The U.S. government shutdown continues and enters its second week. As of October 7, Republican and Democratic members of the U.S. Congress have not reached an agreement to resume normal operations, which means that important financial regulatory agencies including the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are still unable to work smoothly.
In fact, due to the interruption of government funding, the U.S. Securities and Exchange Commission began to shut down its operations last Wednesday. Most staff have received instructions to ensure work safety and prepare for the suspension of operations that may last for several days. At the same time, the agency will operate with extremely limited personnel under certain conditions, and its ability to review crypto ETFs will be limited. The agency pointed out: "On the first working day of the funding interruption, non-excepted employees should take various activities to end their respective business work, but they need to protect their workstations and work materials and prepare for the rapid resumption of business after the funds are restored."
What can the SEC and CFTC do for cryptocurrencies during the US government shutdown?
The SEC will no longer participate in ongoing litigation except for cases with limited staffing, emergencies, or threats to property, meaning any enforcement actions against cryptocurrency companies may be effectively suspended until the U.S. government shutdown ends.
The SEC is also unable to review any registration applications, participate in non-emergency rulemaking, oversee self-regulatory organizations, or provide non-emergency assistance to foreign regulators. While the SEC's electronic filing system will continue to accept submissions, applications for cryptocurrency-linked exchange-traded funds (ETFs) awaiting approval may be put on hold. According to industry insiders, several Solana ETFs, currently awaiting approval in mid-October, may be delayed.
The situation is similar for the U.S. Commodity and Futures Trading Commission (CFTC), which currently operates under limited staffing and has only one commissioner serving as acting chairman. The Senate is unlikely to consider legislation establishing a market structure for digital assets until the government resumes normal operations, and Trump will not nominate a successor to the CFTC. Last week, the White House reportedly withdrew Brian Quintenz's nomination for CFTC chairman due to opposition from Gemini co-founders Cameron and Tyler Winklevoss, both Trump donors and supporters.
Przemysław Kral, CEO of cryptocurrency exchange Zondacrypto, analyzed: "The US government shutdown may disrupt the U.S. Securities and Exchange Commission and the U.S. Commodity and Futures Trading Commission, thereby damaging the cryptocurrency industry. These two agencies are crucial to the global digital asset market. Although the direct impact seems limited, the decline in their operational capabilities may hinder innovation and reduce investor confidence, especially in regions that are already lagging behind in cryptocurrency regulation."
Bitcoin hits record high as government shutdown spurs "depreciation trade"
As investors grow increasingly concerned about the uncertainty surrounding the US government shutdown, the "downtrade," a hedge against a depreciating dollar, has become one of the most popular investment themes this year, driving Bitcoin prices higher. In the early morning of October 7th, Beijing time, the price of Bitcoin surpassed $126,000, setting a new all-time high, surpassing the previous record of $125,689.
This "down-trading" strategy began to gain favor among retail investors in the run-up to the 2024 US presidential election. Analysts believe that regardless of whether the government shutdown is short-lived or lasts several weeks, the structural factors behind it suggest further growth in this trade. Furthermore, declining real interest rates and the Federal Reserve's resumption of rate cuts amid persistently high inflation have added additional catalysts to Bitcoin's recent rally, prompting investors to seek safety in decentralized assets.
Geoff Kendrick, head of global digital asset research at Standard Chartered Bank, believes that Bitcoin's performance during this US government shutdown is significantly different from the one from December 2018 to January 2019. During the previous Trump-era shutdown, Bitcoin was in a different position, resulting in lackluster performance. However, this year, Bitcoin has formed a trading correlation with US government risk, best reflected in its relationship with the US Treasury term premium.
Prediction markets show cryptocurrency users appear to be betting on a prolonged US government shutdown.
Various data on prediction markets such as Kalshi and Polymarket show that many users predict that the US government shutdown will be long, but it will not reach the historical high. During Trump's first term, the US government shutdown set a record of 35 days due to his promotion of the construction of the US-Mexico border wall.
On the Kalshi website, a betting platform on the duration of the government shutdown shows a 69% probability that the US government shutdown will last more than 15 days and a 41% probability that it will last more than 25 days. On the Polymarket platform, most crypto users predict that this US government shutdown will become the longest in US history, with a 72% probability that it will end after October 15.
The good news is that the SEC has made it clear in its operating plan that employees must return to work on the next normal business day once the U.S. government shutdown ends.
