Bitcoin’s recent price drop is not primarily because governments are cashing out their holdings. Instead, the decline is driven by a combination of factors including excessive leverage in the market, mass liquidations, macroeconomic uncertainties, and the ongoing U.S. government shutdown, which has created liquidity issues and reduced market confidence.
Several key points explain the current Bitcoin price drop:
1. **Excessive Leverage and Liquidations**: Bitcoin entered bear market territory after falling below $100,000, dropping about 20% from its October 6 record high of $126,200. This sharp correction was largely due to excessive leverage in the market, where many traders used borrowed funds to amplify their positions. When prices started to fall, it triggered mass liquidations—about 300,000 traders were liquidated daily on average, with a major $20 billion liquidation event on October 10 worsening the downturn. This cascade of forced selling pushed prices down rapidly[2][3].
2. **Market Sentiment and Fear**: The sentiment index for Bitcoin has fallen to extreme fear levels, the lowest since April 2025. While such fear levels have previously triggered rebounds, this time the market has already fallen below those levels, indicating sustained selling pressure and lack of buyer confidence[5].
3. **U.S. Government Shutdown Impact**: The U.S. government shutdown, which has stretched into its second month and tied the record for the longest shutdown in history, has had a significant impact on liquidity and market confidence. The shutdown freezes federal spending and creates fiscal uncertainty, which ripples through both traditional and crypto markets. Bitcoin’s on-chain data shows rising exchange reserves, meaning more Bitcoin is being moved onto exchanges, often a sign of traders preparing to sell or take profits. This liquidity freeze and fiscal uncertainty are reflected in Bitcoin’s supply metrics and price action[1][4].
4. **Strengthening U.S. Dollar and Risk-Off Sentiment**: The U.S. Dollar Index (DXY) has risen above 100, a level that typically pressures risk assets like Bitcoin and tech stocks. A stronger dollar makes Bitcoin more expensive in other currencies, reducing demand. Additionally, broader risk-off sentiment in markets, including weakening tech stocks and concerns about future Federal Reserve interest rate decisions, has contributed to selling pressure on Bitcoin[4][5].
5. **Macro and Geopolitical Concerns**: Investors remain cautious due to ongoing macroeconomic uncertainties such as the unresolved U.S.-China trade tensions, the Federal Reserve’s upcoming policy decisions, and the general risk environment for equities and digital assets. These factors have led to a broader sell-off in risk assets, including cryptocurrencies[3][5].
Regarding the idea that governments are cashing out their Bitcoin holdings, there is no clear evidence supporting this as a major cause of the recent price drop. Government Bitcoin holdings, such as those seized or held by agencies, are typically not large enough or actively traded in a way that would cause such market movements. The price decline is more closely linked to market dynamics, trader behavior, and macroeconomic factors rather than direct government selling.
In summary, Bitcoin’s price drop is mainly due to leveraged trading liquidations, liquidity constraints from the U.S. government shutdown, a stronger dollar, and broader economic uncertainties. These combined pressures have created a challenging environment for Bitcoin, leading to its recent decline below $100,000 and entry into bear market territory.