TLDR
Bitcoin price dropped 3.16% to $61,715 amid Israel-Iran conflict escalation
Altcoins fell 5-10% as investors moved to safer assets like bonds, gold, and USD
October, historically Bitcoin’s best month, started with a 4% decline in two days
Bitcoin ETF outflows surged to $242 million, breaking an eight-day inflow streak
Historical trends show wars often lead to initial market downturns
The cryptocurrency market experienced a significant downturn on Tuesday as tensions between Israel and Iran escalated, causing investors to seek refuge in safer assets.
Bitcoin, the leading cryptocurrency, saw its price fall by 3.16% to $61,715, while altcoins suffered even steeper declines ranging from 5% to 10%.
The sell-off came as Iran launched approximately 200 ballistic missiles at Israel, intensifying the conflict between the two nations.
This geopolitical turmoil has created a ripple effect across various financial markets, with investors flocking to traditional safe-haven assets such as bonds, gold, oil, and the US Dollar.
October has historically been a strong month for Bitcoin, with average gains of around 20%. However, the cryptocurrency has already declined by 4% in the first two days of the month.
Sean McNulty, director of trading at liquidity provider Arbelos Markets, described this as a “momentary setback” and maintained that the seasonal trend of October being favorable for Bitcoin remains intact.
The market’s reaction to the conflict has been swift, with Bitcoin ETF outflows surging to $242 million on Tuesday, breaking an eight-day streak of consecutive inflows.
This shift in investor sentiment highlights the immediate impact of geopolitical events on the crypto market.
Some analysts believe that Bitcoin’s next all-time high may not materialize until mid-November at the earliest. Additionally, weakness in US PMI data, indicating a potential economic slowdown, has added to the selling pressure across financial markets.
Cryptocurrency analyst Benjamin Cowen drew parallels to previous market behaviors, suggesting that if Bitcoin follows a pattern similar to the one observed after the 2019 Federal Reserve rate cuts, a correction could extend to around $50,000 by mid-November.
Just to offer a different view to consider other than the “up only” view mostly shared on this platform, in 2019, #BTC rallied for 2 weeks after the 1st rate cut, then dropped to the 100W SMA 2 months later, which would correspond to mid-November. pic.twitter.com/ogicF89JrM
— Benjamin Cowen (@intocryptoverse) October 2, 2024
The impact of the Israel-Iran conflict on the broader financial markets has been significant. The S&P 500 ended Tuesday’s session down 1%, while oil prices surged by 5% as markets priced in the possibility of a wider conflict in the Middle East.
Historical data provides some context for understanding market reactions to geopolitical events.
According to the Kobeissi Letter, the S&P 500 typically falls an average of 2% when a major conflict begins, with an average total drawdown of 8.2% during such events.
As seen below, the market actually rallied during World War 2.
After an initial drop, the S&P 500 soared as markets viewed the war as a chance for economic expansion in the US.
But, this was a transformative war for the US unlike any of the current conflicts. pic.twitter.com/GuAV91LrCD
— The Kobeissi Letter (@KobeissiLetter) October 1, 2024
However, the letter notes that numerous other factors can influence returns during times of conflict.
A crucial consideration is whether a war breaks out during a recession. In non-recession years, the average 12-month return for the S&P 500 during a war year is 9.5%. However, if a conflict occurs during a recession, returns can turn negative, averaging -11.5%.
