Why is Crypto Down Today?

TLDR

• Ethereum (ETH) led major cryptocurrencies lower, falling over 3% to test the $4,000 level
• Polymarket shows 77% probability of a U.S. government shutdown by end of 2025, 63% by October 1
• White House preparing for potential job cuts as government funding deadline approaches
• BTC fell over 1% to under $112,000, with XRP, SOL, and DOGE also declining
• Fed officials maintain cautious approach to rate cuts despite initial 25 basis point reduction

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Ethereum’s price dropped sharply on Thursday, leading a broader decline across the cryptocurrency market as concerns about a potential U.S. government shutdown intensified. ETH fell over 3% during Asian trading hours, testing the $4,000 support level for the first time since August 8.

The decline came as betting markets showed increasing odds of a government shutdown. On Polymarket, a decentralized betting platform, traders priced a 77% chance of a U.S. government shutdown by the end of 2025 – the highest probability since the contract launched in January.

More pressing is the 63% likelihood of a shutdown by October 1, according to the same platform. This timing is crucial as the U.S. government is expected to run out of money by the end of September.

The White House has begun preparing for the possibility, with the Office of Management and Budget issuing a memo asking agencies to prepare plans for staff reductions and furloughs if a spending bill isn’t passed next week.

For the government to avoid a shutdown, Congress must either approve a short-term funding measure (a continuing resolution) or pass 12 full-year funding bills. With lawmakers unlikely to complete the full-year bills before the deadline, a temporary funding stopgap is needed.

Complicating matters, any funding bill requires a 60-vote threshold in the Senate, meaning support from both political parties is typically necessary for passage.

Market Impact Across Cryptocurrencies

Ethereum wasn’t alone in its decline. Bitcoin (BTC) fell over 1% to trade under $112,000. Other major cryptocurrencies also experienced losses, with XRP down 2.6%, Solana (SOL) approaching the $200 mark, and Dogecoin (DOGE) declining 3%.

Bitcoin Price on CoinGecko

The CoinDesk 20 Index, which tracks major cryptocurrencies, was down 2% at 3,940 points during this period.

Traditional markets showed more resilience, with futures tied to the S&P 500 and Nasdaq trading flat to positive during the same timeframe.

While the exact cause of crypto market caution wasn’t immediately clear, the growing shutdown concerns likely contributed to a risk-averse mood among investors.

Federal Reserve Policy Outlook

Adding to market uncertainty were overnight comments from San Francisco Fed President Mary Daly. While reiterating support for further rate cuts, Daly declined to provide a specific timeline, instead emphasizing dependence on economic data.

The Federal Reserve cut interest rates by 25 basis points on September 17, hinting at two additional rate cuts before year-end. However, since then, policymakers including Chairman Jerome Powell have signaled a more cautious approach to future reductions.

Seven Federal Reserve officials, including New York Fed’s Williams, are scheduled to speak on Thursday, potentially providing more insights into the central bank’s thinking.

Traders are also awaiting Friday’s Personal Consumption Expenditures (PCE) data, which serves as the Fed’s preferred measure of inflation.

Market analysts at Singapore-based QCP Capital noted that contained inflation pressures could be interpreted as room for further Fed cuts, providing “liquidity tailwinds into Q4” that might catalyze a Bitcoin breakout attempt.

The next few days will be critical for both cryptocurrency markets and the U.S. government funding situation, with the end of September deadline rapidly approaching.

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