US Government Shutdown Hits: What’s Next for the Crypto Market?

TLDR:

Table of Contents

US government is now shut down, affecting 750,000 workers daily and halting many federal services.
Gold surged to new highs as safe-haven demand rose with fiscal gridlock in Washington.
The US dollar’s drop and inflation fears push crypto into a volatile, yield-hunt regime.
Markets now face higher $VIX risk amid short volatility positions and fiscal uncertainty.

The US government has officially shut down, triggering a scramble across markets and raising fresh questions for crypto. Millions of federal employees are affected, and many federal operations have ground to a halt.

Investors are watching gold rally, the dollar weaken, and crypto sentiment shift. The full scale of economic fallout remains unclear. For crypto investors, volatility is becoming the new baseline.

Shutdown Activated: What We Know and What Moves Markets

Per The Kobeissi Letter, “BREAKING: The US government has officially shut down for the first time since December 2018.” The shutdown began at midnight after funding talks collapsed.

BREAKING: The US government has officially shut down for the first time since December 2018.

This marks the 22nd government shutdown in US history. https://t.co/Nciv6dUCcN

— The Kobeissi Letter (@KobeissiLetter) October 1, 2025

AP reports that about 750,000 federal workers now face furloughs daily, costing the economy roughly $400 million per day in lost compensation. Essential services, law enforcement, Medicare, Social Security, continue, but many agencies will suspend functions.

Some agencies face deep cuts. For instance, 41% of the Department of Health and Human Services staff will be furloughed, while NIH, CDC, and other public health operations will scale back. The Aviation Administration plans to furlough roughly 11,000 staff, though critical roles like air traffic controllers will still work without pay.

Markets responded immediately. Gold’s safe-haven appeal gained strength. The dollar weakened further under the weight of fiscal and monetary pressure. Crypto traders are now navigating that fallout in real time.

Crypto, Dollar, Gold: Interplay in the Shutdown Era

The shutdown adds fuel to macro stress already building. The dollar, which was already on track for its worst year since 1973, now faces intensifying downward pressure.

Apollo models suggest a 10% drop in the dollar could lift inflation by 30 basis points, no small risk when central banks eye rate paths.

Gold has been surging. It pegged new highs as cash fled risk assets and investors sought stability. That kind of move tends to compete for capital with crypto, especially when traders grow jittery about the dollar and inflation.

Meanwhile, volatility positioning in markets is already extreme. Net short VIX positions are high. A sharp spike in implied volatility could force cascade sell-offs or abrupt rotations. Crypto tends to amplify such swings.

Still, crypto has structural appeal. In a world where fiat is under stress, digital assets offer an alternate route. But that route comes with extreme risk in the near term.

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