Key takeaways:
The yields on US 10-year Treasurys have decreased, indicating rising risk aversion and a stronger interest in safe-haven assets.
Spot Bitcoin ETFs experienced inflows of $430 million while equities remained subdued, suggesting a potential separation from traditional markets.
Bitcoin (BTC) hit a two-week high on Wednesday following the shutdown of the United States federal government. Nevertheless, investors are cautious, recalling that the 2018 shutdown led to a sell-off due to fears of slowed economic growth.
In the absence of a resolution, federal agencies have been instructed to implement contingency measures, resulting in hundreds of thousands of employees being sent home. The focus now lies on the duration of the shutdown, with a Senate vote expected on Wednesday.
The Trump administration has cautioned about possible mass layoffs if an agreement is not reached, a warning that has made traders more risk-averse and careful.
The yields on the US 10-year Treasury declined on Wednesday, showing that traders prefer lower returns for the security of government-backed securities. Gold also soared to a record $3,895 per ounce, pointing to heightened demand for traditional hedges.
Initially, the shutdown seemed to give Bitcoin a short-term boost, yet doubts linger about its sustainability. The US stock market showed little immediate reaction, although pressure arose from ADP data indicating a reduction of 32,000 private payrolls in September, with August figures revised to show a net loss of 3,000 jobs.
Bitcoin lost 9% during the 2018 US government shutdown
When the US government shut down in December 2018, Bitcoin saw a 9% reduction. This time, the economic slowdown could materialize swiftly as government spending declines significantly and delays occur in the release of official data.
The US stock market initiated a 12% correction merely 10 days before the government shutdown on December 22, 2018, yet the complete decline was reversed in under a month. Investors who maintained their positions and overlooked short-term fluctuations ultimately benefited.
However, for Bitcoin, the shutdown in December 2018 had a somewhat adverse effect, with prices falling from $3,900 to $3,550 during the 35-day standoff. The cryptocurrency faced larger obstacles at that time, having already declined 42% in the two weeks prior to November 25, 2018. Some analysts suggested that increased regulatory measures triggered the intensified sell-off.
In October 2018, the Financial Action Task Force (FATF) updated its guidelines encompassing virtual asset activities, including cryptocurrency exchanges and specific wallet providers. The intergovernmental entity, representing approximately 200 jurisdictions, focuses on Anti-Money Laundering and counter-terrorism financing. Traders may have anticipated an escalation in regulatory oversight.
Related: US Senate to hold hearing on crypto taxes as IRS offers relief on corporate tax
The $430 million in net inflows into spot Bitcoin ETFs on Tuesday, along with the asset’s recent divergence from equities, has solidified its standing as an independent hedge. These vehicles now manage nearly $147 billion in assets, whereas gold, with a market cap of $26 trillion, supports $461 billion through ETFs.
Current conditions imply that the government shutdown could enhance Bitcoin’s position over the next 30 days, even as short-term economic downturns pressure traditional markets. Sustained corporate demand for Bitcoin as a reserve asset is likely to play a significant role in fostering bullish momentum during a time of increased uncertainty.
This article is for informational purposes only and should not be interpreted as legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.
