Government Shutdown: What It Means for Crypto Investors

The government shutdown continues to make headlines globally and for good reasons. This impasse will result in approximately 750,000 federal workers being furloughed or forced to work with delayed pay. Additionally, it will directly halt operations for several major regulatory bodies, which will, in turn, impact assets such as cryptocurrencies. Here’s what you need to know.

What is a Government Shutdown?

The term government shutdown refers to scenarios when politicians can’t agree on the upcoming federal funding. This situation can arise from various issues, including Congress’s inability to reach a consensus. Also, the President can cause shutdowns by refusing to sign the spending bill.

Why Do Government Shutdowns Happen?

The main reason for shutdowns is that the federal government requires funding to operate. Like any business, this organization can’t properly plan out its operations without first knowing its budget and where the funding is to be allocated.

In most cases, funding disputes between the legislative and executive branches can lead to weeks of stalled government services, furloughs, and more. Historically, these disputes arise from partisan issues, and their effects can create months of additional work, disruptions, and other issues for workers when they eventually return.

What Happens During a Government Shutdown?

There are several things that occur during a government shutdown that make it a serious issue that is worth learning about. For one, the government will cease to provide any non-essential services to the public. For example, all federal sites have reduced operations during these times, including the White House, the Smithsonian museums, and other culturally significant locations.

Shutdowns also have a ripple effect that occurs from having services suspended on such a wide scale. There are delays to critical tasks, including legislative duties, consumer protections, government outreach programs, inspections, drug approvals, and medical reviews.

How Furloughs Affect Federal Workers

Furlough is a term that refers to workers being laid off without pay. Furloughs can range from deductions in scheduled time all the way to the worker being told to stay home. Obviously, this situation negatively affects federal workers, many of whom live paycheck to paycheck, like the majority of Americans.

Sadly, a government shutdown can result in hundreds of thousands of federal workers temporarily losing their income. In some situations, essential workers will be required to continue working with delayed pay. Compounding these issues is a string of recent federal workforce reduction initiatives, which have already left many agencies stretched thin.

Delays Caused by a Government Shutdown

You can expect to experience several delays directly due to the government shutdown. For example, you could have delayed tax returns or an inability to access websites or certain data. Additionally, travel will be more delayed due to fewer airport staff and the fact that essential employees, such as air traffic controllers, will be forced to work with delayed pay.

Notably, even agencies like the FBI will have to scale back their operations during the government shutdown. Additional delays can be felt when obtaining documentation, like passports or qualifying for aid. The government shutdown will also result in reduced staffing at national parks, leading to delayed garbage cleanup and other essential tasks. Here are just  a few of the affected agencies:

• Consumer Product Safety Commission (CPSC)
• Food and Drug Administration (FDA)
• Centers for Disease Control and Prevention (CDC)
• Environmental Protection Agency (EPA)

What Stays Open During a Government Shutdown

Not everything is affected by the shutdown. Crucial tasks like accessing Medicare or receiving Social Security checks will still be an option for Americans. Also, national security and law enforcement agencies will continue to operate. You will also notice that transportation staff, like Amtrak employees, remain active.

Why Did the Government Shutdown Occur This Time?

Notably, this shutdown, the third that President Trump has faced, occurred for several specific reasons. The main reason is that neither of the two political parties could come to an understanding on this year’s budget. Specifically, a Democratic-sponsored bill and a Republican stopgap funding measure both failed to achieve any common ground in the Senate. Here are some of the critical points causing the disturbance.

What Republicans Want

According to analysts, the republicans want to trim down the government spending, in line with their DOGE cutbacks earlier in the year. They wanted to specifically cut funding from Medicaid benefits, like the  ACA subsidies renewal. The ACA tax credits were created during the COVID-19 pandemic.

Their primary goal was to subsidize millions of Americans’ health insurance bills. Considering that studies show the average cost of insurance policies to be $456/month, this tax credit removal would affect millions of US workers. Specifically, their rates would increase significantly.

What Democrats Want

The Democrats want to secure guarantees that the ACA credits won’t be eliminated alongside other health-related offerings before they approve any spending bill. They cite data showing the elimination of the credit could result in millions of uninsured Americans. Their goal is to get the credits enshrined into the spending bill alongside other Medicaid benefits that were eliminated by the Trump administration earlier in his term.

Another critical point of contention between the parties is the foreign funding. The Democrats argue that the president has no legal authority to withhold federal funding that was approved by legislators. However, the Supreme Court sided with the President recently, enabling him to unilaterally determine whether or not to withhold foreign aid based on his own credentials.

How Long Will This Shutdown Last?

There’s no definitive way to forecast the length of this shutdown. However, there are some critical factors to note. For example, there appears to be little support to offer concessions from the Trump administration. Additionally, the Democrats have vowed to stay the course to protect their healthcare provisions. All of these factors make determining the length of this shutdown difficult to predict.

History of U.S. Government Shutdowns

Given the aggressive news coverage of the government shutdown, it may appear that such situations are rare. However, a quick glance into the history of government shutdowns reveals a troubling trend: they are becoming more frequent than ever.

Notably, there have been 10 shutdowns in the US government if you count Reagan-era politics. President Reagan encountered a budgeting dispute due to his economic policies, including his controversial hiring programs. Additionally, he faced backlash for his military spending, which was primarily focused on missile research.

Clinton Shutdowns 1995-1996

President Clinton had to deal with two government shutdowns during his term. His term was marred by partisanship, resulting in Speaker Newt Gingrich and a Republican-controlled Congress refusing many of his budget requirements and policies.

The first incident occurred in November 1995 and was ended when a short-term budget bill was passed. However, only a few months later, another shutdown would take place from December 1995 to January 1996. This 3-week budgetary dispute arose from several factors, including disagreement on Medicaid and other public health proposals.

This disagreement only ended after Clinton’s budget proposal was finally accepted by the house republicans. Sadly, 380,000 workers lost income for those 3 weeks as they were furloughed. Also, another 420,00 workers had to continue to work with delayed pay, resulting in many receiving late fees on credit cards, car payments, and mortgages.

Obama Shutdown 2013

The Obama government shutdown occurred for many reasons, including heavy partisanship and disagreements surrounding the Affordable Care Act. The Republicans saw the Affordable Care Act as bloated spending, while the Democrats envisioned it as a lifeline to millions.

Sadly, the Obama-era shutdowns affected even more federal workers than past administrations. It was reported that 800,000 employees were furloughed for 16 days. Even more insane is that 1.3M government employees had to keep coming into work with no preset pay day.

Trump Shutdowns 2018 – 2019 – Present

The Trump administration is no stranger to government shutdowns. The combination of the administration’s unorthodox methods, strong partisanship, and other controversial topics like support for foreign military operations is just one of the main reasons that Trump is now facing his 3rd government shutdown.

Notably, the first shutdown occurred mainly due to disputes surrounding his border wall. The republicans wanted to include billions to fund its construction, whereas democrats opposed the strategy from day one. This shutdown was the longest in US history, lasting 35 days and resulting in 300,000 federal workers being temporarily left without income.

How a Government Shutdown Impacts Cryptocurrencies

Now that you understand the history and causes of government shutdowns, it’s much easier to see how this scenario could affect cryptocurrencies. There are several factors to consider when examining these possibilities, including the market’s current maturation, institutional support, and the recent announcement by the US government that it has started a Bitcoin reserve. Here are some possible effects of the latest government shutdown you should expect:

Market Uncertainty

Anytime you have the majority of regulatory bodies not operating, there is going to be a massive reduction in transparency. These groups do more than create regulations. They also provide critical data to the sector. Their information is crucial for determining factors such as hiring rates, average income, and other key metrics.

When investors can’t access this data in a timely fashion, it can result in them taking a more risk-averse posture. You can see this shift towards more stability in everything from spending habits to what types of assets investors decide to move their money towards. Traditionally, gold has received a boost during times of uncertainty.

Bitcoin Consolidates

As Bitcoin has emerged as a safe-haven asset over the last few years, the government shutdown will likely result in Bitcoin demand increasing. Like gold, Bitcoin is now seen as a global store of value. It has proven to be more reliable and secure than traditional gold and provides a plethora of benefits, including real-time network monitoring.

You can expect to see investors move their funding from more risky alt coins and other investments into Bitcoin. These market sentiments are already evident as Bitcoin gained value immediately following the news of the government shutdown.

Delays Across the Market

Sadly, this shutdown will delay several in-the-works crypto-related investment vehicles. This week, the SEC approved generalized guidelines for crypto ETFs. This decision eliminated the need for exchanges to seek approval based on individual factors. For the first time, the SEC has issued transparent and straightforward guidelines on how to obtain crypto ETFs.

The shutdown will slow all SEC operational and regulatory activities. The group will operate with a smaller staff and likely not make any major decisions until after the government shutdown is resolved. As such, there are billions in ETFs that will now have to sit on the back burner awaiting some sort of coherence from government officials.

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What You Should Do as An Informed Investor During a Government Shutdown

Once you fully understand government shutdowns, it’s easy to see that you don’t need to panic during these situations. There will undoubtedly be short-term volatility due to these conditions, and you can expect to see smaller-cap tokens lose some value.

The best course of action is to wait out the shutdown, as they usually won’t last longer than a month. Also, consider consolidating your holdings into major projects like Bitcoin or Ethereum. Lastly, stay updated on shutdown developments to ensure that you are ahead of the trends.

What Does the Government Shutdown Mean for Crypto?

When you examine the situation, it is hard to pinpoint exactly how the crypto market will react to the news. There’s significant evidence to show that Bitcoin will continue to see gains, while most altcoins will feel some drain as investors move their assets to perceived safer options. As such, this situation further demonstrated Bitcoin’s maturity and growing public awareness of its core benefits.

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