logic behind this selling pattern. Almost all long-term holders are currently in the black and are undergoing massive profit-taking. André Dragosch, head of European research at Bitwise, pointed out that these whales "believe in the four-year halving cycle and therefore expect that Bitcoin has reached the peak of this cycle."

CryptoQuant CEO Ki Young Ju pointed out that the market structure of this round is different from the previous "whales selling to retail investors" and is evolving into "old whales transferring chips to new long-term holders (such as institutions, ETFs and allocation buyers)." This means that while selling pressure is still occurring, the nature of the takers is changing and price corrections may therefore appear to be milder but longer lasting.

Government shutdown's liquidity pump

The more direct catalyst for the current Bitcoin adjustment comes from the liquidity crisis caused by the U.S. government shutdown. The sharp expansion of the balance of the U.S. Treasury General Account (TGA) is draining a large amount of liquidity from the market, and Bitcoin, as a risk asset, is bearing the brunt.

# TGA Balance Surpasses $1 Trillion for the First Time, Triggering Ripple Effects on Market Liquidity and Cryptocurrencies  

By the end of October 2025, the balance of the Treasury General Account (TGA) exceeded $1 trillion for the first time, hitting a nearly five-year high since April 2021. Over the past few months, the TGA balance has soared from approximately $300 billion to $1 trillion, siphoning more than $700 billion in liquidity out of the market.  

It is important to clarify that the increase in the TGA balance is not solely caused by the government shutdown, but rather the combined effect of two factors:  

1. The government shutdown itself: Since the U.S. government shut down on October 1, 2025, the U.S. Department of the Treasury has continued to collect funds through tax revenues and bond issuances. However, as Congress has not approved the budget, most government agencies have been closed, preventing the Treasury from making planned expenditures. As a result, the TGA has been in a state of "only inflows, no outflows."  

2. The ongoing impact of large-scale U.S. Treasury bond issuances: Even during periods of normal government operation, the U.S. Treasury supplements the TGA by issuing bonds, which also drains liquidity from the market.  

The impact of this "dual liquidity withdrawal" mechanism has been significant:  

According to official Federal Reserve reports and financial institution data, the cash assets of foreign commercial banks have fallen to approximately $1.176 trillion, a notable decline from the July peak. The Federal Reserve’s total reserves have dropped to $2.8 trillion, the lowest level since the beginning of 2021.  

The expansion of the TGA balance has triggered widespread tensions in the money market. The upper end of the overnight repo rate once reached 4.27%, far higher than the Federal Reserve’s 3.9% interest rate on excess reserves (IOER) and the 3.75%-4.00% target range for the federal funds rate. The Secured Overnight Financing Rate (SOFR) has also risen significantly, indicating a marked tightening of market liquidity.  

A Citigroup report specifically emphasizes that cryptocurrencies are "highly sensitive" to the liquidity conditions of banks. Research shows that the weekly price movements of Bitcoin are synchronously correlated with changes in U.S. bank reserves—declines in bank reserves are often accompanied by weak performance of Bitcoin. This sensitivity makes Bitcoin one of the earliest and most vulnerable victims of liquidity tightening.  

From a policy effect perspective, the government shutdown is equivalent to the implementation of multiple rounds of de facto interest rate hikes. Analysts believe that the $700 billion in liquidity withdrawn from the market by the U.S. Treasury has a tightening effect comparable to a significant monetary policy tightening.  

The Federal Reserve announced the end of quantitative tightening (QT) at its October meeting. Analysts point out that the Fed might not have announced the end of QT if not for the liquidity crunch. However, this move by the Federal Reserve will not take effect until December.  

## The "Black Friday" Liquidation Event on October 10  

Citigroup notes in its report that the "Black Friday" liquidation event on October 10 further damaged market risk appetite. While the futures market is typically a zero-sum game, this liquidation may have undermined the risk-taking capacity of "crypto natives" (long-term cryptocurrency participants) and dampened the risk appetite of potential new ETF investors.

A decline in the funding rate also reflects insufficient demand for leverage, indicating an overall weakness in market sentiment.  

Furthermore, capital inflows into U.S. spot Bitcoin ETFs have decreased significantly over the past few weeks, which is contrary to market expectations. This is because ETF capital flows were previously believed to be relatively immune to the "Black Friday" liquidation event that occurred on October 10 in the futures and decentralized exchange (DEX) markets. Capital inflows into Ethereum ETFs have also slowed down markedly.  

The Citigroup report also points out that Bitcoin’s current trading price has fallen below its 200-day moving average (200 DMA), a development that typically further suppresses demand. Technical analysis shows that even simple moving average rules have been helpful in managing Bitcoin investments over the past decade, highlighting the importance of technical indicators in investment strategies.  

# A Turning Point Amid the Crisis: Liquidity Release After the Government Reopens  

While the current situation is grim, the root cause of the crisis also holds the key to a potential market turnaround. Since the government shutdown is the primary driver of liquidity tightening, once the shutdown ends, the U.S. Treasury will begin drawing down its substantial TGA cash balance, injecting hundreds of billions of dollars in liquidity back into the economy.  

Earlier, Goldman Sachs predicted that the government shutdown would most likely end around the second week of November. Key pressure points include the expiration of funding for air traffic controllers and airport security staff salaries on October 28 and November 10—similar disruptions in 2019 ultimately led to the end of the shutdown at that time. Prediction markets indicate that there is approximately a 50% probability that the government will reopen by mid-November, and a less than 20% chance that the shutdown will extend beyond Thanksgiving.  

Once the U.S. government reopens, the release of pent-up liquidity is likely to trigger a large-scale rush to buy risky assets. This liquidity release could be equivalent to "stealth quantitative easing," a scenario that previously played out in early 2021, when the accelerated drawdown of the U.S. Treasury’s cash balance drove a sharp rally in the stock market. If the government reopens, the release of pent-up liquidity will coincide with the end of the year, potentially fueling a "catapult-like" surge in liquidity-sensitive assets such as Bitcoin and small-cap stocks, as well as nearly all non-AI-related assets.  

The worse the situation becomes in the near term, the more reserve liquidity will be released in the medium term. Currently, the TGA balance is close to $1 trillion, and once drawdowns begin, the scale of liquidity released will be unprecedented. This sudden return of liquidity could serve as a catalyst for a strong rebound in risky assets like Bitcoin.  

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