The U.S. government is shutting down! What are the three major risks facing the Crypto Assets market?

As the two parties in the U.S. Congress failed to reach an agreement on a temporary funding bill before the midnight deadline, the U.S. federal government officially pulled down the "curtain" of a shutdown starting October 1. This marks the first shutdown of the U.S. government in nearly seven years, and as soon as the news broke, global financial markets entered a state of high alert.

However, unexpectedly, the market did not experience a panic sell-off. The price of Bitcoin (BTC) has stubbornly remained around the $114,000 mark after a brief fluctuation, showing relative stability. Gold, as a traditional safe-haven asset, is hovering around historical highs, while U.S. stock index futures are under pressure.

Beneath the calm surface of the market, turbulent currents are surging. What direct and indirect impacts will this shutdown, triggered by the political deadlock in Washington, have on the cryptocurrency market? How will this seemingly distant political game affect the wallets of every crypto investor?

The trigger for this government shutdown is the sharp opposition between the Democrats and Republicans over the federal budget issue. The core issue lies in the controversy over the enhanced subsidies of the Affordable Care Act (ACA). The Democrats insist on including hundreds of billions of dollars in healthcare subsidies in the appropriations bill, arguing that this is crucial for ensuring healthcare for tens of millions of Americans; while the Republicans advocate for passing a "clean" appropriations bill without any conditions first, separating the healthcare issue.

Due to neither side being able to secure the necessary 60 votes in the Senate, two competing temporary bills both failed to pass, resulting in the depletion of federal funds and forcing the government to shut down non-essential departments. President Trump even threatened to use this opportunity to initiate "Reductions in Force (RIFs)," permanently cutting government jobs, which further fueled this political standoff.

direct impact

For the cryptocurrency industry, the most direct impact of a government shutdown is the "freezing" of the regulatory process.

As the government shuts down, most employees of key regulatory agencies such as the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) will be forced to take leave. This means that all ongoing rule-making efforts in the cryptocurrency industry, including the highly anticipated "Project Crypto," will come to a halt. While the public can still submit comments, there is no one internal to review them.

The most significant impact is from the various cryptocurrency spot ETFs that the market is eagerly awaiting. Several fund management companies, such as Canary Capital, have a key regulatory deadline for their Litecoin (LTC) spot ETF in early October. Now, with the SEC approval team being forced to take a leave of absence, the approval process for these ETFs is almost certain to be delayed.

This is not just a delay in time, but it may also hit market confidence. The prices of mainstream cryptocurrencies such as Solana (SOL) and Litecoin are largely supported by the expectation of institutional capital inflows, and ETFs are the key channels to attract this capital. The delay in approval undoubtedly casts a shadow over the future performance of these assets.

At the congressional level, important legislative work such as the "CLARITY Act," which aims to provide a clear regulatory framework for digital assets, will also be delayed. The Senate Banking Committee has postponed the originally scheduled bill debate hearing, making the timeline for the entire industry to gain regulatory certainty even more distant.

indirect influence

In addition to the direct impact on industry regulation, a government shutdown can also bring significant uncertainty to the crypto market indirectly through macroeconomic channels.

The U.S. Bureau of Labor Statistics (BLS) has made it clear that the release of all economic data will be paused during the shutdown. This means that the non-farm payroll report (NFP) originally scheduled for release this Friday and the consumer price index (CPI) report due in mid-next month may face "difficulties in being published."

This data is the core basis for the Federal Reserve's (Fed) monetary policy decisions (such as raising or lowering interest rates). Without these key indicators, the Fed is like "driving blind", and its future interest rate decisions will face greater difficulties. Analysts warn that this "data blind spot" will amplify market volatility across all asset classes and may erode investor confidence, bringing significant downside risks.

Although a short-term shutdown may be viewed by the market as "temporary noise," a long-term political stalemate could severely undermine global investors' confidence in the U.S. economy and dollar assets. Deep political polarization, a rising fiscal deficit, coupled with a fragile global economy, has made the current market exceptionally sensitive to any external shocks.

Potential Storm

In the face of government shutdowns, Bitcoin's historical performance is not uniform; its response is closely related to the market cycle at the time. October 2013 (End of the Bull Market): During a 16-day shutdown, the price of Bitcoin rose from $132 to $151, an increase of 14%. December 2018 to January 2019 (During the Bear Market): During the longest shutdown in history of 35 days, the price of Bitcoin fell from $3802 to $3575, a decrease of 6%.

CryptoQuant's research director Julio Moreno analyzed that in 2013, Bitcoin was in a strong demand growth phase during a bull market, while in 2018, demand shrank in a bear market. He believes that the current market environment, with the increase in Bitcoin demand in the fourth quarter, is more similar to the situation in 2013.

In summary, the U.S. government shutdown has a multi-layered and far-reaching impact on the cryptocurrency market. While Bitcoin prices have shown resilience in the short term, beneath this calm lie three major risks: Regulatory delay risk: The stagnation of ETF approvals and industry legislation hinders the inflow of institutional funds and the compliance process of the industry. Macroeconomic uncertainty risk: The lack of economic data makes the Federal Reserve's policy path unclear, exacerbating market volatility expectations. Market confidence risk: Long-term political deadlock may weaken investor confidence, leading funds to flow towards safer havens.

Next, the duration of the shutdown will be a key variable in determining its ultimate impact. If both parties can quickly reach a compromise, the market may be able to weather this "political noise"; but if the shutdown lasts longer, its negative impact on the economy and financial markets will be amplified, and the crypto market may also struggle to remain unaffected. For all investors, now is the time to stay vigilant and closely monitor developments in Washington.

#US Government Shutdown