US Government Shutdown: Effects on Crypto Regulations and Market

Shutdown's Consequences for Crypto

The impending government shutdown is primarily due to a lapse in appropriations. The SEC is making preparations for the situation, but it’s clear that a shutdown will impact their operations. Prioritizing market integrity and investor protection is a must, but routine operations—including the review of ETF applications—could be disrupted.

The SEC's internal EDGAR database will remain functional, and they can still take action against fraud and manipulation. However, they will be unable to inspect or provide updates on crypto ETFs. Other agencies, like the Federal Reserve, will continue to operate as they are funded independently of congressional appropriations.

Market Reaction and Investor Anxiety

Without the SEC's regulatory oversight, crypto markets might see increased volatility and the potential rise of scams. Following the news of a possible shutdown, major cryptocurrencies like Bitcoin, Ethereum, and Solana have experienced significant losses. Bitcoin traded at around $104,000 but has fallen to $96,522.38 in 24 hours, reflecting a 5.73% decrease. Ethereum has dropped 9.85% to $3,511.62, and Solana is down 13% to $196. In total, over $1.1 billion has exited the market in the past day alone.

Crypto Firms Navigating Regulatory Gaps

During a US government shutdown, crypto firms will face numerous challenges due to regulatory uncertainties. The shutdown will drastically reduce the workforce at agencies like the SEC, with only about 10% of the staff remaining to protect property and assist in law enforcement. This could delay the approval of registration statements and many other actions, including those related to crypto ETFs.

Despite the uncertainty, compliance with existing regulations is still essential. Violations can result in legal consequences, even if regulatory agencies are not operational. Crypto firms may choose to adhere to self-regulatory standards to maintain industry integrity, as proposed in some analyses.

Additionally, conducting thorough due diligence to navigate the current regulatory landscape is critical. Partnerships with experts in the digital asset realm could also help mitigate risks.

Being informed about potential legislative or judicial developments is equally important. Ongoing litigation, like that filed by Coinbase and Crypto.com against the SEC, may shape the regulatory future.