The Effects of the U.S. Government Shutdown on Cryptocurrency Remain Speculative

On January 2, 2019, the 19 Smithsonian Museums and National Zoo in Washington DC. closed. The Smithsonian had been using reserve funds to keep its doors open, but the reserves have run out. As the shutdown continues to affect more government-run institutions, its effects on cryptocurrency remain speculative.

No Apparent Affect on BTC Price

During the first government shutdown which lasted three days, the price of Bitcoin (BTC) dropped. This drop in value, however, cannot be correlated with the government shutdown. This current shutdown, the third of 2018 (the second only lasting one night) is the longest yet and has continued into 2019. As of January 2, the U.S. government has been shut down for two weeks. During this time, BTC has seen its usual price volatility. Over the first five days, the value or BTC lost 10.2 percent of its total value. It closed at $4,315 on December 22, 2018, on Bitfinex. On December 27, it closed at $3,712. The following day, Bitcoin regained 8.75 percent of its lost value. A second downtrend carried over the next three days in which BTC saw its value drop by 5.1 percent. Its closing value on December 31, was $3,830.50. This was led by a two-day upward trend marked by a similar increase of 5.7 percent. On January 2, 2019, it closed at $4,048.80.

What Other Effects Might Exist?

The volatility in price between the government shutdown and January 2, cannot be correlated to the government shutdown. Volatility in BTC price is common. Even during a downtrend, such as that experienced in 2018, there were still many volatile periods for of BTC during the year. There are, however, two possible indirect effects which might exist:

Bakkt May Not Launch as Planned

If the government remains shut down for much longer, Bakkt may not receive approval from the U.S. Commodity Futures Trading Commission (CFTC) to launch as planned on January 24. The lack of approval will likely not affect cryptocurrency, or its price, in any direct way. Any indirect effect on the price of BTC or other cryptos will also probably not exist. However, Bakkt is being funded by centralized financial institutions, corporations, and investment firms. As well, it is being developed by the Intercontinental Express (ICE), the operator of the New York Stock Exchange (NYSE). In these ways, Bakkt, a to-be-released cryptocurrency trading platform, violates the principles defined by the Nakamoto Theory of Decentralization. This theory states that cryptocurrencies are meant to free individual users from the authority of centralized third parties, especially that of financial institutions. Reducing the ability for Bakkt to be launched reduces the influence of such centralized third-parties over crypto and helps to preserve the Nakamoto Theory, at least in part. Of course, the influence of third-party financial institutions still exists with Coinbase, which is funded by similar institutions as those now investing in Bakkt.

Increased Attention to Crypto

The U.S. government does not issue the American dollar. That is the responsibility of the Federal Reserve. With the shutdown of the U.S. government, the U.S. Department of the Treasury is not running as normal. They cannot be credited money by the Federal Reserve or distribute such funds to the other departments of the federal government as they usually would when the government is open. This limits the overall money available to the United States government and is partly responsible for the closure of the Smithsonian. While centralized banks and other depository institutions can still be credited money by the Federal Reserve, the symbol of the dollar remains tied to the U.S. government in the minds of many. Even if money continues circulating throughout the economy, the dollar may suffer as a result of the cultural ideology and symbolic associations common to at least a portion of the American population. These individuals may perceive the shutdown as negatively affecting the value of the dollar. Even if such perception is false, it could cause the population to begin acting in such a way that causes the value of the dollar to depreciate. In other words, the government shutdown may cause the American people to create a self-fulfilling prophecy that effectively leads to a loss of value for the American dollar. In such an instance, cryptocurrencies may receive increased attention from those who might not have otherwise paid attention to them. It is even possible that the existence of cryptocurrencies might facilitate the crash in the value of the dollar. If BTC or other cryptocurrencies become symbolically associated with relief from economic woes believed to be, or actually are associated with the dollar because of the shutdown, BTC or other cryptocurrencies may become just such relief. All of this is, of course, speculative and based on the notion that the symbolic associations and ideological beliefs of a group of people do affect economic reality. If the dollar is symbolically associated with the shutdown causing its loss in value while cryptocurrencies are symbolically associated as relief from such a loss, increased attention may be brought to them. This may even increase the usage and facilitate the mass adoption of crypto.

Conclusion

While institutions like the Smithsonian Museums and the National Zoo are closing because of the U.S. government shutdown, the price of BTC maintains the same volatility crypto investors have grown accustomed to. Searching for indirect effects of the government shutdown is difficult, but with enough speculation and imagination two can be discovered: First, Bakkt may not receive government approval to launch leading to less influence by centralized third-party financial institutions within the crypto market. Second, increased attention may be brought to crypto if the right symbolic associations, ideological beliefs, and self-fulfilling prophecies converge within and among the American people. Do you think that the government shutdown has had any effect on cryptocurrency? Let us know your thoughts in the comments below!