- The U.S. government faces an imminent shutdown on October 1.
- With several ongoing lawsuits and ETF applications pending, crypto industry participants weigh up the impacts on the industry.
- This article breaks down what a government shutdown entails and the potential impacts on crypto.
Panic over government shutdowns is nothing new in the U.S., as heated debates over government spending often drag on late into the end of the fiscal year. The panicked reactions in these times are justified as government shutdowns have far-reaching effects as funding is cut off for most federal agencies and services, including the SEC and the judiciary.
With the government likely to shut down on Sunday, October 1, as lawmakers struggle to reach an agreement over the government budget for the next fiscal year, for many in the crypto space, the burning question is how this will affect the nascent market.
But before diving into the implications of the much-ballyhooed event, it is necessary first to understand what a government shutdown entails.
What Is a Government Shutdown?
While it can happen at any level of government, the term “government shutdown” typically refers to the federal government and occurs when non-essential agencies and services are closed due to a lack of funding. This lack of funding is usually the result of the failure of Congress to reach an agreement on the federal budget for the next fiscal year before the current year ends.
Government shutdowns only end when lawmakers agree on government spending for the next fiscal year and are historically known to last a few weeks. While many federally funded operations are closed during this period, some offices have historically remained open, running on cash reserves. These have often included the SEC and the judiciary, which are government agencies of significant importance to the crypto industry due to ongoing lawsuits and pending spot crypto exchange-traded fund (ETF) applications.
Impacts on Lawsuits and ETF Applications
The courts and the SEC are expected to continue running in a government shutdown, albeit in a limited capacity in the latter’s case. Last week, SEC Chair Gary Gensler told Bloomberg that the agency would operate with “skeletal staff” in a government shutdown, suggesting a focus on instances where they believe investor funds are at significant risk.
Still, a shutdown will unlikely impact deadlines in SEC lawsuits against crypto firms like Coinbase and Binance. For example, in the case against Coinbase, the agency has been preparing its response to the exchange’s motion to dismiss since early August. It is expected to file its reply by Tuesday, October 3.
For the SEC case against Binance, the deadline for filing the agency’s response to dispositive motions is November 7. While a delay can not be entirely discounted in this case, it is also unlikely, given the urgency the SEC has alleged in its filings.
Similarly, a government shutdown will likely have limited implications for spot Bitcoin and Ethereum ETF applications, as the SEC currently seems set on deferring its decision on multiple applications. On Tuesday, September 26, the agency pushed decisions on spot Bitcoin ETF applications from Ark 21 Shares and Global X to January 2024.
The upcoming deadlines for seven other spot Bitcoin ETF applications, including Bitwise, Blackrock, Fidelity, Invesco, Valkyrie, and VanEck, fall between October 16 and 19. While a government shutdown increases the chances of the SEC delaying its decision on these, it is unclear whether the agency would have still chosen to delay its decisions anyway in keeping with its recent approach. The final deadlines for these applications are in March 2024.
On the Flipside
- It is still possible that Congress may reach a deal to avoid a government shutdown, even though several observers believe that it is imminent.
- The imminent government shutdown will likely have minimal effect on ongoing crypto lawsuits and spot ETF applications unless it extends beyond a few weeks.
Why This Matters
Government shutdowns have far-reaching effects on governmental processes and the economy as various federally funded agencies and services cease to operate.
Read this to learn more about the SEC’s decision to kick the can down the road on more crypto ETF applications:
SEC Plays Hardball with Bitcoin ETF Proposals, Sets New Deadlines
Stay up to date on the developments around Curve Founder Michael Egorov’s DeFi loans:
Curve Founder Eases Contagion Fears, Slashing Debt to $42.7M