Bitcoin extended its losses on Tuesday, falling by more than 1% and retreating below the $123,000 mark. The decline comes after a period of intense volatility that saw the cryptocurrency repeatedly test new highs.
The current reversal in bitcoin reflects a cooling of the strong bullish momentum that fuelled recent gains, coming at a time when concerns about the prolonged U.S. government shutdown are intensifying.
With no resolution in sight, investors are beginning to reassess risk exposure across all asset classes.
The lack of progress in Washington, combined with rising uncertainty over economic policy and government spending, has weighed on speculative assets like bitcoin, which tend to thrive in liquidity-rich environments.
Bitcoin still finds some indirect support from record-breaking stock market performance, as capital inflows continue to circulate within broader risk assets. However, this link remains fragile. A sustained correction in equities or further political gridlock could amplify bitcoin’s downside risks, especially given the massive buildup in leveraged positions across crypto derivatives markets.
The U.S. government shutdown has now extended beyond a week, with Congress remaining deeply divided over a new funding plan.
According to the Associated Press, the Senate once again failed to advance competing proposals from Democrats and Republicans, underscoring the widening political rift. The legislative impasse has been further complicated by tensions over executive military authority after the Senate narrowly voted 48–51 to block an effort to limit President Trump’s power to conduct military strikes on alleged drug traffickers in the Caribbean.
Although no public negotiations are underway, quiet bipartisan discussions have reportedly begun behind closed doors, focusing on healthcare subsidy provisions that could serve as a potential basis for compromise, according to AP.
The broader market, however, remains exposed to major risks stemming from excessive leverage in the crypto sector. According to data compiled from CoinGlass, bitcoin futures open interest climbed to $94 billion on Tuesday, up sharply from $77 billion on September 28, while Ethereum’s open interest rose from $53 billion to $63 billion over the same period. Such aggressive positioning heightens the probability of large-scale liquidation cascades similar to the $3 billion long-position unwinding recorded on September 22. As leverage builds, even modest price drops could trigger amplified selling pressure, reinforcing volatility and undermining near-term stability.
Yet, despite short-term fragility, bitcoin continues to draw strength from structural macroeconomic trends. As The Wall Street Journal recently reported, a growing number of investors are engaging in what is being called the “debasement trade”, which is a strategic move into non-dollar assets such as gold, bitcoin, and other tangible stores of value amid mounting concerns over U.S. fiscal health and currency stability.
Gold’s historic surge above $4,000 per ounce in 2025, even without a financial crisis backdrop, reflects the depth of investor unease over rising debt, policy dysfunction, and persistent inflationary risks.
In this context, bitcoin has increasingly solidified its role as a digital counterpart to gold. Its rally earlier this year, surpassing $125,000 and rising more than 30% year-to-date, illustrates the growing appeal of cryptocurrencies as hedges against fiat depreciation.
Institutional participation continues to expand, giving bitcoin a more pronounced macroeconomic function within diversified portfolios. This alignment between bitcoin and gold underscores a broader shift in investor psychology, away from traditional dollar assets and toward alternatives that can preserve value in an era defined by fiscal uncertainty, high leverage, and political fragmentation.
This has already been reflected in over $2.5 billion in net positive inflows into spot Bitcoin funds in the past three sessions this week alone, according to SoSo Value.
In essence, while bitcoin’s current retreat reflects fading short-term momentum and elevated speculative risk, its long-term narrative remains deeply intertwined with the global search for stability.
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