The cryptocurrency market faced a brutal start to the week on Monday as Bitcoin (BTC) tumbled toward the $87,000 support level, shedding billions in value amid escalating fears of a U.S. government shutdown. The global crypto market capitalization plummeted below the psychological $3 trillion mark, driven by a sharp "risk-off" sentiment that saw investors fleeing digital assets for traditional safe havens like gold and the Japanese yen.
Government Shutdown Odds Spike to 80%
The primary catalyst for the sudden sell-off appears to be a dramatic shift in the political landscape in Washington. Prediction markets have reacted violently to the stalling budget negotiations, with Polymarket data showing the probability of a U.S. government shutdown by January 31 surging from just 8% last week to over 78% on Monday.
The gridlock stems from a contentious standoff in the Senate, where Democratic lawmakers have vowed to block a crucial Department of Homeland Security (DHS) funding bill. The stalemate follows public outrage over the fatal shooting of Alex Pretti, a 37-year-old ICU nurse, by a Border Patrol agent in Minneapolis—an incident that has sparked protests and hardened legislative lines. "The market hates uncertainty, and Washington is serving it up in spades," noted Rick Maeda, a research associate at Presto Research. "This isn't just about crypto; it's a broad macro risk-off impulse."
$605 Million Liquidated in 'Long Squeeze'
The price action caught bullish traders off guard, triggering a cascade of forced selling. According to data from Coinglass, the market witnessed over $605 million in liquidations within the last 24 hours, with long positions accounting for nearly 85% of the wipeout. Bitcoin, which had been consolidating near $92,000, sliced through support levels to tap a daily low of $87,158 before a minor recovery.
This "long squeeze" was exacerbated by thinning liquidity over the weekend, leaving the order books vulnerable to high-volume selling. Major altcoins weren't spared, with Ethereum (ETH) dropping nearly 4% to trade around $2,835, and Solana (SOL) seeing mixed flows as traders rotated capital.
Miners Hit by Winter Storm Fern
Adding pressure to the sell-side is a significant drop in network hashrate. Foundry USA, one of the largest Bitcoin mining pools, reported a 60% drop in hashrate as operators across the United States curtailed power usage in response to Winter Storm Fern. The storm has strained energy grids, forcing miners to power down, which has historically correlated with short-term price weakness due to reduced network security perception and miner revenue stress.
Bitcoin vs. Gold: The Safe Haven Narrative Crumbles
The diverging paths of Bitcoin and gold have once again reignited the debate over crypto's status as a "safe haven" asset in 2026. While Bitcoin slumped alongside tech stocks, gold prices surged to a new all-time high above $5,000 per ounce, attracting capital fleeing the political instability.
"We are seeing a classic flight to safety, but right now, that flight is bypassing digital assets," explained a market strategist from Saxo Bank. "With the Yen rallying and gold breaking records, Bitcoin is behaving more like a high-beta tech stock than 'digital gold' in this specific crisis." The Crypto Fear and Greed Index has consequently plummeted to 17 (Extreme Fear), a stark contrast to the greed-driven sentiment seen earlier in January.
Outlook: The January 31 Deadline
Traders are now glued to the January 31 deadline. If Congress fails to pass a continuing resolution, a partial government shutdown could begin, potentially extending the volatility into February. Institutional flows reflect this caution; BlackRock’s IBIT ETF recorded its largest single-day outflow of the year on Monday, signaling that traditional finance players are de-risking until clarity emerges from Capitol Hill.
For now, bulls must defend the $87,000 line. A decisive break below this level could open the door to a retest of the $82,000 region, while a swift political resolution could spark a sharp relief rally back toward $95,000.
