NYDIG, a leading Bitcoin-focused financial services firm, has predicted that the United States government could face a shutdown lasting anywhere from 1 to 35 days due to Congress’s inability to pass a federal appropriations bill. This looming shutdown has raised concerns in financial markets, particularly cryptocurrency.
Though rare historically, the recurring specter of government shutdowns has become more frequent in recent years. With three shutdowns in the last decade alone, the potential impact on financial markets, particularly crypto, has become a cause for concern.
Moody’s, the sole major rating agency still assigning a AAA credit rating to the U.S., warns of negative repercussions if the government shuts down.
This isn’t the first time the US’s financial stability has come into question. In 2011, Standard & Poor’s downgraded the country’s credit rating amid debt ceiling negotiations, citing concerns about policymaking effectiveness and political instability.
In the event of a government shutdown, the Department of Justice (DOJ) is likely to be minimally affected, given its crucial role in ensuring public safety. However, financial regulators, such as the SEC, face significant disruptions. With a lean staff operating during a shutdown, the SEC delays decisions on ETFs, including the iShares Bitcoin Trust.
Spot Bitcoin ETF decisions are postponed, hinting at the SEC’s preparedness for a potential prolonged shutdown. The SEC aims to maintain flexibility in the approval process, anticipating renewed interest post-shutdown. A crucial deadline of January 10, 2024, looms, requiring the SEC to decide on the entire spot Bitcoin industry, potentially adopting a consistent approach for all ETFs.
Divergence In the Cryptocurrency Landscape
While Bitcoin faces uncertainty, Ethereum’s landscape sees divergence. Ethereum futures ETFs appear set for launch as firms like VanEck and Valkyrie update registration statements. However, spot Ethereum products face SEC disinterest, with decisions swiftly deferred to future deadlines.
However, the intertwined fate of financial markets and cryptocurrency decisions hangs in the balance as the government shutdown looms, awaiting a resolution in Congress and its potential repercussions on the economy at large.
Despite the looming government shutdown, Bitcoin managed to end the week with a 1.9% increase, possibly benefiting from concerns about the U.S.’s creditworthiness. Meanwhile, gold, a traditional fiat hedge, fell by 2.9%.
Concerns about economic growth and consumer stress led to a 1.3% decrease in the S&P 500 and a 0.2% drop in the Nasdaq Composite. Bonds also experienced declines, while oil saw an increase of 2.3% due to tight supply.
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