Investors often seek out alternative assets in uncertain times, but the world’s most popular cryptocurrency ended up losing value during the last shutdown.
The U.S. government has shut down.
Last night, Congress failed to pass a new funding bill that would have kept the federal government operating normally. However, at 12:01 a.m. today, the existing funding bill ceased to be in effect, and with no new one in place, large parts of the government are now shut down.
Fast Company has previously explored how the government shutdown will affect everyone, from Social Security recipients to travelers and federal workers. But the shutdown will also no doubt have an effect on the markets. And not just the stock markets.
The U.S. government shutdown appears to already be having an impact on cryptocurrency markets.
Here’s how Bitcoin and other major cryptocurrencies are performing in the hours after the federal government shut its doors—and how cryptocurrencies reacted the last time there was a government shutdown.
The government is down, but crypto is up
The first thing to note about markets of all stripes today is that some are down and some are up. As of the time of this writing, futures of the three major stock market indexes in the United States are all down—but not by a staggering amount.
S&P futures are currently down by about 0.58%, Dow futures are down by about 0.52%, and Nasdaq futures are down by about 0.67%.
But those declines are opposite to how most major cryptocurrencies are performing. As of the time of this writing, nearly every major cryptocurrency is up by multiple percentages, including:
- Bitcoin: Up 2.8% to $116,281
- Ethereum: Up 2.8% to $4,283
- XRP: Up 3.1% to $2.93
Other popular cryptocurrencies are also up as of the time of this writing, including Dogecoin, up 5.2%, and Solana, up 4.81%.
Why are crypto prices rising?
Many major cryptocurrencies began spiking around the time that the U.S. government officially entered its partial shutdown. But why?
Investors are likely seeking safe-haven assets—investments that are seen as safer bets than stocks or bonds when there is a wave of economic uncertainty—uncertainty that is often created by a government shutdown.
Historically, gold has been seen as the de facto safe-haven asset during uncertain economic times. But in recent years, as cryptocurrencies have become more mainstream, investors often see the digital assets as safe havens when political turmoil has the potential to upset traditional markets.
However, investors in crypto would be wise to act cautiously because while crypto currently seems to be benefiting from those seeking safe-haven assets, there’s no guarantee that the digital assets will continue to rise—or remain stable—in the days and weeks ahead.
Indeed, the last time there was a government shutdown, Bitcoin lost value during the period that the U.S. government shut its doors.
Bitcoin lost value during the last shutdown
Prior to this government shutdown, the federal government last shut down during President Trump’s first term. The U.S. government entered a partial shutdown between December 22, 2018, and January 25, 2019. This was the longest government shutdown on record.
And in the early days of the shutdown, Bitcoin appeared to receive a boost.
According to Yahoo Finance data, Bitcoin opened at $3,898 per coin on December 22, 2018. It closed the day above $4,014. Two days later, Bitcoin climbed to an intraday high of $4,271 on December 24.
But then the gradual slide began. Over the course of the next month, Bitcoin steadily declined, and by January 25, 2019, it closed below $3,600.
If you go by Bitcoin’s closing prices of $4,014 on December 22, 2018, and below $3,600 on January 25, 2019, that means Bitcoin lost roughly 10% of its value during the last U.S. government shutdown.
Of course, this historic loss cannot be relied upon to predict what might happen to digital assets during the current federal government shutdown. However, what this history suggests is that asset prices can vary significantly in the later stages of a government shutdown compared to the early stages.
