An imminent U.S. government shutdown has been a popular topic lately. Shutdowns occur when American Congress representatives do not approve administrative funding before the next fiscal year.
In September 2023, the US government came close to a shutdown, only averted by a short-term bill to keep the nation running from October to mid-November. As the deadline approaches, it’s unclear if a shutdown will happen or if the U.S. Congress will approve a firm funding bill to keep things going.
A hypothetical shutdown would significantly affect the crypto markets, especially Bitcoin. This article will explain what Bitcoin (BTC) investors should expect from such a situation.
How Would A Government Shutdown Affect Bitcoin?
The market consensus is that a shutdown will favor BTC in the short term. Such a pause will dampen people’s faith in the traditional financial system dominated by the U.S. dollar, and investors will seek alternative currencies and assets to park their cash as they watch the situation.
Bitcoin is the most popular cryptocurrency that investors will likely flock to in a shutdown. This is not just a fancy theory; it was proven during the last U.S. government shutdown from December 2018 to January 2019. BTC rose from $3,207 to $4,244 during that period, a 32% jump. It was also very volatile during that period, swinging from highs to lows in the blink of an eye. However, investors who stayed till the end were rewarded with considerable short-term gains.
What’s Behind the Current Government Issues?
Division is the core issue. Let’s take a small lesson on American politics. There are two major political parties: Republican and Democrat. President Joe Biden is a Democrat, but Republicans control the “House,” a.k.a Congress. Out of 100 Senators, 49 are currently Republicans, 48 are Democrats, and just 3 belong to other parties.
The two major parties frequently disagree on several issues, leading to funding disputes. Republicans are pushing for lower spending, while Democrats are pushing for higher spending to fund government programs. A quarrel ensued between both parties, and the funding bill for the next fiscal year has yet to be approved. A short-term solution has been passed, but questions remain after it expires in mid-November.
Why Will Government Disputes Affect Bitcoin?
We can’t overstate how vital U.S. Congress decisions are to the world economy. America is the world’s largest economy and has the biggest budget among all nations ($5.5 trillion in fiscal 2023). The U.S. Dollar is the dominant currency worldwide, loved by investors because of its stability.
A slight hassle in the U.S. Congress causes panic among investors. If the government shuts down, investors fear their dollar-denominated assets won’t be safe and flock to alternatives like Bitcoin.
A shutdown will likely cause BTC to rally because more people flock toward it while waiting for the government to sort out its issues. The token will likely be volatile in this period owing to investor panic and uncertainty.
Whether the shutdown will happen is uncertain. To be clear, no one hopes for this kind of situation; it causes many disruptions in government functions, and federal workers won’t be paid as long as it lasts.
However, investors should be cautious and ready to act on any emerging situation. You can monitor crypto news sites to stay alert on any industry occurrences. You can also read political and business news sites to stay updated on government events. Crypto investors are in a crucial moment they shouldn’t lose sight of.