Markets Stay Volatile Despite Trump's Optimism on Shutdown Agreement
While a preliminary agreement in the nation's capital has reduced concerns about a government shutdown, uncertainty persists as critical congressional votes loom, causing volatility in cryptocurrency, precious metals, and other assets amid liquidity concerns and geopolitical tensions.
Leaders in the US Senate alongside White House officials have announced they've achieved a bipartisan framework aimed at preventing a partial government shutdown in the United States, though the proposal must still pass critical congressional votes before the current funding authorization runs out.
The negotiation process had hit roadblocks concerning budget allocations for the Department of Homeland Security and immigration enforcement operations, with the existing temporary spending measure scheduled to expire at midnight Eastern Time on Friday, creating a time crunch for legislators to approve and finalize the spending package ahead of the looming deadline.
During the evening hours on Thursday, President Donald Trump declared that the sole factor capable of hampering the nation's progress would be "another long and damaging Government Shutdown." He indicated that he was "working hard with Congress" to obtain the required funding authorization.
The developing agreement could help alleviate certain immediate concerns regarding an extended funding gap following a turbulent week during which Bitcoin dropped to approximately $81,000, while spot Bitcoin (BTC) and Ether (ETH) exchange-traded funds (ETFs) experienced roughly $1 billion in net outflows to date.
Risk-oriented assets across the board experienced volatility driven by a combination of Federal Reserve announcements, shutdown-related news and international political developments, while traditional "safe haven" commodities and industrial materials including gold, silver and oil experienced significant price fluctuations as market participants adjusted their positions, Reuters reported.
TGA expands ahead of possible spending pause
Nick Heather, head of trading at One.io, explained to Cointelegraph that the decline in Bitcoin's price was a reflection of "tightening liquidity conditions" as opposed to challenges specific to the cryptocurrency sector.
According to his assessment, "Bitcoin's move down to the low-$80,000s looks far more like a liquidity-driven adjustment than a loss of conviction in the asset itself."
During Friday's session, BitMEX co‑founder Arthur Hayes highlighted an approximately $300 billion reduction in US dollar liquidity during recent weeks, primarily attributed to an increase in the Treasury General Account (TGA), suggesting that government entities may be building up cash reserves in anticipation of potential spending interruptions and that the downward movement in Bitcoin's value was aligned with more restrictive dollar availability.
Heather noted that whenever the US Treasury increases its cash balance, "risk assets tend to come under pressure, and crypto is often one of the first to react."
Nevertheless, based on his internal onchain monitoring systems, he observed that "whale wallets remain largely inactive, indicating that larger holders have not yet started accumulating and reinforcing the view that current moves are liquidity-driven rather than conviction-led."
Geopolitics keep markets on edge
Market participants' anxiety levels stayed elevated on Friday, following Trump's declaration of a national emergency regarding Cuba, and his Wednesday indication that he was considering military options targeting Iran's nuclear and missile programs, maintaining geopolitical uncertainty as a prominent market concern.
Precious metal prices, which had climbed to unprecedented highs during early January, have experienced steep selloffs, with silver "officially" moving into "bear market territory," as reported by The Kobeissi Letter, having declined 22% from its peak, and gold temporarily dropping beneath $5,000 an ounce before stabilizing around $5,100 at the time of writing, according to TradingView.
Past shutdowns and Bitcoin's performance
Historical instances of government shutdowns generally undermine confidence among businesses and consumers, cause postponements of important economic data releases, and generate concerns regarding the US fiscal trajectory, frequently resulting in increased volatility throughout equity markets, bonds, the dollar and cryptocurrency assets.
According to Heather, historically speaking, government shutdowns generate uncertainty rather than direction, and when it comes to Bitcoin, "the immediate impact is usually higher volatility, not a clean trend."
Regardless of whether a shutdown is ultimately prevented, market participants were still contending with increasingly restrictive financial conditions and heightened geopolitical uncertainty, Heather noted.
Until there's clearer visibility on liquidity and policy, both traditional and digital asset markets are likely to remain sensitive to headlines and prone to abrupt repricing.