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Important political news is being absorbed by markets as the BBC claimed that the U.S. government had officially shut down. In traditional finance, such an occurrence is usually linked to increased risk aversion; however, the cryptocurrency market has responded differently, exhibiting a broad-based pump across key assets.
What's reason?
Bitcoin soared past $116,000 on the charts, rising by almost 3% over the past day, while Ethereum regained its position above $4,280, rising by 3%. Following with significant gains of 3-5% were Solana, Cardano and XRP. Curiously, tokens with smaller market capitalizations such as PUMP experienced high volatility, reaching a peak of more than 20%.
Why are cryptocurrencies rising as the U.S. government stuck in a political stalemate? How investors perceive risk could be the answer. Because of the uncertainty surrounding federal spending, shutdowns usually have a negative impact on equity markets, but cryptocurrency frequently gains from the alternative safe haven narrative.
Additionally, it is in line with more general changes in liquidity. Traditional markets face an information gap that could erode confidence as a result of the shutdown and suspension of some government operations, including economic reporting. In the meantime, trading volumes for Ethereum and Bitcoin increased, indicating a rush for liquidity in digital assets.
Real market impact
Nevertheless, it is important to remember that, historically, U.S. government shutdowns — unless they are extended — have had little direct economic impact. The impact on crypto might be more psychological than fundamental. It is possible that traders are pricing for future financial strain and U.S. debt issues instead of the shutdown itself.
Technically speaking, the four-hour chart's breakout of Bitcoin above the 50 EMA strengthens the bullish argument, and the RSI remains below overbought levels, suggesting the potential for additional upside. Ethereum is in a similar situation because if the pump is solely motivated by sentiment surrounding the shutdown, in the short term, a retracement may occur when political clarity returns.
Simply put, even though the U.S. government shutdown has caused a surge in risk-hedging flows into digital assets, and even though it may not have a direct impact on crypto fundamentals, Bitcoin was arguably created to serve as an escape mechanism during periods of institutional uncertainty. The market is indeed treating it as such.
Dan Burgin
Vladislav Sopov
U.Today Editorial Team