Could a Government Shutdown Downgrade the US Credit Rating?

The US government shutdown is threatening to be a long one, which may cause rating agencies to downgrade the nation’s credit. This bearish signal would cause chaos for TradFi, but a possible opportunity for Web3.

Specifically, agencies warned that further deadlock could damage the US’s credit rating. Prediction markets are currently rather confident that this shutdown will continue for longer than the historical average.

Can Shutdowns Cause Credit Downgrades?

After a narrow vote in Congress failed last night, the US federal government entered a shutdown, with huge potential ramifications for the crypto market.

For example, even though TradFi stocks went down, the crypto sector is feeling bullish, as the leading tokens and general market cap have both risen healthily:

However, there’s one wild card at play here that could prove to be a real stress test for crypto’s use as a recession hedge.

Specifically, there are growing concerns that this shutdown could cause rating agencies to downgrade the US credit. This move would compound ongoing losses from the chaotic incident.

How plausible is this scenario? Unfortunately, there are good reasons to believe that another government shutdown could cause a credit downgrade.

In 2023, Fitch cited a 2018 shutdown and other Congressional gridlock when it reduced the US’s credit rating. Moody’s did something similar in May 2025, cautioning the government that more downgrades could follow:

“The rating could be [further] downgraded if policy effectiveness or the strength of institutions were to erode to such a degree that materially weakens the sovereign’s credit profile. This would be the case if it were to lead to a deterioration in medium-term growth or economic resilience to shocks, or if it was accompanied by a significant and lasting move by global investors out of the US dollar,” Moody’s claimed in its last downgrade.

Granted, the rating agency didn’t explicitly cite government shutdowns as part of its downgrade decision, but it certainly seems like a plausible subtext. Moreover, this incident could prove particularly punishing.

Lengthy Deadlock and Crypto Opportunities

Specifically, analysts determined that the average US government shutdown only lasted eight days. However, Trump’s 2018 deadlock is a major outlier; at 35 days, it skewed the entire data set substantially upwards.

Right now, as economists have noted, prediction markets believe that this shutdown will last two weeks or longer:

Prediction Markets Assess Shutdown Length. Source: Polymarket

Of course, Polymarket isn’t always right, but it serves as a crucial barometer for market sentiment. If a plurality of investors believe that this shutdown will go far longer than average, it could further spur a credit downgrade.

This bearish signal might cause any number of downstream effects.

All that is to say, crypto’s high performance on the shutdown’s first day is an important indicator too. There’s a lot of controversy over how Bitcoin will fare in a longer recession, but we have a critical opportunity to gather some hard data here.

If token markets continue rising through a shutdown and a credit downgrade, that would constitute a strong signal that crypto will be a valuable recession hedge.

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