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Bitcoin struggling under the U.S. Shutdown
Monetary policy remains the central pillar shaping digital asset performance. The U.S. rate cut should, in theory, have been supportive for Bitcoin given its close correlation with liquidity conditions. Yet this tailwind has been offset by lingering instability within the crypto ecosystem. The ongoing U.S. government shutdown reinforces perceptions of political dysfunction, which in turn strengthens the diversification argument for non-traditional assets. Regulatory momentum has also turned more constructive: both the GENIUS and Stablecoin Acts signal greater policy engagement and provide the clearest framework yet for integrating digital assets into the broader financial system.
The opposing forces are currently outweighing these positives though. The October 10th liquidity cascade continues to ripple through markets, most visibly within decentralised finance (DeFi). Elevated borrow rates have triggered broad deleveraging and forced liquidations, leading to multiple organisational failures. The FOMC press conference added further pressure when Jerome Powell remarked that a December rate cut was “not a foregone conclusion.” Markets took him literally, scaling back expectations for imminent easing.
Business confidence is eroding
U.S. economic data paint a mixed picture. The ISM Manufacturing Index fell short of expectations, indicating that the shutdown is eroding business confidence. The “prices paid” component dropped sharply, pointing to renewed disinflationary pressure. The ISM Services survey told a slightly different story, weaker activity overall, but a stronger-than-expected prices paid component. The combination leaves inflation directionally uncertain. Futures markets, nonetheless, have trimmed expectations for additional rate cuts this year.
The repo market has shown signs of weakness, though this stress has yet to feed through to bank credit default swaps or to trigger use of emergency liquidity windows such as the BTFP. The greater concern lies with household leverage. Delinquencies on auto loans have risen to their highest level since 2010, while student-loan arrears now stand at 14.3%, the worst since 2000. Some of this is a function of pandemic-era deferral distortions, but the trend highlights pressure on the most indebted consumer segment. Employment data from ADP, at +42,000 for October, are the only reliable indicator available during the shutdown and continue to reflect a softening labour market.
The U.S. government shutdown, now entering its 35th day and officially the longest on record, has entered a more urgent political phase. Senate Majority Leader John Thune acknowledged that the existing continuing-resolution framework “no longer makes sense,” with bipartisan talks intensifying. A smaller, stopgap deal covering essential functions such as agriculture and military construction is under discussion. Yet key disputes persist — notably over the extension of Affordable Care Act subsidies, which Democrats insist on including in any funding bill. Republicans and the White House, by contrast, refuse to engage on healthcare before broader government funding is restored. Consequences are mounting: the SNAP programme faces funding risks, and aviation agencies warn of potential air-space disruptions as staffing shortages deepen. Polymarket continues to imply that a resolution is not close, with the most likely resolution time being after 16th November.
The Crypto cycle and its impact on current pricing
Some long-term investors appear to be acting on the four-year cycle narrative, a self-fulfilling pattern we do not subscribe to but cannot ignore. Adherents to this framework are locking in profits, convinced that the cycle top is approaching. Current price and momentum dynamics more closely resemble the measured profile of the 2021 cycle rather than the parabolic peaks of earlier periods, which likely explains the ongoing whale selling: over 100 wallets holding more than 1,000 BTC have reduced exposure since July, consistent with sustained profit-taking. Ethereum, by contrast, is seeing quiet accumulation, with the number of wallets holding over 10,000 ETH rising from 877 to 1,250 since June. We believe that institutional flows, ETF activity, and broader global liquidity trends now exert a far stronger influence on market behaviour than the simplistic four-year rhythm often cited in past cycles.
Stress in Defi
Stress is high in Defi where borrow rates have reached black swan levels at 30%, this has prompted huge deleveraging and the likely failure of Stream Finance. The protocol disclosed a loss of approximately US $93 million after an external fund manager mishandled assets, and it has paused deposits and withdrawals while an investigation led by Perkins Coie LLP takes place. Its stablecoin xUSD plummeted, dropping as deep as ~$0.30 from its $1 peg, and on-chain data suggest leverage in the region of 4.1×, with about $170 m in backing for ~$530 m in borrowings, according to analyst estimates. Meanwhile reports indicate that around US $68 m of exposure lies with creditor Elixir Finance and over US $280 m of aggregate DeFi exposure is mapped to the platform’s collateral networks. The episode underscores the persistent structural risks of opaque, yield-based DeFi models lacking transparent reserves and highlights how stress in one link can rapidly reverberate through connected ecosystems.
