The U.S. government shutdown has sparked a surge in "devaluation" trades, with investors hedging against the risk of dollar depreciation by shifting funds to assets such as Bitcoin and gold. Bitcoin hit a record high of $125,689 on Sunday. In addition to political uncertainty, the rally was driven by growing institutional demand, inflows into Bitcoin ETFs, corporate accumulation strategies, and seasonal factors in October.
The 'devaluation' trade triggered by the U.S. government shutdown has driven a rebound in global risk assets, with Bitcoin prices reaching a new all-time high. Amid escalating political and economic uncertainties, investors are shifting funds to assets like Bitcoin and gold to hedge against the risk of U.S. dollar depreciation.
The world's largest cryptocurrency reached an intraday high of $125,708.41 during Asian trading hours on Sunday (October 5), surpassing the previous record of $124,514 set on August 14. $Bitcoin (BTC.CC)$ This rally was supported by gains in U.S. equities and inflows into Bitcoin-related exchange-traded funds.
Bitcoin has surged 12% just this week and is up more than 30% year-to-date. Market participants have cited the U.S. government shutdown as a catalyst for triggering the 'devaluation trade,' with expectations that it will drive flows into 'safe-haven' assets.
Geoff Kendrick, Head of Global Digital Asset Research at Standard Chartered Bank, stated: 'This shutdown is significant.' He noted that Bitcoin now exhibits a higher correlation with traditional risk assets and is expected to continue its upward trajectory during this period.
Analysts pointed out that Bitcoin's rally has also been fueled by institutional demand, technical factors, and seasonal influences. Notably, the market will closely monitor the progress of Congressional negotiations on federal funding issues and the impact of the Federal Reserve's monetary policy direction on the 'devaluation trade' logic. These factors will determine whether Bitcoin can sustain its current rally and achieve further breakthroughs.
'Devaluation Trade' Spurs Multi-Asset Rally
Broad-based gains in risk assets reflect 'devaluation' concerns, with multiple asset classes hitting new highs.
In addition to Bitcoin, U.S. equities also reached record highs on Friday, with the S&P 500 Index and Nasdaq Composite rising 0.5% and 0.27%, respectively. Spot gold gained more than 2% this week, marking its seventh consecutive weekly increase.
Joshua Lim, Co-Head of Markets at cryptocurrency brokerage FalconX, stated:
"Many assets, including stocks, gold, and even collectibles like Pokémon cards, have reached all-time highs; it is not surprising that Bitcoin has benefited from the narrative of a weakening US dollar."
The US government shutdown that began on Wednesday became a key driver for Bitcoin's price breakout. Investors turned to decentralized assets as a safe haven after lawmakers failed to reach an agreement on federal funding.
Kendrick noted that Bitcoin’s performance during this government shutdown contrasts sharply with its behavior during the December 2018 to January 2019 period. He stated:
"During the previous government shutdown under Trump, Bitcoin was in a different position and performed relatively flatly. However, this year, Bitcoin has formed a trading correlation with US government risk, best reflected in its relationship with the term premium of US Treasuries."
Confluence of positive factors
Bitcoin's continued rise has been supported by growing institutional demand.
Under the friendly legislative environment fostered by Trump, publicly traded companies such as Michael Saylor's MicroStrategy have adopted a corporate strategy of accumulating cryptocurrencies, boosting market demand.
This strategy has spread to smaller competitors like Ethereum, driving broad-based gains across the digital asset sector.
Inflows into Bitcoin-related ETFs have provided additional momentum for price increases. These products make it easier for traditional investors to participate in Bitcoin investments, expanding the base of market participants.
Moreover, Bitcoin's historical performance in October also provides technical support for the current rally.
This month is referred to by the market as "Uptober," during which Bitcoin has recorded gains in 9 out of the past 10 Octobers, reinforcing investors' bullish sentiment.
Editor/Rocky