how might the us government shutdown influence crypto prices?

how might the us government shutdown influence crypto prices?

Based on the latest news and insights provided by SoSoValue, the ongoing US government shutdown is expected to influence cryptocurrency prices through several interconnected channels. The analysis points to a mix of short-term volatility and potential medium-term opportunities.

Key Mechanisms of Impact

1. Weakening US Dollar and Risk Sentiment:
   According to the latest news and insights provided by SoSoValue, the US dollar is already weakening as the shutdown continues. A top foreign-exchange forecaster suggests the “dollar will likely weaken further as the US government shutdown drags into a second day.” A weaker dollar can be a tailwind for dollar-denominated assets like Bitcoin and gold, as it makes them cheaper for investors using other currencies. However, the shutdown also creates broader macroeconomic uncertainty, which typically fosters a “risk-off” environment. This can lead to short-term selling pressure on risk assets, including cryptocurrencies, as investors seek safer havens. Data from prediction platforms like Kalshi now expects the shutdown to last nearly 13 days, up from 9 days previously, suggesting the uncertainty may be prolonged.
2. Economic Data Blackout and Federal Reserve Policy:
   A significant consequence of the shutdown is a “data blackout,” halting the release of key economic reports such as the jobs data and CPI. This deprives the Federal Reserve of crucial data for its interest rate decisions. Market expectations, as tracked on platforms like Polymarket, show the probability of a Fed rate cut in October has surged to around 90-97%. Historically, lower interest rates are positive for non-yielding assets like crypto, as they reduce the opportunity cost of holding them. However, the lack of data also increases policy uncertainty. As one analysis notes, if the Fed is forced to make decisions without reliable data, it “increases the uncertainty,” which could amplify market volatility.
3. Regulatory Delays and Market Structure:
   The shutdown directly impacts US regulatory agencies. News reports indicate that agencies like the SEC and CFTC would operate with reduced staff, potentially delaying processes such as the review and approval of new crypto-related financial products, including ETFs for other cryptocurrencies. This could slow down the pace of institutional adoption and investment in the short term.
4. Historical Precedent and Market Psychology:
   Analysis of historical patterns suggests that past government shutdowns have triggered short-term price declines in cryptocurrencies, followed by rallies once the shutdown ended. For instance, during the 2018-2019 shutdown, Bitcoin’s price declined but began a notable upward move shortly after the shutdown ended. This pattern is attributed to initial risk-off sentiment giving way to optimism upon resolution and, potentially, supportive monetary policy.

Market Outlook

In the short term, the combination of a weakening dollar, heightened uncertainty, and potential regulatory paralysis is likely to cause increased volatility. Crypto markets may experience price swings as traders react to the evolving political situation.

In the medium term, the potential for the Fed to adopt a more accommodative stance (i.e., rate cuts) in response to the economic uncertainty created by the shutdown could provide a supportive backdrop for crypto prices. The situation bears watching for a potential “buy-the-dip” opportunity if prices see a significant short-term decline due to risk-off sentiment.

Content is for investor reference only and does not constitute any investment advice,so think as u wish

source

sosoValue click