After a month and ten days of being shut down, the U.S. government is finally showing major signs of reopening. During these days when the government was in sleep mode, many sectors of the economy suffered. Employees were furloughed, while the crypto and stock markets were all over the place. Some impacts were measurable, while others were immeasurable.
What caused the shutdown?
On October 1, the Democrats and Republicans did not agree on passing a bill funding government services after the previous federal budget expired. The Democrats “wanted the bill to include an extension of expiring tax credits that make health insurance cheaper for millions of Americans and a reversal of Trump’s cuts to Medicaid, a government healthcare program used by millions of elderly, disabled, and low-income people. They also opposed spending cuts to government health agencies,” according to a prominent media outlet.
But with some democrats supposed to support the funding bill, there is renewed hope that the inactive government might call it quits. However, the economic damage over the past 40 days is quite significant in some sectors but negligible in others.
Although not all government services were shut down, about 1.4 million federal employees are still on unpaid leave or working without wages. Among these unpaid government employees were air traffic controllers who eventually stopped reporting to work, border control, health care workers, etc. In some sectors, the loss incurred during the shutdown was quantifiable in dollars and labour hours, while there were other services where numbers failed to represent the loss.
Stock market moved in a tight range
S&P stocks were not bothered by the U.S. government shutdown, as they fluctuated between $6,500 and $6,900. Despite having bumps and crashes, S&P 500 was always on an uptrend. As of 2:42 p.m. on Wall Street, the Dow Jones Industrial Average was up 362.79 points, or 0.77%, to 47,349.89, the S&P 500 climbed 100.99 points, or 1.50%, to 6,829.79, and the Nasdaq Composite rose 520.79 points, or 2.26%, to 23,525.33.
Crypto market cap crashed
The crypto market’s total market cap crashed below the $4 trillion level and kept crashing until it reached $3.37 trillion; however, the crypto market crash had nothing to do with the shutdown. Bitcoin reached its new all-time high of $125,700 just a few days into the shutdown, but the flagship crypto started to lose value as traders started to take profits. As the market went into a full selloff mode, traders were taken aback with fear.
Crypto market fails to capture the impact on charts
Although the shutdown was not reflected on the crypto charts, however, it had a muted effect on the crypto market. For instance, it postponed passing the CLARITY Act, which defined how stablecoins and cryptocurrencies are regulated across federal agencies.
In addition, the approval of crypto ETFs like those tied to Bitcoin and altcoins was also delayed as agencies like the Securities and Exchange Commission (SEC) were not functioning to their full capacity.
With the next Federal Open Market Committee meeting approaching on December 10, the Federal Reserve might go for the third rate cut in 2025. The CME Group prediction market gives a 63% of another rate cut for December. But with the year-on-year (YoY) inflation soaring around 3%, the Fed will be making a big decision in almost a month. But let’s be optimistic and consider that there will be an interest rate cut.
Given that an interest rate cut is on the cards, the economy and the crypto prices should boost. However, with the shutdown, certain government entities won’t have the necessary data to submit to the Federal Reserve to make this vital decision. So the bottom line is that, although the government shutdown did not have an impact that could be measured in numbers, it did have an intangible effect on crypto.
