If the US Government Shuts Down, What Will Happen to Bitcoin?

Original Article Title: What Happens to Bitcoin If the US Government Shuts Down?

Original Article Author: Stacy Jones, Decrypt

Original Article Translation: Felix, PANews

Legal Disclaimer BlockBeats Note: On October 1, according to Fox News, due to the US Senate's failure to pass a federal funding bill, the White House has formally announced an upcoming government shutdown.

With the possibility of a government shutdown increasing, Bitcoin traders who rely on upcoming US employment data to gauge whether the Federal Reserve will cut interest rates again may need to wait for some time.

Analysts say the reaction of Bitcoin to such an event is still uncertain, which could exacerbate short-term volatility. The impact of past shutdowns on the price has varied.

Bitunix analysts stated: "Rate cut expectations are beneficial to risk assets, but bubble concerns and political risks have intensified short-term volatility. For cryptocurrencies, this has brought both liquidity support and increased downside uncertainty." "In the medium term, a confirmed rate cut will improve liquidity and support risk assets. However, in the short term, bubble concerns and government shutdown risks have increased vulnerability, making significant 'downward rebound' volatility more likely."

Unless Congress can pass a comprehensive funding bill or continue resolution by midnight on Tuesday, federal funding will run out, and some government functions will shut down as "non-essential." The federal government's fiscal year ends on September 30th.

John Reid, Head of Macro and Thematic Research at Deutsche Bank, wrote in a report: "The key events of this week may not actually happen because if Congress cannot reach a short-term funding resolution before midnight tomorrow, Friday's employment report could be the first high-profile casualty of a potential government shutdown event. In fact, in October 2013, the government shutdown meant we didn't receive the September jobs report until the 22nd of that month."

As of the time of writing, Bitcoin had risen to over $114,000, up 3.8% in the past day. According to CoinGecko data, its price is still 0.7% lower than two weeks ago. Economic statistics and data processing are not considered essential functions, meaning the US Bureau of Labor Statistics will need to delay the upcoming employment report until after government funding is restored. This does not mean the data will not eventually be released, but the delay may exacerbate market volatility. Investors are aware that Fed monetary policy decisions largely hinge on employment and inflation data.

Nansen Research analyst Nicolai Sondergaard stated that a government shutdown could exacerbate short-term volatility in the cryptocurrency market.

However, he added, "But I am indeed curious whether if the broad investor perception is that the 'shutdown' will be resolved quickly, whether the situation will be more than that. Also, if a shutdown does occur, I wouldn't be surprised if its potential impact would reverberate across broader financial markets before the actual shutdown takes place."

This is not the first time the cryptocurrency market has experienced a government shutdown.

The government shutdown in October 2013 lasted for 16 days. From October 1 to October 17, the price of Bitcoin rose from $132.04 to 14%, reaching $151.34. However, Bitcoin's price movement during government shutdowns is not a consistent pattern. The longest shutdown in history occurred from December 22, 2018, to January 25, 2019, lasting 35 days. During this period, the price of Bitcoin dropped by 6% from $3,802.22 to $3,575.85 by the end of the shutdown.

On the Myriad prediction market, users are becoming increasingly skeptical about the Federal Open Market Committee conducting two rate hikes in 2025. The number of skeptics has risen to 75%, up from 40% in early September.

Skeptics may include those who believe the Fed will adjust rates at both of the remaining two Federal Open Market Committee policy meetings this year and those who think the committee will wait until 2026 to consider a rate adjustment.

Cryptoquant research director Julio Moreno stated that the market environment during the government shutdowns in 2013 and 2018-2019 was starkly different for Bitcoin. "In 2013, Bitcoin was entering the final stage of a bull market cycle, with strong demand." He added that by the time of the 2018 shutdown, Bitcoin's demand was waning during a bear market.

Moreno further noted that Bitcoin's current situation resembles 2013 more than 2018. "As we enter the fourth quarter, Bitcoin's demand is growing, which is typically a quarter with positive price performance."

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