A government shutdown is looking increasingly inevitable in the U.S. — with federal agencies now hours away from running out of money.
Republicans and Democrats have been unable to reach a temporary spending deal, and have until 11.59pm on Tuesday to set aside their differences.
Talks were held at the White House late into the night on Monday, and it looks like both sides are refusing to budge.
Vice President JD Vance believes that a shutdown is likely, with Donald Trump also striking a defiant tone — and claiming his political rivals are to blame.
“If it has to shut down, it’ll have to shut down. But they’re the ones that are shutting down the government.”
Shutdowns have severe consequences, and unfortunately, have become increasingly frequent. This would involve thousands of federal workers being furloughed without pay. Airlines have also warned there could be extensive travel disruption, with delays at security and fewer planes able to take off.
That’s not all. The markets are awaiting for key economic data to be released on Friday — figures that the Federal Reserve relies upon when weighing up whether to cut interest rates. It’s been confirmed that these statistics won’t be made public if the shutdown goes ahead.
The political impasse could have wide-ranging ramifications — on Wall Street, and in the cryptocurrency sector. Here, we’ll explain why.
How Common Are Government Shutdowns?
There have been three government shutdowns since 2009, when Bitcoin first launched.
A 13-day standoff took place in October 2013 under Barack Obama, with the dispute linked to the Affordable Care Act.
There was also a three-day dispute in the early days of Donald Trump’s first term — followed by a 35-day shutdown between December 2018 and January 2019.
As a rule, such government drama doesn’t tend to worry the markets all that much. This is because many traders assume that shutdowns will be temporary and quickly resolved.
Figures suggest that the average shutdown lasts for eight days — and 57% of the time, the S&P 500 has actually risen while the political drama is taking place. That’s because, a lot of the time, it has very little impact on a company’s profitability.
But there’s a big exception to the rule here: markets hate long shutdowns, and the uncertainty they foment. During that 35-day dispute almost seven years ago, which was sparked by a disagreement over funding for Trump’s border wall, this flagship index actually tumbled by about 14%. The pullback was painful but temporary, with the S&P 500 jumping by 25% in the year that followed.
That shutdown also had an impact on Bitcoin. The world’s biggest cryptocurrency was worth $4,014.18 on the day it began — shedding 10% of its value by the time it ended on Jan. 25, 2019. One year on, it had more than doubled to $8,367.85.
Because of this, the main signal that traders will be looking for is how long this shutdown could end up lasting. Losses could begin to pile up pretty quickly if it appears the Democrats and Republicans are too stubborn to reach a compromise.
Unlike previous events, there’s another one-off factor that complicates matters: Donald Trump’s tariffs. From 1 October, which is when this latest shutdown could begin, a 100% levy on imported drugs is going to be imposed, with the president claiming these products are “flooding” the U.S. market. There’s also going to be a new 25% tax on heavy-duty trucks, rising to 50% for foreign-made kitchen and bathroom cabinets.
Even though a shutdown is looking increasingly likely, the markets don’t appear to be too fazed at the moment. The S&P 500, Dow Jones and the tech-heavy Nasdaq 100 all edged up slightly by the end of Monday’s trading session, with Asian stocks doing the same as Tuesday began. Meanwhile, BTC is nearing $115,000, with ETH topping $4,200 once again.
The big winner right now is gold, with the precious metal rallying to a fresh record high of $3,833.37 per ounce and reinforcing its reputation as a safe haven asset. Gold’s rallied by an impressive 46.5% in the year to date, comfortably outperforming Bitcoin’s gains of 22.5%. That once again pours cold water on the narrative that this cryptocurrency is a form of “digital gold.”
Expect turbulence in the days and weeks ahead. Should this shutdown begin at the stroke of midnight, hopes of “Uptober” may have to be put on ice.
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