Summary of Insights:
The yields on US 10-year Treasuries decreased, indicating a rising risk aversion and increased demand for secure assets.
Spot Bitcoin ETFs saw inflows of $430 million, while equities remained subdued, suggesting a possible decoupling from traditional markets.
Bitcoin (BTC) hit a two-week high on Wednesday amidst the ongoing US federal government shutdown. Nonetheless, investors are cautious, recalling that the shutdown in 2018 led to a sell-off over fears of slower economic growth.
With no resolution in sight, federal agencies have been instructed to implement contingency plans, which means hundreds of thousands of employees are forced to remain at home. The focus is now on the potential duration of the shutdown, with a Senate vote scheduled for Wednesday.
The Trump administration has indicated that it may consider mass layoffs if a consensus is not achieved, which has made traders more prudent and risk-averse.
On Wednesday, US 10-year Treasury yields fell, indicating that traders are willing to accept lower returns for the security of government-backed debt. Gold also experienced a rise, reaching a record $3,895 per ounce, reflecting a heightened demand for traditional safe havens.
At first glance, the shutdown seemed to give Bitcoin a short-term benefit, but its sustainability remains in question. The US stock market did not react significantly, although pressures from ADP data revealed 32,000 fewer private payrolls in September, with August figures adjusted to show a net loss of 3,000 jobs.
Bitcoin dropped 9% during the 2018 US government shutdown
During the December 2018 US government shutdown, Bitcoin experienced a 9% decline. This time, the economic impact may become evident quickly as government expenditure sharply decreases and delays occur in official data releases.
The US stock market initiated a 12% correction just 10 days prior to the December 22, 2018 government shutdown, but the complete decline was recovered in less than a month. Investors who maintained their positions and overlooked the short-term volatility ultimately emerged successfully.
For Bitcoin, however, the December 2018 shutdown had a slightly adverse effect, with prices dropping from $3,900 to $3,550 throughout the 35-day deadlock. Still, the cryptocurrency faced greater challenges at that time, having already fallen 42% in the two weeks preceding November 25, 2018. Some analysts suggested that heightened regulatory measures triggered the sharp sell-off.
In October 2018, the Financial Action Task Force (FATF) revised its guidelines to include virtual asset activities such as cryptocurrency exchanges and specific wallet providers. This intergovernmental organization, representing around 200 jurisdictions, focuses on Anti-Money Laundering and counter-terrorism financing. Traders may have anticipated increased regulatory scrutiny.
Related: US Senate to conduct a hearing on crypto taxes as IRS provides relief on corporate tax
The $430 million in net inflows into spot Bitcoin ETFs on Tuesday, along with the asset’s recent separation from equities, reinforces its status as an independent hedge. These products now manage nearly $147 billion in assets, while gold, a $26 trillion market, is supported by $461 billion through ETFs.
The current circumstances indicate that the government shutdown could be beneficial for Bitcoin over the next 30 days, although short-term economic weakness may weigh on traditional markets. Continued corporate interest in Bitcoin as a reserve asset is also expected to play a crucial role in sustaining bullish momentum amid heightened uncertainty.
This article is intended for informational purposes only and should not be regarded as legal or investment advice. The opinions expressed are those of the author and do not necessarily represent the views of Cointelegraph.
