Government Shutdown?

Yes, it’s a dramatic title, but when it comes to the world of cryptocurrencies trading, it must feel quite painful to many to be invested at this time. For many, they will have seen their cryptocurrency holdings decline by more than 30% in the last few days, some much more depending upon when they decided to buy into the rally. And since every major cryptocurrency is losing large amounts of quoted value at the same time, the cycle has increased in severity at each tick down. But how did we get here?

For one thing, it is important to note the impact of margin. For those cryptocurrency exchanges that allow margin trading, some allow the trader to use their open trade equity increases as margin to finance a larger position. While this isn’t a huge concern when trading equities, it is when you consider the extreme volatility of cryptocurrencies. In other words, if a trader has purchased a position and that position were to gain, let’s say, 30% in value, then the trader would be allowed to leverage a larger position by using the unrealized value of the earlier open position to buy more cryptocurrencies. And of course if the new position(s) gain value as well, then this allows for an even bigger position to be margined, and so forth. But if and when the markets take a sharp turn downwards, then traders who have margined their gains on already margined positions must liquidate in order to maintain a market position. But since this pushes the value of their current holdings down, this causes more liquidations. And given how sharply cryptocurrencies can rise or fall, the probability of a cycle of liquidations increases greatly.

Friday is the latest deadline for a government shutdown. Sure, the government’s essential activities will continue, while the non-essential activities will be put on ice. If it happens, there is a chance that the markets will see temporary volatility. I say temporary because everyone knows that’s it’s just another round of political kubiki theatre and will not last.

The House passed the stop-gap bill Thursday evening 230 – 197. The Senate “may” sneak a bill in Thursday as well, but most likely it will be Friday.

Politico reports: …Senate Majority Leader Mitch McConnell (R-Ky.) appears to have a serious problem.

Senate Democrats said they’re confident they have the votes to block the stop-gap spending bill that the House is taking up, according to two Democratic senators and a senior party aide. And top Senate Republicans are openly worried about the situation as they struggle to keep their own members in the fold.

“I’m concerned that we, yeah, we may not have 60 votes in the Senate,” South Dakota Sen. John Thune, the third-ranking Senate Republican, said Thursday morning. “And I think that’s obviously problematic.”

After a lively party lunch on Thursday, the vast majority of the Senate Democratic caucus emerged in opposition to the GOP proposal.

“I am convinced that between Republicans who publicly said they’re [voting] no and Democrats who said they’re a ‘no,’ there are not enough votes in this chamber” to pass the House plan, said a Democratic Senator, who requested anonymity to discuss the matter freely.

The sentiment was confirmed by a Democratic aide and another senator.

Friday’s trade may be interesting indeed!