The Bitcoin market has never faced such dual challenges of internal cycle transitions and external liquidity crises as it does today. A Citigroup report indicates that the liquidation event in the crypto space on October 10 may have harmed investors' risk appetite. The inflow of funds into U.S. spot ETFs has significantly slowed in recent weeks.
On-chain indicators show that Bitcoin whales are gradually decreasing, while the holdings of smaller retail wallets are increasing. The financing rates are also declining, reflecting insufficient demand for leverage.
From a technical perspective, Bitcoin's current trading price has fallen below the 200-day moving average, which may further suppress demand.
1. Market Status: Bitcoin Undergoing Deep Adjustment
Since reaching an all-time high in early October, Bitcoin's price has dropped by about 20%, entering a phase of deep adjustment. This adjustment occurs at a sensitive moment, coinciding with the end of Bitcoin's "four-year cycle" and the ongoing liquidity crisis caused by the U.S. government shutdown, exacerbating the depth and duration of the adjustment.
● The "Black Friday" liquidation event on October 10 further damaged the market's risk appetite. The decline in funding rates also reflects insufficient demand for leverage, indicating overall weak market sentiment.
● The inflow of funds into U.S. spot Bitcoin ETFs has significantly decreased in recent weeks, which was unexpected by the market.
2. Cycle Theory: Historical Patterns and Current Changes of the Halving Mechanism
The four-year cycle theory of Bitcoin is based on its halving mechanism. Every 210,000 blocks mined (approximately every four years), the block reward for miners is halved, reducing the supply of new Bitcoins. This mechanism creates predictable supply shocks, historically triggering cyclical price increases.
Looking back at history, Bitcoin's four-year cycle exhibits remarkable regularity:
● After the first halving in November 2012, Bitcoin's price 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.
About a year after each halving, Bitcoin typically reaches a cyclical peak before entering a bear market adjustment. Currently, it has been 18 months since the April 2024 halving event, placing it in a sensitive phase at the end of the cycle.
3. Market Evolution: Is the Traditional Cycle Theory Failing?
Some research institutions suggest that the Bitcoin market may be gradually breaking away from the typical four-year cycle.
● 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 cycles.
● 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%, but since about 19.7 million Bitcoins have already been mined (out of a total of 21 million), the newly issued quantity constitutes a very limited proportion of the overall supply, and its marginal impact on the market is decreasing.
This means that market pricing is increasingly reliant on the structure of fund inflows (especially from institutions and long-term holders), rather than being primarily driven by changes in new supply.
4. 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. Since August, whales have cumulatively sold 147,000 Bitcoins, worth approximately $16 billion.
● Entities holding over 10,000 Bitcoins are clearly in a "distribution" phase. Almost all long-term holders are currently in profit and are engaging in large-scale profit-taking.
● Bitwise's European research director, André Dragosch, pointed out that these whales "believe in the four-year halving cycle and therefore expect that Bitcoin has reached the peak of this cycle."
5. Government Shutdown: A "Liquidity Drain"
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 U.S. Treasury General Account (TGA) balance is draining significant liquidity from the market.
● By the end of October 2025, the TGA balance will exceed $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, draining over $700 billion in liquidity from the market.
● The expansion of the TGA balance has triggered widespread tension in the money market. Overnight repo rates have reached as high as 4.27%, far exceeding the Federal Reserve's 3.9% excess reserve rate and the 3.75%-4.00% target range for federal funds.
SOFR rates have also risen significantly, indicating a clear tightening of market liquidity.
● The Citigroup report particularly emphasizes that cryptocurrencies are "very sensitive" to the liquidity conditions of banks. Research shows that Bitcoin's weekly price changes are synchronously correlated with changes in U.S. bank reserves, and a decline in bank reserves often accompanies weak Bitcoin performance.
This sensitivity makes Bitcoin one of the earliest and most sensitive victims of tightening liquidity.
6. Market Turning Point: Potential Catalysts for Liquidity Release
● Despite the current dire situation, the root of the crisis may also be the key to a potential market turning point. Since the government shutdown is the main driver of liquidity tightening, 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.
● Goldman Sachs previously estimated that the government shutdown is most likely to end around the second week of November. Prediction markets indicate that the probability of the government reopening before mid-November is about 50%, with the likelihood of extending past Thanksgiving being less than 20%.
● Once the U.S. government restarts, 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 occurred in early 2021 when the accelerated consumption 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 drive a sharp rise in liquidity-sensitive assets like Bitcoin and small-cap stocks, as well as nearly all non-AI assets.
The worse the current situation, the more reserve liquidity will be released in the medium term. The current 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.
The Bitcoin market has never faced such dual challenges of internal cycle transitions and external liquidity crises as it does today. Historical data shows that about a year after each halving, Bitcoin typically reaches a cyclical peak before entering an adjustment phase. Now, this conventional cycle is forming a "double whammy" effect with the liquidity crisis triggered by the U.S. government shutdown.
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