8 months ago

    What a US Government Shutdown Would Do to Bitcoin

    Table of contents

      Cryptocurrencies are some of the most volatile assets in financial markets. All kinds of events can cause prices to shift significantly in any direction. These include political, environmental, social, and economic events. The US is the largest economy in the world today. As such, any political developments in the country can greatly affect the markets.

      In this piece, we will look at the effect a US government shutdown would have on markets. This is important for any investor of financial markets on platforms such as www.exness.com. Specifically, we will be exploring what a US government shutdown would do to Bitcoin.

      What Is a US Government Shutdown?

      For those who do not know, a US government shutdown is when government services are disrupted due to the temporary suspension of some workers in various departments. This temporary suspension affects the operation of many government agencies including the military, federal courts, law enforcement, the CDC, the IRS, and financial regulators like the SEC, among many others. Evidently, a government shutdown, however temporary, can significantly affect operations in the US and in the world. But what actually causes a government shutdown?

      What Causes a Government Shutdown?

      In the US, many agencies receive funding for the upcoming fiscal year after Congress convenes and passes a set of 12 appropriations bills. These bills determine what level of funding each of the various federal agencies receive for the upcoming year. Notably, the president must sign the bills before the start of the new fiscal year on October 1st.

      If Congress fails to pass the appropriations bills before the deadline, then the government must shut down all or some of its agencies. Shutdowns can also happen if any funding requests to Congress result in a standoff. This is because the US Constitution stipulates that the Treasury cannot spend money without a law authorizing it. Consequently, funding for the various departments must halt no matter how essential they are. Unfortunately, we are on the verge of a US government shutdown if Congress does not approve appropriations bills by October 1st 2023. So how would this affect Bitcoin if it happens?

      How Would A US Government Affect Bitcoin?

      To answer this question, we have to look at past government shutdowns’ effect on the markets. The most recent US government shutdown happened on December 22, 2018 and lasted until January 25, 2019. It happened after Congress and the then President, Trump, could not agree on funding for the US-Mexico border wall.

      Notably, Bitcoin did not see much fall in its price during this shutdown. It saw some up-and-down movement during the entire period. Initially, a small bullish trend was followed by a small dip. However, things could be different if a government shutdown does happen again. Note that past data is not proof of future performance. Moreover, other financial markets could see dips as fear and uncertainty clouds the market. This could lead to people hedging using Bitcoin to avoid bleeding too much money.

      Either way, it is good to understand the sentiment among other traders. Investors can do this by analyzing charts and checking crypto forecast websites to see what experts are saying. While the shutdown might not happen, remaining prepared for all possible outcomes is good. Historically, shutdowns have a small bullish effect on financial markets. 

      Regulatory Implications

      The US is one of the most heavily regulated jurisdictions in the financial world. Bitcoin and other crypto assets are especially under heavy scrutiny and regulation in the US. In previous government shutdowns, the SEC saw significant furloughs that greatly affected its ability to perform its regulatory responsibilities. If we see another shutdown, it is not far-fetched to see a similar occurrence. 

      The SEC chair recently expressed concerns about how a government shutdown could cripple its activities. This could reduce regulatory actions against Bitcoin and other cryptocurrencies. A more relaxed grip on the cryptocurrency market could possibly spark a mini bull run. Up to this point, players like exchanges have generally demonstrated compliance with rules and regulations. Regulation relief could allow more people to invest in Bitcoin and other cryptos. 

      Closing Remarks

      Many experts believe that a government shutdown is imminent in the coming days. This is a major political event that is all over the news. Undeniably, this can have major implications on financial markets. However, it is hard to predict the exact impact of a government shutdown on Bitcoin. Previous shutdowns have not had much of an effect on financial markets. If any, the markets see a small price spike that returns to normalcy after a while. Nonetheless, a shutdown could affect the ability of regulators like the SEC to perform their duties. Consequently, this relaxed regulatory environment could lead to an influx of cash into the crypto market, leading to a price rise.

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