Bitcoin Soars Above $120K as US Government Shutdown Continues

North America
Source: DecryptPublished: 10/02/2025, 13:45:01 EDT
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Bitcoin remains the largest crypto asset in the market. Image: Shutterstock/Decrypt

News Summary

Bitcoin surged past $120,000 on Thursday for the first time since mid-August, as the U.S. government shutdown entered its second day. Investors are heavily re-entering Bitcoin Exchange-Traded Funds (ETFs), with Wednesday seeing $675.8 million in inflows, the highest level since September 12. The cryptocurrency's rise is linked to increased expectations of a Federal Reserve interest rate cut, a scenario typically favorable for Bitcoin. Although often considered a "risk-on" asset, Bitcoin has recently shown independent movement from traditional stocks, occasionally correlating with gold. Analysts note that greater uncorrelated price movements enhance Bitcoin's attractiveness to investors. Historically, October has been a strong month for cryptocurrencies, dubbed "Uptober," a trend already evident in the early days of this month. Other digital assets, including Ethereum and Solana, also saw gains alongside Bitcoin. Traders are increasingly bullish on Bitcoin's prospects of hitting a new all-time high of $125,000, with its predicted likelihood rising by 15% in 24 hours.

Background

A U.S. government shutdown typically occurs when Congress fails to pass appropriation bills or a continuing resolution before the start of a fiscal year. Under President Trump's administration, such shutdowns have often been linked to significant political stalemates and budget negotiation breakdowns, potentially introducing economic uncertainty and impacting market confidence. The Federal Reserve's interest rate policy is a critical determinant of global financial market performance, particularly for risk assets. When markets anticipate Fed rate cuts, it generally lowers borrowing costs and increases market liquidity, thereby boosting demand for higher-risk assets like stocks and cryptocurrencies. Bitcoin, as an emerging asset class, has seen its market narrative oscillate between that of "digital gold" and a "high-beta tech stock." Its reactions to macroeconomic events (such as government shutdowns, interest rate changes) and shifts in correlation with traditional assets (like gold, equities) are closely watched by investors.

In-Depth AI Insights

Beyond immediate catalysts, what strategic implications does Bitcoin's performance during a government shutdown and rate cut speculation hold for its long-term positioning as an asset class? - Bitcoin's reaction in this scenario strengthens its narrative as a hedge against traditional financial system risks, particularly when government instability and loose monetary policy expectations converge. - Continued institutional inflows into Bitcoin ETFs indicate Wall Street's increasing integration of the asset into mainstream portfolios, potentially shifting its perception from a pure risk-on asset to an alternative with safe-haven attributes during macro uncertainties. - This evolving independence and potential inverse correlation with traditional market volatility will make it a more attractive option for investors seeking diversification and systemic risk protection, thus redefining its role in asset allocation. Given the Trump administration's known stance on traditional finance and the dollar, how might a prolonged government shutdown under his presidency influence the regulatory landscape and investor sentiment towards decentralized assets like Bitcoin? - A prolonged shutdown could inadvertently highlight the fragility of government governance, thereby boosting the appeal of decentralized, non-sovereign currencies, potentially creating tension with the Trump administration's "America First" ideology. - While generally supportive of deregulation, the Trump administration might adopt a tougher stance on cryptocurrencies regarding financial stability and national security, especially if they are perceived as threatening the dollar's dominance or used for illicit activities. - Investor sentiment in such a scenario could be polarized: some viewing it as a refuge from traditional system failures, while others worry about potential regulatory tightening or government intervention. What are the second-order effects of significant institutional inflows into Bitcoin ETFs, and does this accelerate or mitigate the asset's historical volatility, particularly when macroeconomic signals like rate cuts are anticipated? - The influx of institutional capital, while providing legitimacy and liquidity, could also integrate Bitcoin more deeply into traditional financial markets, increasing its sensitivity to macroeconomic events rather than ensuring complete independence. - Under strong macro signals like anticipated rate cuts, the "herd mentality" of institutional capital could amplify Bitcoin's price swings, as it becomes a more accessible "risk-on" asset for yield-seeking institutions, thereby accelerating its upward or downward movements. - In the long term, as more institutional players adopt sophisticated risk management strategies, Bitcoin's volatility might gradually stabilize, but in the short term, it could be exacerbated by concentrated institutional actions.