Key Points to Consider:
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The yield on the benchmark US 10-year Treasury bond has decreased, indicating a rise in investor caution and a greater desire for secure investments.
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While stock market performance remained subdued, Spot Bitcoin ETFs saw substantial inflows of $430 million, potentially signifying a divergence from conventional market trends.
Bitcoin (BTC) climbed to a two-week peak this Wednesday following the partial shutdown of the US federal government. However, market participants are maintaining a cautious stance, remembering the market downturn that accompanied the 2018 shutdown due to fears of slower economic expansion.
With no resolution agreed upon, federal departments have initiated their shutdown plans, leading to hundreds of thousands of government employees being furloughed. All eyes are now on how long the shutdown will last, with another vote scheduled in the Senate for Wednesday.
The current administration has suggested potential widespread job cuts if an agreement isn’t reached, a threat that has heightened traders’ anxiety and risk aversion.
The decline in US 10-year Treasury yields shows investors prioritizing the security of government bonds, even at lower returns. Gold prices also experienced a surge, hitting a new high of $3,895 per ounce, indicating stronger demand for time-tested safe-haven assets.
Initially, the government shutdown seemed to offer a short-term positive effect for Bitcoin. However, questions about its sustainability persist. The US stock market showed minimal immediate reaction, despite concerning ADP data reporting 32,000 fewer private sector jobs created in September and downward revisions to August’s figures, showing a loss of 3,000 jobs.
Bitcoin’s Value Decreased by 9% During the 2018 US Government Shutdown
During the US government shutdown in December 2018, Bitcoin’s value fell by 9%. This time around, the economic impact could be felt more rapidly, as government spending contracts significantly and the release of key economic data is delayed.
The US stock market entered a 12% correction phase only 10 days before the December 22, 2018 government shutdown. However, this entire loss was recovered in less than a month. Investors who maintained their positions, ignoring the short-term fluctuations, ultimately benefited.
For Bitcoin, the December 2018 shutdown had a somewhat negative effect, with prices dropping from $3,900 to $3,550 during the 35-day period of political stalemate. Still, the cryptocurrency faced far greater headwinds at that time, having already plummeted 42% in the two weeks prior to November 25, 2018. Some analysts claimed that stricter regulatory measures triggered the steep decline.
In October 2018, the Financial Action Task Force (FATF) updated its guidelines to encompass virtual asset activities, including cryptocurrency exchanges and certain wallet providers. This international organization, representing around 200 jurisdictions, primarily focuses on combating money laundering and terrorist financing. Traders may have anticipated increased regulatory scrutiny.
Related: US Senate to Hold Discussions on Crypto Taxation as the IRS Offers Relief on Corporate Tax Matters
The substantial $430 million net inflows into spot Bitcoin ETFs on Tuesday, coupled with Bitcoin’s recent tendency to move independently from equities, has cemented its status as a separate hedging instrument. These ETFs currently hold nearly $147 billion in assets, while gold ETFs, within a $26 trillion market, hold $461 billion.
The current scenario suggests the government shutdown could potentially benefit Bitcoin over the next month, even if short-term economic weakness weighs on traditional markets. Ongoing corporate demand for Bitcoin as a reserve asset is also expected to be a crucial factor in supporting positive price momentum during this period of heightened uncertainty.
This article is for informational purposes only and should not be interpreted as legal or financial advice. The opinions and views expressed are those of the author and do not necessarily reflect the views of Cointelegraph.