- Congress is gridlocked over the government’s finances.
- Donald Trump is about to meet with Democrats.
- How will crypto react if they can’t make a deal?
“Be reasonable.”
That’s the White House’s message to congressional Democrats ahead of a make-or-break meeting with President Donald Trump over the US government’s finances.
As the Oval Office meeting creeps closer, the spectre of a government shutdown looms ever darker — and crypto traders are bracing for the impact as Democrats and Republicans remain gridlocked over soon-to-expire health insurance subsidies.
“A US federal government shutdown isn’t just politics playing out in Washington,” Kate Leaman, chief market analyst at AvaTrade, told DL News. “It creates uncertainty that spills across global markets and crypto feels that shock too.”
The risk of a market pullback comes at a critical time for the crypto industry. Trump’s pro-crypto initiatives — including signing a smattering of executive orders, government appointments and at least one law — has propelled it to heights never seen before.
Yet, the combination of market uncertainty and seasonal weaknesses has weighed on the market. The overall crypto market has lost about 7% of its value since its August high, and currently trades just under the $4 trillion mark.
It also comes as Congress is debating a much-anticipated market structure bill, that proponents hope will super-charge the industry’s growth.
“A shutdown would stall critical progress on crypto policy,” Jessica Martinez, senior director of government relations at the Blockchain Association, an industry lobby group, told CoinDesk.
Shutdown spectre
And now the industry faces the spectre of a government shutdown.
The problem? If the government runs out of money, it will halt the flow of economic data on things such as job numbers and inflation.
“With those signals gone, it’s harder to read the economy and predict what the Fed might do next,” Leaman said.
The Federal Reserve is currently considering whether or not it will lower interest rates for a second time this year at its October meeting. Lower rates are usually bullish for crypto as they incentivise traders to bet on risk-on assets like digital currencies.
A government shutdown could also delay work at regulators like the Securities and Exchange Commission, that are dealing with a wave of altcoin exchange-traded fund applications, reviews, enforcement actions, and working on new guidelines for how to regulate the industry.
“That mix of less information and slower oversight usually makes risk markets nervous,” Leaman said. “Crypto, which is already sensitive to market mood, can swing even harder.”
Safe haven
At a quick glance, a government shutdown would seem to be a perfect opportunity for cryptocurrencies.
The whole industry was, after all, envisioned by Bitcoin founder Satoshi Nakamoto as an alternative to traditional finance. Indeed, Bitcoin has since its inception been held — more or less successfully — as a safe haven asset. In short, while there might be a slight pullback, a shutdown may end up being good for Bitcoin.
“If confidence in US finances slips or Treasury yields jump, Bitcoin’s appeal as an independent, non-sovereign store of value can grow stronger,” Leaman said.
Yet, Leaman warned that a lengthy government shutdown could become a problem for stablecoin issuers that rely on US treasuries because yields could rise and questions about liquidity or safety may surface.
“That could lead to more redemptions or caution from issuers and regulators,” she warned. “It’s not a collapse scenario but confidence could take a hit if US fiscal risk starts to feel less reliable.”
Eric Johansson is DL News’ managing editor. Got a tip? Email at eric@dlnews.com.
