The current adjustment of Bitcoin: At the end of the "four-year major cycle," government shutdowns have intensified liquidity shocks

The cryptocurrency market is undergoing a deep adjustment. Since reaching its historical high in early October, the price of Bitcoin has dropped by about 20%. This adjustment is occurring at the end of Bitcoin's "four-year cycle." The liquidity crisis triggered by the ongoing government shutdown in the United States is exacerbating the depth and duration of the adjustment.

Historical Trajectory of Bitcoin's Four-Year Cycle

The theory of Bitcoin's four-year cycle is based on its halving mechanism. Every time 210,000 blocks are mined (approximately every four years), the block reward received by miners is halved, thereby reducing the supply of new Bitcoins. This mechanism creates predictable supply shocks, which have historically led to cyclical price increases.

Looking back at history, Bitcoin's four-year cycle exhibits remarkable regularity:

• After the first halving in November 2012, the price of Bitcoin soared from $12 to about $1,100.
• After the second halving in July 2016, the price rose from about $650 to nearly $20,000.
• After the third halving in May 2020, the price climbed from about $8,700 to over $67,000.
• In April 2024, Bitcoin will complete its fourth halving, reducing the block reward from 6.25 BTC to 3.125 BTC.

Approximately a dozen months after each halving, Bitcoin reaches a cyclical peak, followed by a bear market adjustment. Currently, it has been 18 months since the halving event in April 2024.

However, some research institutions point out that the Bitcoin market may be gradually breaking away from the typical four-year cycle formed around "halving." Bitwise mentioned in its long-term Bitcoin research report 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.

At the same time, the impact of the upcoming halving in 2024 on the supply side has significantly weakened compared to earlier halvings. According to data from Glassnode and Galaxy Research, this halving will reduce Bitcoin's annual issuance rate from about 1.7% to approximately 0.85%. However, since about 19.7 million Bitcoins have already been mined (out of a total of 21 million), the proportion of newly issued coins in the overall supply is quite limited, and its marginal impact on the market is decreasing. This means that market pricing will rely more on the structure of capital inflows (especially from institutions and long-term holders) rather than being primarily driven by changes in new supply.

"Whale" Sell-off: A Typical Characteristic of the Cycle's End

Citigroup's latest report reveals the key driving force behind the current adjustment: on-chain data shows that Bitcoin "whales" (large holders) are gradually decreasing, while the holdings of small "retail" wallets are increasing. This phenomenon aligns closely with the four-year cycle theory, indicating that at the end of the cycle, smart money typically sells Bitcoin to new entrants.

On-chain data shows that since August, whales have cumulatively sold 147,000 Bitcoins, worth approximately $16 billion.

Citigroup pointed out in the 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 holding tier analysis shows that entities holding more than 10,000 Bitcoins are clearly in a "distribution" phase, while the group holding between 1,000 and 10,000 Bitcoins is generally neutral, with net purchases mainly coming from smaller holders Investors inclined towards long-term allocation.

There is a deep logic behind this selling pattern. Almost all long-term holders are currently in a profitable state and are conducting large-scale 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."

Ki Young Ju, CEO of CryptoQuant, noted that the current market structure is evolving from "whales selling to retail investors" to "old whales transferring chips to new long-term holders (such as institutions, ETFs, and allocation buyers)." This means that although selling pressure is still occurring, the nature of the buyers is changing, and price adjustments may therefore appear milder but last longer.

The liquidity "siphon" of government shutdown

The more direct catalyst for the current Bitcoin adjustment comes from the liquidity crisis triggered by the U.S. government shutdown. The sharp increase in the balance of the U.S. Treasury General Account (TGA) is siphoning off a large amount of liquidity from the market, with Bitcoin as a risk asset being the first to feel the impact.

By the end of October 2025, the TGA balance exceeded $1 trillion for the first time, reaching a nearly five-year high since April 2021. In the past few months, the TGA balance has surged from about $300 billion to $1 trillion, withdrawing over $700 billion in liquidity from the market.

It should be clarified that the increase in the TGA balance is not solely caused by the government shutdown, but rather a combination of two factors:

• First, the government shutdown itself: Since the government shutdown on October 1, 2025, the U.S. Treasury has continued to collect funds through taxes and bond issuance, but due to Congress not approving the budget, most government departments are closed, and the Treasury cannot spend as planned, resulting in the TGA being "inflow only."
• Second, the ongoing impact of large-scale U.S. Treasury bond issuance. Even during normal government operations, the U.S. Treasury supplements the TGA account through bond issuance, which also withdraws liquidity from the market.

The impact of this "double siphon" mechanism is significant:

According to official reports from the Federal Reserve and financial institution data, foreign commercial banks' cash assets have fallen to about $1.176 trillion, a noticeable decline from the peak in July. The total reserves of the Federal Reserve have dropped to $2.8 trillion, the lowest level since early 2021.

The expansion of the TGA balance has triggered a comprehensive tightening in the money market. Overnight repo rates reached as high as 4.27%, far exceeding the Federal Reserve's 3.9% excess reserve rate and the 3.75%-4.00% federal funds target range. SOFR rates have also risen significantly, indicating a clear tightening of market liquidity The Citigroup report emphasizes that cryptocurrencies are "very sensitive" to the liquidity conditions of banks. Research shows that the weekly price changes of Bitcoin are synchronously correlated with changes in U.S. bank reserves, with declines in bank reserves often accompanying weak performance in Bitcoin. This sensitivity makes Bitcoin one of the earliest and most sensitive victims of tightening liquidity.

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

The Federal Reserve's October meeting announced the end of quantitative tightening (QT), and analysts pointed out that if it weren't for the liquidity crunch, the Fed might not have announced the end of QT. However, this action by the Fed will not begin until December.

October 10th "Black Friday" Liquidation Event

Citigroup noted in the report that the "Black Friday" liquidation event on October 10th further damaged the market's risk appetite. Although the futures market is typically a zero-sum game, this liquidation may have harmed the risk-bearing capacity of crypto natives and suppressed the risk appetite of new potential ETF investors.

The decline in funding rates also reflects insufficient leverage demand, indicating overall market sentiment is weak.

Additionally, the inflow of funds into U.S. spot Bitcoin ETFs has significantly decreased in recent weeks, which was unexpected by the market, as ETF fund flows were considered relatively immune to the October 10th "Black Friday" liquidation event in futures and decentralized exchanges. The inflow of Ether ETF funds has also noticeably slowed.

The Citigroup report also pointed out that Bitcoin's current trading price has fallen below the 200-day moving average, which typically further suppresses demand. Technical analysis shows that even simple moving average rules have helped manage Bitcoin investments over the past decade, highlighting the importance of technical indicators in investment strategies.

Turning Point in Crisis: Liquidity Release After Government Reopening

Despite the current severe situation, the root of the crisis is also the key to the market's potential turning point. Since the government shutdown is the main driver of tightening liquidity, once the shutdown ends, the U.S. Treasury will begin to consume its massive TGA cash balance, releasing hundreds of billions of dollars in liquidity into the economy Previously, Goldman Sachs estimated that the government shutdown is most likely to end around the second week of November, with key pressure points including the salaries of air traffic controllers and airport security personnel due on October 28 and November 10—similar interruptions in 2019 ultimately contributed to the end of that shutdown. Predictive markets indicate that the probability of the government reopening before mid-November is about 50%, with the likelihood of it dragging past Thanksgiving being less than 20%.

Once the U.S. government reopens, the release of pent-up liquidity could trigger a massive buying spree for risk assets. This liquidity release could be akin to "invisible quantitative easing," a similar scenario played out in early 2021 when the accelerated depletion of the U.S. Treasury's cash balance drove a significant rise in the stock market. Once the government reopens, the release of pent-up liquidity coinciding with year-end could propel liquidity-sensitive assets like Bitcoin and small-cap stocks, as well as nearly all non-AI assets, to experience a sharp rebound.

The worse the recent situation, the more reserve liquidity will be released in the medium term. Currently, the TGA balance is close to $1 trillion, and once it begins to be consumed, the scale of released liquidity will be unprecedented. This sudden influx of liquidity could become a catalyst for a strong rebound in risk assets like Bitcoin