The cryptocurrency market experienced a significant decline, losing approximately $100 billion late on Sunday. This sharp drop was triggered by rising concerns over a potential partial government shutdown in the United States, prompting traders to sell off their crypto assets in response to the uncertainty.
Senate Democrats have indicated they might obstruct a proposed funding package if it includes allocations for the Department of Homeland Security (DHS), which is responsible for Immigration and Customs Enforcement (ICE). This backlash follows an incident where federal agents shot and killed an individual in Minneapolis on Saturday, sparking outrage. Senate Democrat Leader Chuck Schumer expressed his discontent, stating, "Democrats sought common-sense reforms in the DHS spending bill, but due to Republicans' reluctance to challenge President Trump, the proposed bill does not adequately address ICE's misconduct. I will vote against it." He further emphasized that Senate Democrats would not support advancing the appropriations bill if the DHS funding was part of it.
According to data from TradingView, the total market capitalization for cryptocurrencies plummeted from $2.97 trillion to $2.87 trillion within just six and a half hours, as of Sunday at 9:30 PM UTC. This downturn saw Bitcoin (BTC) drop by 3.4% over the previous day. Other cryptocurrencies were affected even more severely, with Ether (ETH) experiencing a 5.3% decline during the same time frame.
Additionally, the past day witnessed the liquidation of over $360 million in leveraged crypto positions, with approximately $324 million attributed to long positions, as reported by Gate.
The likelihood of a government shutdown by the end of January has increased significantly. Bettors on prediction markets such as Kalshi and Polymarket are now estimating up to an 80% chance of a government shutdown occurring by January 31. On Kalshi, the probability surged from below 10% on Saturday to 78.6% by Sunday, while Polymarket reflected a similar increase, reaching around 80%.
Adding to traders' apprehension was President Donald Trump's threat to impose tariffs of up to 100% on Canada if they reach an agreement with China. Furthermore, the deployment of US warships to the Middle East, in light of escalating tensions with Iran, has only intensified fears of a market downturn.
Investors in the cryptocurrency space have a recent reference point regarding how market prices typically react during US government shutdowns. During the historic 43-day government shutdown from October 1 to November 12, Bitcoin's price fell from its peak of $126,080 to below $100,000. This decline was fueled not only by the ongoing political stalemate in Washington but also by a significant market crash on October 10, partly triggered by Trump's tariff threats involving China.
It is worth noting that since October 10, gold has significantly outperformed Bitcoin, indicating that many investors are leaning towards traditional safe-haven assets amid growing geopolitical and economic uncertainties. The Crypto Fear & Greed Index, which measures the sentiment of Bitcoin and the broader crypto market, dipped five points on Monday to a reading of 20 out of 100, remaining in the "extreme fear" category for six consecutive days.
