The U.S. government is about to shut down! Bitcoin may big dump 15%, these 3 key indicators determine the fate of the crypto market.

The risk of a U.S. government shutdown has surged to 82%, and the Bitcoin market is facing severe challenges. As the political deadlock in Washington intensifies, Crypto Assets investors need to urgently adjust their strategies to cope with the potential regulatory vacuum and Liquidity crisis that may arise. This article delves into the significant impact of a government shutdown on Bitcoin policy and market Liquidity, providing investors with a crucial decision-making guide.

Government shutdown risk surges: Bitcoin market has begun to react

(Source: Polymarket)

Polymarket contract data shows that the likelihood of a U.S. government shutdown in 2025 has surged between 72% and 82%, far exceeding the forecast level of about 35% earlier this month. This sharp rise reflects market concerns over a breakdown in negotiations in Washington and the severe consequences that a political deadlock could lead to.

The price of Bitcoin has begun to price in this risk, dropping from about $112,000 to $108,522, and then slightly rebounding to above $112,000 over the weekend, returning above $114,000 on September 30. This volatility is not limited to Bitcoin, as Ethereum once fell to $3,800, later rebounding to around $4,000, while Solana dropped over 5% during the same period.

Overall, the total market value of Crypto Assets has evaporated by more than $170 billion this week, primarily due to institutional investors adopting risk-averse strategies at the end of the quarter, shifting funds towards safe-haven assets such as the dollar, short-term government bonds, and stablecoins.

Quarter-end Effect and Dual Impact of Government Shutdown Risks

Current market pressures come from two aspects: the regular fund reallocation at the end of the quarter and the special risk of a potential government shutdown. Institutional investors are shortening investment horizons and increasing cash holdings, which has led to a noticeable outflow of funds from Crypto Assets ETFs and ETPs.

This pattern has also appeared in past macro risk events, including the Federal Reserve's interest rate decision weeks and during the debt ceiling standoff. However, the uniqueness of the current government shutdown risk lies in its potential to directly impact the regulatory process and market structure of Crypto Assets.

Three Major Impacts of Government Shutdown on Bitcoin Regulation

The government shutdown will have a profound impact on the regulatory environment for Bitcoin, mainly reflected in the following three aspects:

1. Reduction of regulatory personnel and approval delays

Once the government shuts down, key regulatory agencies such as the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) will be forced to significantly reduce staff, retaining only the most essential operations. This means:

· The review of new ETF applications will be postponed.

· The approval for changes to exchange rules will be suspended.

The release of the guidance document will be postponed.

· Law enforcement actions will be limited to the most critical matters.

It is particularly noteworthy that several cryptocurrency-related bills currently under review, including the "21st Century Financial Innovation and Technology Act" (FIT21), the "Payment Stablecoin Clarity Act," and the "Blockchain Regulatory Certainty Act," may be delayed in deliberation due to the government shutdown.

2. Delay in Market Data Release and Liquidity Impact

The government shutdown will also cause delays in the release of key economic data, which is often used to anchor expectations for front-end interest rates. The uncertainty surrounding the release of data may lead to:

· The volatility of the Crypto Assets market has increased.

· The buy-sell spread is widening, especially for tokens with lower liquidity.

· The reflexive behavior of buying on dips has decreased.

· Institutional investors delaying the decision to re-enter the market

This kind of information vacuum may amplify market volatility and prolong the recovery period following any decline.

3. Long-term regulatory uncertainty and slowing innovation

If the government shutdown lasts for a longer period, it will have a more profound impact on the entire Crypto Assets ecosystem:

· The gradual measures for regulating DeFi and altcoins will be frozen.

· The rule-making that could originally resolve the regulatory gray areas will be delayed.

· The risk premium of listed tokens may increase.

· The pace of infrastructure construction and innovation may slow down.

This long-term uncertainty affects not only price levels but also the development trajectory of the entire industry.

Liquidity Crisis: Three Key Indicators of the Bitcoin Market

During the government shutdown, investors should closely monitor the following three key liquidity indicators to assess market direction:

1. ETF Fund Flows and Stablecoin Supply Changes

The fund flow of Bitcoin ETFs is an important indicator for assessing institutional investor sentiment. During a government shutdown, if ETFs continue to experience large-scale capital outflows, it may herald deeper market adjustments.

At the same time, the changes in the supply of stablecoins are also worth noting. A decrease in stablecoin balances flowing out of exchanges typically indicates that investors are increasing their cash holdings, while a return of stablecoins may signal a recovery in buying intent.

2. Perpetual Contract Basis Level and Funding Rate

The basis level and funding rate of perpetual contracts can reflect market sentiment and leverage levels. During uncertain times, the basis often narrows or turns negative, indicating cautious market sentiment.

Investors should pay attention to whether the basis returns to normal levels, which is often an early signal of the return of market confidence.

3. Estimation of the market's prediction on the duration of government shutdown

Prediction markets, such as platforms like Polymarket, can provide real-time market consensus on the potential duration of government shutdowns. This data helps investors assess the time frame of their risk exposure and adjust their strategies accordingly.

As procedural voting appears on the congressional agenda, these predictions may quickly adjust during the session, providing the market with real-time signals.

Investor Strategies: Bitcoin Investment Guide During Government Shutdown

In the face of the risk of government shutdown, investors should consider the following strategies:

1. Short-term Strategy Adjustment

Increase Cash Allocation: In an environment of increasing uncertainty, appropriately increasing the proportion of cash holdings can provide greater flexibility.

Reduce Leverage: Volatility during government shutdowns may increase, and high-leverage positions face greater risks.

Set up layered buy orders: If Bitcoin does indeed experience a 5-15% pullback, you can prepare a layered buying strategy.

Focus on Stablecoin Yield Opportunities: During market volatility, stablecoin yield products may provide a relatively safe source of returns.

2, Considerations for Medium to Long-Term Strategies

Evaluate Historical Patterns: Study the performance of Bitcoin during past government shutdowns to identify potential patterns.

Pay attention to the regulatory timeline reset: Closely monitor the new timeline for regulatory approvals after the government's reopening.

Adjust Investment Portfolio Risk Exposure: Adjust the proportion of Bitcoin in the overall investment portfolio according to the expected duration of the government shutdown.

Looking for signals to lift policy bottlenecks: Once there are signs indicating that key regulatory processes will resume, it may be the time to increase exposure.

Conclusion: Government Shutdown - Risks and Opportunities Coexist

The U.S. government shutdown will undoubtedly bring short-term volatility and uncertainty to the Bitcoin market. Historical data shows that during such macro shock events, Bitcoin typically experiences a pullback of 5% to 15%, and then rebounds once policy clarity is restored.

However, the specific impact of each government shutdown depends on its duration and the extent to which it disrupts regulatory processes. A short-term shutdown may only cause temporary fluctuations, while a long-term shutdown could have more profound effects on the entire Crypto Assets ecosystem.

For long-term investors, a government shutdown may create favorable buying opportunities. For short-term traders, increasing cash holdings and waiting for clearer signals may be a more prudent strategy.

Regardless of the strategy adopted, investors should closely monitor liquidity indicators and policy developments to make informed decisions during this challenging yet opportunity-filled period.