The clock is ticking for Congress to approve spending legislation for the federal government before the start of the 2024 fiscal year on October 1. If lawmakers fail to renew funding by this critical deadline, numerous government operations could come to a halt. While this situation raises concerns across various sectors, cryptocurrency investors are particularly interested in understanding the potential impact of a government shutdown on the price of bitcoin (BTC-USD).
An analysis by Seeking Alpha analyst Giesbers Investment Strategy examined the price action of bitcoin during the three previous government shutdowns. In the most recent shutdown, which occurred from December 22, 2018, to January 25, 2019, the price of bitcoin dropped by 9.8%. This decline followed a 15.7% drop during the January 20-23, 2018 shutdown and a 7.8% increase in the October 1-16, 2013 shutdown.
However, it is important to note that there have only been three government shutdowns during bitcoin’s existence. As Giesbers pointed out, there is limited data to draw definitive conclusions from. The contributor argued that during these shutdowns, other sources of volatility influenced bitcoin more than the shutdowns themselves. Additionally, in 2013, bitcoin’s popularity was significantly lower than it is now, and it was not viewed as a safe haven asset during times of financial turmoil.
In terms of crypto securities regulation, another important factor driving crypto prices, a government shutdown could result in delayed regulatory decisions. This includes matters related to the approval of crypto exchange-traded funds (ETFs) by the Securities and Exchange Commission (SEC). Financial heavyweights like BlackRock and Fidelity Investments have been competing to be the first to market a U.S. ETF that directly invests in bitcoin. If a potential SEC approval is delayed due to a shutdown, it could create further uncertainty in the market.
Some crypto investors have taken a bullish stance on the prospect of a government shutdown. They argue that non-sovereign currencies like bitcoin would not be affected by government procedures. However, others have contended that a shutdown poses the risk of a liquidity drain across financial markets as investors seek safer assets. This could potentially result in a wider selloff, impacting bitcoin in the shorter term.
Stefan Rust, CEO of independent inflation data aggregator Truflation, highlighted that bitcoin has historically experienced growth during economic downturns. Bitcoin was founded as a response to the great financial crisis caused by banks, and its decentralized nature has been viewed as a strength during times of instability. This suggests that bitcoin could be considered a “flight to safety” asset by some investors in times of economic uncertainty.
In comparison to traditional alternative assets like gold and the stock market, which are on track to end the week in the red, bitcoin has performed relatively well, closing out the week ending September 30 with nearly a 3% gain. David Waugh, lead analyst at Coinbits, believes that this may indicate the market’s perception of bitcoin as a safe asset during times of instability.
While the impact of a government shutdown on the price of bitcoin remains uncertain, it is clear that this potential scenario has caught the attention of cryptocurrency investors. As the deadline for Congress to approve spending legislation approaches, investors will closely watch for any developments that could affect the crypto market.
