Crypto Markets Sink as U.S. Shutdown Risks and Fed Caution Weigh on Investors

Crypto markets fell sharply on Thursday, triggered by the growing likelihood of a US government shutdown. While the White House is preparing contingency plans for potential job cuts, Congress has so far failed to agree on a new budget bill. Without a short-term interim solution, the government risks running out of money by the end of September.

On the forecasting platform Polymarket, the probability of a shutdown is now trading at 77 percent by the end of the year and 63 percent by October 1st—higher than ever before. For the markets, this is a clear signal of growing uncertainty.

Price slide for Bitcoin, Ether and Altcoins

Ether (ETH) was particularly hard hit, falling by over 3 percent to just over $4,000—its lowest level since early August. Bitcoin (BTC) also lost more than 1 percent, slipping below $112,000. Other major coins such as XRP, Solana (SOL), and Dogecoin (DOGE) suffered losses of between 2.5 and 3 percent.

The psychologically important $4,000 mark for Ether could determine in the short term whether the downward trend continues or stabilizes. Solana even faces a risk of breaking the $200 support level.

Politics and monetary policy as a double burden

In addition to the political squabbles in Washington, the U.S. Federal Reserve is also influencing crypto market sentiment. Although the Federal Reserve cut interest rates by 0.25 percentage points last week and announced two further cuts for 2025, recent comments from Fed officials indicate caution. Investors must now prepare for a data-dependent course, which creates additional uncertainty.

Seven Fed members are scheduled to deliver speeches on Thursday, including New York Fed Chairman John Williams. Markets are also expecting PCE inflation data – the US Federal Reserve’s preferred inflation measure – on Friday. Positive surprises could be seen as a case for further interest rate cuts and provide fresh impetus to the crypto markets.

Conclusion: Risk aversion dominates the crypto market for the time being

The combination of a looming US government shutdown and cautious signals from the Federal Reserve has noticeably weakened crypto investors’ risk appetite.

While the short-term outlook is clouded, analysts like QCP Capital see the possibility that a decline in inflation in the fourth quarter could pave the way for a new Bitcoin rally. Until then, the situation remains tense, and investors are closely watching political developments in Washington.

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