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Bitcoin’s refuge appeal being touted again with US shutdown prospects rising

CHICAGO - The increasing prospects of a US federal government shutdown has some Bitcoin advocates predicting a rally similar to one that happened in response to the regional bank crisis earlier this year.

“We actually saw Bitcoin rally as a sort of safety hedge against further banking unrest,” said Stephane Ouellette, co-founder and chief executive of FRNT Financial. “It will be very interesting to see if the market going to buy Bitcoin during all different types of periods of US-economic/financial uncertainty or just in a banking crisis context as we saw earlier in the year.”

Bitcoin jumped roughly 25 per cent over a one-month period in March, when three small- to mid-size US banks failed over the course of five days. That was even after a bank run on Silicon Valley Bank, where a portion of stablecoin issuer Circle’s deposits was trapped for several days before they were returned in full to the Boston-based company.

Bitcoin was little changed on Wednesday at around US$26,258. After rallying more than 80 per cent in the first half of the year, the largest cryptocurrency by market value has declined about 14 per cent.

A US government shutdown would have a cascading economic effect. Federal contractors ranging from Elon Musk’s SpaceX to janitorial service providers for local federal buildings are bracing for up to US$1.9 billion (S$2.6 billion) a day in lost and delayed revenue as funding lapses Oct 1. The blow would hit as anxiety in financial markets over high interest rates, rising oil prices and labour strikes already weigh on markets.

James Butterfill, head of research at crypto asset manager CoinShares, also predicts that the US governmental disarray will boost the price of Bitcoin.

“We expect the shutdown to exert pressure on the US dollar, especially following its recent strengthening, while having a material impact on economic growth in Q4,” Mr Butterfill said. “In some aspects, this scenario bears resemblance to the debt ceiling stalemate experienced earlier this year, which ended up bolstering Bitcoin prices.”

Mr Butterfill notes there is relatively “scant” media coverage and discussion on the shutdown’s effect on Bitcoin prices as compared to earlier this year, signalling a quieter market.

From a regulatory perspective, Noelle Acheson, author of the Crypto Is Macro Now newsletter, is sceptical that a shutdown will impact crypto markets or tentative legislation much.

“It will slow the progress of the current crypto bills, but that was going to be slow anyway,” Ms Acheson said.

Yesterday, the US Securities and Exchange Commission (SEC) announced its decision to delay ARK’s Bitcoin ETF filing, even though the regulatory body was not required to issue a decision until Nov 11.

“As far as I know, the SEC has not said anything about the proposals from BlackRock, Fidelity, Invesco and many others, that falls between the 16th and 19th of October, which could be punted if the government lockdown extends,” Ms Acheson said. BLOOMBERG