Budget Deadlock Stalls Progress

As lawmakers vacated Washington for the holidays, efforts to pass a comprehensive funding package have stalled. Despite weeks of negotiations, internal resistance within various committees has prevented any progress. The absence of a voting framework signals a troubling situation as Congress reconvenes in January.

With nine spending bills pending approval, the situation remains dire. Although there is consensus among top House and Senate appropriators on overall spending caps, disagreements persist over fund allocations across federal agencies. Democrats express frustration over wasted efforts on partisan bills, while Republicans face internal divisions over funding increases.

Time Constraints Heighten Shutdown Risks

The timeline is not favorable for Congress. Once lawmakers return on January 5, they will have approximately three weeks to address the budget before the January 31 deadline. Given the House’s scheduled recess for one of these weeks, the urgency to act is magnified.

Some legislators are considering a short-term continuing resolution (CR) as a temporary fix, while others warn that failing to reach a deal could lead to a shutdown with limited time for corrective measures.

Implications for Cryptocurrency and Markets

A government shutdown typically injects uncertainty into the markets rather than causing outright panic. Historical shutdowns have delayed economic data, regulatory decisions, and exacerbated macroeconomic fragility. For the cryptocurrency sector, the effects are mixed. While risk assets may face volatility, a political deadlock can bolster Bitcoin’s appeal as a hedge against government dysfunction.

Crypto investor Steve Ferguson criticized Republicans for their inaction, highlighting the failure to pass separate spending bills. He emphasized that should a shutdown occur, Republicans would bear responsibility. Public sentiment reflects similar frustrations, with public figures like Mila Joy condemning Washington’s repeated failure to resolve budgetary issues.

As the deadline approaches, the stakes are high. Whether the U.S. can circumvent another shutdown or plunge into one remains to be seen.

FAQs

• How likely is a government shutdown in 2026? Current estimates place the likelihood at 38% if the budget is not resolved by January 31.
• What happens to the economy during a shutdown? Federal services face delays, economic data releases slow down, and short-term market uncertainty increases.
• How could a government shutdown affect cryptocurrency? While market volatility may increase, political gridlock can enhance Bitcoin’s appeal as a financial hedge.
• Can Congress prevent a shutdown at the last minute? Yes, by passing a short-term continuing resolution to maintain funding temporarily.

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As these digital assets continue to grow, their destabilization could lead to widespread financial instability, impacting the broader economy and inflation rates. “If stablecoins are not that stable, you could end up in a situation where the underlying assets need to be sold quickly,” Sleijpen remarked, emphasizing the potential for rapid liquidation to exacerbate market stress.

The Potential Impact on ECB Policy

The Stablecoin Panic scenario suggests that the ECB may need to reconsider its monetary strategies if the shocks from these digital assets become significant. While it remains uncertain whether such a situation would necessitate interest rate hikes or cuts, the possibility of having to “rethink monetary policy” is on the table, according to Sleijpen.

Currently, the stablecoin market is experiencing significant growth. Data from CoinGecko indicates a nearly 50% rise in market capitalization this year, reaching a total valuation of $310 billion. Notably, Tether’s USDt has soared from a $127 billion market cap in November 2024 to $183 billion, a 44% increase. Similarly, USDC has doubled its market cap from $37 billion to $74 billion during the same period.

Future Growth and Economic Relevance

The U.S. Department of the Treasury has projected that stablecoins could achieve a $2 trillion market cap by 2028. As Stablecoin Panic potentially looms, their influence on Europe’s economic outlook could become more pronounced.

Concerns regarding the rise of dollar-backed stablecoins have been echoed by ECB Executive Board member Piero Cipollone. He suggested that introducing a central bank digital currency (CBDC) might safeguard monetary sovereignty in the eurozone. A digital euro could mitigate the risk of foreign currency stablecoins becoming a mainstream medium of exchange in Europe.

Italy’s Minister of Economy and Finance, Giancarlo Giorgetti, also voiced apprehensions about stablecoins, noting their potential to destabilize European financial stability more significantly than trade tariffs.

Addressing Financial Instability Risks

Despite these concerns, Sleijpen’s remarks point to a growing risk: stablecoin issuers could become catalysts for financial instability. Should major issuers offload reserves at scale, the resulting contagion could affect liquidity conditions, asset prices, and inflation.

In a related note, Nobel Prize-winning economist Jean Tirole recently warned that governments might face multibillion-dollar bailout pressures if major stablecoins were to unravel.

As the stablecoin sector continues to expand, the Stablecoin Panic scenario underscores the need for eurozone policymakers to remain vigilant and proactive in addressing these emerging risks.

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His proposition this time was rather audacious, suggesting the Federal Reserve should minimize the rates by a minimum of three points. Trump asserts that the elevated rates increase the nation’s interest expense. On a macro level, this holds true. Data from the Kobeissi Letter reveals that the annual interest expense on US debt has crossed $1.2 TRILLION in the past year. The daily interest now surpasses $3.3 billion.

Should the Federal Reserve heed Trump’s advice, he claims it could result in a yearly saving of $360 billion. However, Kobeissi Letter analysts highlight that the only significant debt is the public one, currently around $29 billion. Their evaluation suggests that a 300bps cut on the total amount could save “$290B x 3 = $870B/year.”

Despite the encouraging figures, there are potential negative implications associated with such a dramatic rate cut, particularly concerning inflation. The proposed cut would be thrice the size of the largest recorded cut in March 2020, when the rates were reduced by 100bps. This would be implemented amidst an already burgeoning US economy, growing at +3.8% YoY, which could result in an inflation surge beyond 5%.

The Kobeissi Letter also cautions that mortgage rates could plummet from 7% to 4% in a market that has already witnessed a +50% price surge since 2020. They anticipate another potential price surge of 25%. Despite these potential repercussions, such a move could prove advantageous for riskier assets like Bitcoin. Bitcoin’s price has seen an approximate 1% increase in the last 24 hours, and following Trump’s proposal, it now hovers around $110,000.

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Post-election, Min Byeong-deok, a left-wing lawmaker and the director of digital assets during Lee’s campaign, proposed a law that would establish a licensing system and criteria for potential stablecoin issuers. Min explained to The Block that the use of dollar stablecoins directly causes capital outflows. However, facilitating overseas transactions with won-based stablecoins could minimize the conversion of domestic capital into foreign currencies.

The new administration aims to fortify the nation’s independence from foreign currency-based assets and expand the digital finance realm based on the Korean won. This move is anticipated to bring several economic advantages, including reduced trade costs, diversified foreign exchange risks, and increased global investment into the local economy.

Min explained that the objective is to foster an environment where private entities can issue won-pegged stablecoins and industries such as e-commerce platforms, game developers, and content creators can actively utilize these tokens.

Despite these potential benefits, some industry experts have raised concerns about the actual effectiveness of this initiative. Brian Hoonjong Paik, co-founder and CEO of bitcoin investment services firm SmashFi, suggested that issuing a won-backed stablecoin might not spur international demand and could even accelerate capital flight. The U.S. dollar dominates global foreign exchange reserves, while the Korean won falls into the category of nontraditional currencies.

On the other hand, Min contends that there is “real demand” for won-pegged stablecoins. He cited the growth of Korean services globally and argued that a won-based payment system could particularly construct a digital economic infrastructure for foreign users of Korean services or settlements with foreign merchants.

Min’s proposed legislation, the Digital Asset Basic Act, aims to reestablish South Korea’s presence in the global digital economy. This comes after a period of regulatory caution due to the fall of the TerraUSD stablecoin project, a South Korea-originated initiative. However, while South Korea is taking a step forward in the crypto world, some critics believe that the government should focus more on decentralization, self-custody, and monetary freedom, which are the core elements of blockchain technology.

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Recent actions by President Trump indicate diminishing patience with Iran, with hints of potential U.S. involvement in Israel’s military actions. Trump’s Truth Social post stated that while the U.S. is aware of Ayatollah Ali Khamenei’s whereabouts, there are no current plans to remove him. The post also suggested a command of the Iranian airspace, though there’s no evidence that U.S. aircraft are involved.

There were slight increases in front-month WTI and Brent crude oil futures, which traded at $75.20 and $76.80 per barrel, respectively. Research analysts at CIMB Securities note that although oil price surges due to conflicts in the Middle East are typically short-term reactions, any disruption in the Strait of Hormuz shipping could have significant implications.

In uncertain times, gold is a popular safe-haven investment. However, as fears of a widening conflict increase, safe-haven flows have eased, resulting in a 0.2% decrease in spot gold prices. Bitcoin, which is often seen as a risk indicator, saw a slight increase of 0.2%.

Asian stock indexes are experiencing mixed trading patterns, affected by central bank decisions and country-specific factors. U.S. futures appear cautiously positive ahead of the Federal Reserve’s rate decision. Investors are keenly awaiting guidance from the central bank regarding the U.S. economy and future interest rate paths given signs of economic slowdown.

Priyanka Sachdeva, senior market analyst at Phillip Nova, highlighted that markets are expecting a larger escalation in the Israel-Iran conflict, with the U.S. expected to provide more than just technological and weapon support to Israel.

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“The initial goal of acquiring 21,000 BTC by 2026 has been substantially revised. Our new aim is to secure 100,000 BTC by that time,” stated Simon Gerovich, Metaplanet CEO, in an announcement on X. Currently, Metaplanet holds 8,888 BTC, a figure that includes the 1,088 BTC acquired on June 2. This new target indicates a commitment to purchasing a minimum of 91,112 BTC within the next 18 months.

Metaplanet’s heightened interest in Bitcoin is a response to global economic shifts and modifications in the worldwide financial system. Gerovich believes the world economy is undergoing a “structural transformation”, shifting from a traditional supply structure centered on capital and labor to an economic foundation driven by information technology.

Triggered by implications of the “postwar monetary regime” such as geopolitical risks, trade policy shifts, and rising concerns over sovereign debt, capital is flowing out of assets previously considered safe, like long-term government bonds. “In this context, Bitcoin’s strategic importance – characterized by high scarcity, ease of custody and transfer, and the absence of credit intermediaries – is swiftly gaining acknowledgement,” Gerovich added.

To finance the ambitious Bitcoin purchases, Metaplanet plans to issue stock acquisition rights, allowing the issuance of up to 555 million shares dedicated to Bitcoin acquisition. The new 555 million shares will complement the 210 million shares already issued under the initial 21 million plan. “By the end of 2027, we aim to hold over 210,000 BTC, thereby entering the so-called ‘1% Club’, referring to entities holding at least 1% of Bitcoin’s 21 million supply cap,” commented Gerovich.

Metaplanet’s accelerated Bitcoin acquisition strategy follows warnings from Standard Chartered Bank about potential risks of increasing Bitcoin treasury strategy adoption among public companies. The bank reported that only 61 out of 124 public companies that have invested in Bitcoin own a combined 3.2% of the 21 million Bitcoin that will ever exist.

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In 2019, CashApp began offering Bitcoin custody services, allowing account holders to purchase BTC with their credit cards. This move predated similar ones by large corporations like MicroStrategy, currently making waves on Wall Street. However, as of May, Square has been rebranded to Block, and its shares have taken a significant 20% dip.

Despite this setback, Dorsey has warned investors of potential turbulence in US consumer strength. While this isn’t great news for Block’s business model, it could potentially act as a catalyst for Bitcoin’s price surge to $1 million.

Following Block’s quarterly earnings report, Dorsey noted a significant change in consumer spending patterns. “Discretionary spending in areas like travel and media saw a more pronounced impact, while non-discretionary Cash App Card spending in areas like grocery and gas was more resilient,” he said. This consumer softness significantly contributed to Block’s less than expected forecast.

This decline in spending led to a slump in sales in Q1, marking the first shrinkage of the US economy in three years. If the trend continues for another quarter, it could officially classify as a recession. In response, the central bank might cut interest rates to stimulate business, a move anticipated by a CNBC survey due to the unstable economy.

These potential rate cuts could propel Bitcoin prices to the $1 million mark, as Dorsey has previously predicted. When the Fed cut rates in the 2007-08 financial crisis, Bitcoin was launched. During the low-interest-rate period that followed, BTC prices soared from fractions of a penny to $20,000 by December 2017. A similar scenario seems likely now, with Bitcoin’s price well above $100,000 despite the Fed’s consistent refusal to lower rates.

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Ju-Chun, the official in question, believes that Bitcoin could provide a sturdy buffer against significant fluctuations in the global economy. He conveyed to the conference attendees that introducing even a small proportion of Bitcoin into Taiwan’s financial assets could significantly enhance the resilience of the country’s economic structure.

He also reached out to cryptocurrency enthusiasts on social media, inviting them to engage with his proposal and provide feedback. He asserted that this measure would not replace current reserves but could serve to strengthen them.

Last week, Ju-Chun held a meeting with Samson Mow, CEO of Jan3, a company that advocates for widespread Bitcoin adoption. Following their discussion, Jan3 issued a statement underlining the necessity for countries to shield themselves from currency volatility by holding Bitcoin.

Mow discussed with Ju-Chun the increasing volatility of fiat currencies and talked about the technical, security, and risk management aspects of purchasing and holding Bitcoin.

At present, Taiwan’s reserves include 423 metric tons of gold and approximately $577 billion in foreign exchange assets. Ju-Chun pointed out that the New Taiwan Dollar has experienced significant fluctuations and attributed this instability to increasing global prices and regional tensions in East Asia.

Ju-Chun argued that Bitcoin has proven its ability to withstand external pressures and remain viable when other assets fail over the past 15 years. He believes this resilience makes Bitcoin a worthy addition to Taiwan’s national reserves.

He proposed that Taiwan invest up to 5% of a $50 billion reserve in Bitcoin, equivalent to about $2.5 billion. Ju-Chun referred to similar actions recently approved in New Hampshire and suggested by US President Donald Trump. He also noted that major economies like the UK and Japan are still hesitating while Taiwan has the opportunity to lead Asia in this initiative.

While some experts warn that Bitcoin’s value can fluctuate by 10 to 20% within a week, and others express concern over legal processes required for state-level digital asset holding, Ju-Chun insists these challenges can be managed. He urged lawmakers to explore how central banks could purchase, insure, and hold Bitcoin, and called for clear regulations to prevent any potential losses from affecting the wider economy.

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The Fed’s decision comes amidst growing pressure from former U.S President Donald Trump, who recently threatened to dismiss Federal Reserve Chair Jerome Powell accusing him of being tardy in reducing rates.

On May 7, Powell highlighted that the rates in the 4.25% to 4.50% range were held due to potential risks of increased unemployment and inflation. He noted that inflation has decreased significantly, though it’s still surpassing their 2% long-term goal.

The Fed chair pointed out that surveys from households and businesses showed a significant drop in sentiment, primarily due to concerns over Trump’s trade policies. Despite these uncertainties, Powell maintains that the economy continues to be in a strong position.

According to data from CME Group’s FedWatch Tool, the futures market expected very little chance of a rate cut prior to the announcement. Powell further noted that the unemployment rate is low, and the labor market is operating at or close to maximum employment. The market anticipates the Fed to lower the Fed funds rate to 3.6% by 2025’s end.

Bitcoin’s value briefly fell to $95,866 from below $97,000 after Powell’s speech, but it quickly rebounded, hitting $98,000 for the first time since February 21. Bitcoin’s momentum is on the rise, with the Crypto Fear & Greed Index returning to “Greed” territory. Spot Bitcoin exchange-traded funds (ETFs) have seen inflows of nearly $4.41 billion since March 26.

Network economist Timothy Peterson warned on March 9 that if the Fed refrains from rate cuts in 2025, it could trigger a wider market crash, possibly pushing Bitcoin down to $70,000. Peterson issued this forecast after Powell’s declaration in March that there’s no rush and they’re well-prepared to wait for more clarity.

This article does not provide investment advice or recommendations. Every investment and trading move comes with risks, and readers should conduct their own research before making any decisions.

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Tech company JAN3, specializing in Bitcoin, recently shared insights on the potential benefits for Switzerland if it were to emulate El Salvador by making Bitcoin legal tender. For Swiss Bitcoin users, the digital asset already enjoys tax advantages, with no capital gains tax on personal transactions or VAT for Bitcoin holders since 2018.

When it comes to sustainability, Switzerland’s existing energy infrastructure could facilitate the seamless integration of Bitcoin into its financial system. Given its reliance on renewable energy, 60% of which is derived from hydroelectricity, it could potentially accomplish sustainable mining, particularly in winter when energy production exceeds demand.

JAN3 stated, “With 15,000 MW of energy capacity (60% from hydro), Switzerland has the potential to scale sustainable #Bitcoin mining. It can do this by surplus renewable power that could help stabilize the grid while unlocking new revenue streams for the country.”

Is Switzerland heading towards making Bitcoin legal tender? Although the Swiss government has made no official announcement concerning replacing the Swiss Franc with Bitcoin, the country has seen several Bitcoin- and crypto-friendly developments recently.

Bitcoin adoption has grown, with approximately 11% of Swiss citizens, equating to around 1.6 million people, now holding Bitcoin. Bitcoin and blockchain-related activities are thriving in areas such as the canton of Zug, also known as Crypto Valley. Furthermore, a Plan B initiative was launched in Lugano in 2022, introducing over 260 Bitcoin merchants.

Despite the Swiss bank recently dismissing Bitcoin as an asset class for its reserves due to volatility issues, the rising demand for the digital asset among Swiss nationals could continue to push for its integration in various sectors.

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