The US government is facing closure as Republicans and Democrats cannot agree to the budget. Various sources rated the likelihood of shutdown. If that happens, the shutdown can have multiple effects. Among other meanings, it can create more uncertainty in the crypto market and slow the pace of crypto regulations.
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- US President Donald Trump and Vice President JD Vance have warned about the highly likely shutdown that begins on October 1st.
- If it is closed, the government will stop publishing employment and inflation data, making it difficult for traders to spend time in the market. Experts predict market volatility.
- The passing of the Clarity Act will be delayed, but the SEC has stopped its crypto sector rulemaking efforts and will not be able to review Spot Crypto ETF applications.
Shutdown probability
Uncompromising differences between the GOP and Democrats regarding healthcare spending have delayed the final decision on the budget. On September 29, Vice President JD Vance said the government was “heading towards closure.” Previously, President Donald Trump warned that Americans “are likely to end up in a country that has been closed for a while.” JD Vance denounced the Democrats.
“Unless the Senate and House Democrats do exactly what they want you to do, we won’t put guns on Americans’ heads and say unless we close your government. I think we’re heading towards closure because Democrats don’t do the right thing.”
Chuck Schumer, a democratic Senate minority leader, reflects Vance’s claims, saying “it’s up to Republicans to see whether they want to close or not.”
This severity of both parties left little space for the possibility of an agreement. As of September 30, 89% of Polymarket voters believed the US government would shut down before the end of the year.
Possible impact on the economy
The shutdown will hit civil servants, put government contractors at risk, and stop state agencies from doing their jobs. Given that the US is already experiencing a period of instability, a shutdown may do more harm than usual.
The level of harm depends on the economic health at the time of closure and the length of closure. The latest closures that took place during Trump’s first presidency in December 2018 and January 2019 were the longest. It lasted for 35 days, with the biggest consumer sentiment diminished.
The decline in consumer sentiment shows that people are generally not comfortable spending money on essential products that undermine economic growth and hinder business conditions.
What is at risk for the Crypto community?
Government closures usually don’t affect the market that much. However, there may be indirect effects and the crypto space may become soft hits. TV personality and author Jim Kramer addressed the market impact of the shutdown, which he told CNBC:
“I’m not worried about most of these things. My biggest fear is that closures could delay important economic data, make life more difficult for the Federal Reserve and postpone plans to cut interest rates.”
There are several ways that an impending shutdown can affect crypto space.
- It prevents data collection for investors.
- It will stop the government from passing the much-anticipated clear law.
- Block SEC’s work on creating rules in crypto spaces and Spot Crypto ETF approval.
Traders are unable to access key Federal Reserve metrics, such as inflation and unemployment. They should trade without taking this data into consideration.
The Clarity Act, a market structure bill aimed at setting clear rules for various types of cryptocurrency, was set to be signed to the law before Thanksgiving. The possibility of a shutdown brings uncertainty about whether the law will be passed soon or again this year.
Finally, the closure will hinder the Securities and Exchange Commission’s work and slow the realization of project crypto. Recently, SEC Chair Paul Atkins outlined the key directions of agencies aimed at regulating the crypto space and promoting US innovation.
He spoke about future innovation exemptions that allow crypto companies to freely launch without being “tourpedoed” due to bureaucratic burdens. In addition to that, Atkins said the SEC will do a lot of work related to rules creation in the crypto space. Obviously, this will be delayed if a shutdown occurs. The same goes for reviewing and approval of the Crypto Spot ETF.
Impact on the latest shutdown
The latest closure took place between 2018 and 2019 due to differences in opinion between Democrats and Republicans over funding for the southern border wall. It was one of the longest and most destructive. It affected 800,000 civil servants. Half of them were being eaten up, while others continued to work unpaid. The 2018-2019 shutdown reduced consumer sentiment by 7 percentage points.
As for Crypto, Bitcoin prices have moved from $6,400 to $3,200 in a month ahead of the November closure. However, when the shutdown began, the price rebounded to more than $4,000. When the shutdown ended, Bitcoin priced over $3,500.
In general, it is safe to say that the biggest reduction occurred a few weeks before the shutdown itself. In September this year, the past two weeks have been tough for the crypto market. You will soon learn whether this is a repeat of the price action of past shutdowns.