Key takeaways:
US 10-year Treasury yields dropped, indicating increased risk aversion and a shift towards safe-haven assets.
Spot Bitcoin ETFs attracted $430 million in inflows, while equities remained stable, suggesting a potential divergence from traditional markets.
Bitcoin (BTC) hit a two-week high on Wednesday amid the impending US federal government shutdown. However, investors are cautious, recalling that the 2018 shutdown led to a sell-off due to fears of slower economic growth.
Without a resolution, federal agencies were instructed to implement contingency plans, resulting in numerous employees staying home. The focus now shifts to the duration of the shutdown, with another Senate vote planned for Wednesday.
The Trump administration has warned of possible mass layoffs if an agreement is not reached, prompting traders to adopt a more cautious, risk-averse approach.
The decline in US 10-year Treasury yields on Wednesday indicates that traders are accepting lower returns for the security of government-backed debt. Additionally, gold surged to an all-time high of $3,895 per ounce, reflecting stronger demand for traditional hedges.
While the shutdown initially seemed to offer a temporary boost for Bitcoin, its sustainability remains in question. The US stock market showed limited immediate reaction, with pressure stemming from ADP data indicating a loss of 32,000 private payrolls in September, while August numbers were adjusted to show a net loss of 3,000 jobs.
Bitcoin lost 9% during the 2018 US government shutdown
During the US government shutdown in December 2018, Bitcoin decreased by 9%. This time, the economic repercussions could emerge quickly as government spending sharply declines and official data releases face delays.
The US stock market initiated a 12% correction just 10 days ahead of the shutdown on December 22, 2018, but the entire decline was recouped within less than a month. Investors who maintained their positions and overlooked short-term volatility ultimately benefitted.
For Bitcoin, however, the December 2018 shutdown posed a slight negative impact, with prices dropping from $3,900 to $3,550 during the 35-day impasse. Yet, the cryptocurrency faced more significant challenges at that time, having already fallen by 42% in the two weeks leading up to November 25, 2018. Some analysts suggested that stricter regulatory measures triggered the sharp sell-off.
In October 2018, the Financial Action Task Force (FATF) updated its guidelines to include virtual asset activities, impacting cryptocurrency exchanges and certain wallet providers. This intergovernmental organization, representing around 200 jurisdictions, focuses on Anti-Money Laundering and counter-terrorism financing, leading traders to anticipate increased regulatory scrutiny.
Related: US Senate to hold hearing on crypto taxes as IRS offers relief on corporate tax
The $430 million net inflow into spot Bitcoin ETFs on Tuesday, in conjunction with its recent decoupling from equities, has bolstered its status as an independent hedge. Currently, these vehicles manage nearly $147 billion in assets, whereas gold, valued at $26 trillion, supports $461 billion through ETFs.
Present conditions suggest that the government shutdown could be advantageous for Bitcoin over the next 30 days, even as short-term economic uncertainty weighs down traditional markets. Sustained corporate demand for Bitcoin as a reserve asset is also poised to play a critical role in bolstering bullish momentum during this period of heightened uncertainty.
This article is for informational purposes only and should not be considered legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.
