Why Are Crypto Markets Consolidating Despite Rising Government Spending?
TL;DR: The Big Picture
The Thesis: Crypto markets face headwinds from tightening fiscal flows despite nominal deficit spending, as tariffs drain liquidity faster than government spending replenishes it. Bitcoin trades at $103,083 (-1.7% in 24h) while market sentiment sits at neutral 45.35 on the Fear & Greed Index.
Key Developments
đź”´ Crypto Market Correction
- Bitcoin retreated from $106,000+ high to current $103,083
- Ethereum down 3.5% to $3,427 after touching $3,591
- Market saw $19+ billion in liquidations early November
- Recovery underway following US government shutdown resolution
đź’° The Liquidity Picture: Not What It Seems
US Fiscal Reality:
- FY2025 deficit: ~$1.8 trillion (5.9-6.4% of GDP)
- Government spending up 3% YoY
- BUT: Tariffs extracting $300+ billion from private sector
- Net fiscal impulse approaching zero according to Daily Treasury Statement analysis
Why This Matters: Higher tariffs = money removed from circulation = lower liquidity for risk assets. The government giveth with spending, but taketh away with tariffs.
🏦 Credit Markets: Mixed Signals
United States:
- Mortgage originations surging 30% to $2.155 trillion in 2025
- 30-year mortgage rates: 6.2%
- Consumer lending slowing as banks tighten standards
European Union:
- Mortgage demand recovering on lower ECB rates
- Corporate borrowing gradually recovering but subdued
- Trade tensions creating uncertainty
China:
- Limited current data available
- Decoupling from US continuing
đź“Š What Macro Analysts Are Saying
Alan Longbon (Nov 11): "Rate of fiscal acceleration quite high, points to higher markets next month"
Warren Mosler: Emphasizes tariffs as deflationary for exporters, inflationary for importers. Higher interest rates = more government spending on debt service = more private sector income.
The Bottom Line for Investors
Should you invest in crypto now?
âś… Bullish factors:
- Government spending still elevated at $1.8T deficit
- Mortgage credit expanding (new money creation)
- Regulatory clarity improving in US
- Markets recovering from early November correction
⚠️ Bearish factors:
- Tariffs draining liquidity from private sector
- Net fiscal impulse near zero (spending offset by taxes/tariffs)
- Institutional Bitcoin ETF outflows
- Sentiment only neutral (45.35), not greedy
The Macro View: We're in a transitional phase. The traditional "deficit = bullish crypto" thesis is complicated by the composition of flows. New credit creation from mortgages is positive, but tariff-driven liquidity drain is negative. Watch the net fiscal flows, not just headline deficit numbers.
Investment Recommendation: Cautiously bullish medium-term, but expect near-term volatility. The market is pricing in fiscal acceleration that should materialize in coming months as government spending continues to outpace the tariff drain. Consider dollar-cost averaging rather than lump-sum entry.
Remember: Money supply matters more than interest rates. Government deficits + new credit creation = crypto market fuel.
