2 min readWhat to expect from a Government Shutdown in terms of economy? Will we finally see a Grayscale ETF? And what impact could high interest rates have on Bitcoin?
It's increasingly likely that a government shutdown will commence on October 1st. This would lead to a temporary halt in official economic data releases, leaving us in the dark regarding the labour market and crucial employment and inflation data. The unfolding events remain uncertain, and the chances of swift legislative action before the deadline seem slim.
As this reality sets in, we anticipate it to exert pressure on the US dollar, especially following its recent strengthening. This is also expected to have a material impact on economic growth in Q4, resembling some aspects of the debt ceiling stalemate earlier this year. Interestingly, history shows us that such governmental disarray can bolster Bitcoin prices, though it's worth noting the limited media coverage and investor discussion on this matter thus far.
Another important date on the calendar, October 13th will see a decision on the SEC-Grayscale appeal. If the SEC fails to appeal, Grayscale may seek a conversion to an ETF. However, there's a possibility that the SEC could present evidence of market manipulation, making a positive outcome for Grayscale less likely.
Looking beyond this, it's improbable that an ETF would gain approval until January or March. An interesting development is the ARC ETF decision being pushed earlier to January 10th. This move gives us valuable insight into the SEC's sentiment, indicating a continued resistance to approving a spot Bitcoin ETF.
We believe that bitcoin and equities correlation will continue to diverge over the coming months/year. Currently, the prevailing narrative is higher interest rates for a prolonged period. However, as the impact of these higher rates begins to manifest, this is view likely to change, and we're already seeing signs of economic weakness in credit delinquencies and PMIs.
Higher rates, or alternatively, early rate cuts, are likely to have different implications for Bitcoin and equities. For equities, cutting rates at this point in the interest rate cycle is typically a sign of staving off a recession, which is unlikely to be price supportive. Higher rates for an extended period may squeeze corporate margins, also presenting challenges for equity prices.
Bitcoin, on the other hand, could benefit, as investors may view higher rates as a potential policy error by the FED. This raises questions about the soundness of Bitcoin's monetary policies compared to the questionable monetary policies of the FED.
