The US government shutdown is poised to be prolonged, potentially leading rating agencies to lower the nation’s credit. This negative indicator could disrupt TradFi, but simultaneously offer a chance for Web3.
Agencies have explicitly cautioned that continued impasse might harm the US’s credit rating. Current prediction markets suggest a significant likelihood that this shutdown will extend beyond past averages.
Can Shutdowns Cause Credit Downgrades?
Sponsored
Following a narrow Congressional vote failure last night, the US federal government has entered a shutdown, carrying substantial implications for the crypto market.
For instance, while TradFi stocks moved down, the crypto market is experiencing positive momentum, with leading tokens and overall market cap seeing notable increases:
However, there is an unpredictable factor that could serve as a significant stress test for crypto’s effectiveness as a recession hedge.
Concerns are rising that this shutdown might prompt rating agencies to downgrade US credit. This action would add to the ongoing losses from the current chaotic situation.
Sponsored
How likely is this scenario? Sadly, there are compelling reasons to believe that another government shutdown could precipitate a credit downgrade.
In 2023, Fitch cited a previous 2018 shutdown, alongside other Congressional gridlocks, as justification for reducing the US credit rating. Moody’s took a similar stance in May 2025, cautioning that further downgrades could be on the horizon:
“The rating could be [further] downgraded if policy effectiveness or the strength of institutions were to erode to such a degree that materially weakens the sovereign’s credit profile. This would be the case if it were to lead to a deterioration in medium-term growth or economic resilience to shocks, or if it was accompanied by a significant and lasting move by global investors out of the US dollar,” Moody’s indicated in its last downgrade.
Sponsored
While the rating agency did not directly link government shutdowns to its downgrade decision, the implication seems evident. Furthermore, this crisis could inflict particularly severe damage.
Lengthy Deadlock and Crypto Opportunities
Analysts have noted that the average US government shutdown has historically lasted about eight days, but Trump’s 2018 shutdown, lasting 35 days, significantly distorted this average.
Currently, as economists have observed, prediction markets anticipate this shutdown may last two weeks or more:
Sponsored
Admittedly, Polymarket isn’t infallible, but it serves as an essential gauge of market sentiment. If a majority of investors think this shutdown will extend significantly longer than usual, it could lead to a further credit downgrade.
This bearish indicator could trigger numerous downstream consequences.
In summary, crypto’s robust performance on the first day of the shutdown serves as a noteworthy measure as well. Although there is ongoing debate about Bitcoin’s resilience during extended recessions, this situation presents a valuable opportunity to collect concrete data.
If token markets continue to progress positively amid a shutdown and a credit downgrade, it will signal that crypto could be a reliable recession hedge.
