Middle East tensions escalate, US stocks and cryptocurrencies fell collectively.
On October 2, Iran launched a missile attack on Israel on Tuesday, which further escalated tensions in the Middle East, triggering cautious sentiment in global markets, and US stocks and crypto markets fell. The three major US stock indexes closed down collectively, with the Dow Jones Industrial Average down 0.41%, the S&P 500 down 0.93%, and the Nasdaq down 1.53%. Technology stocks became the worst performing sector; the crypto market fell sharply, and the escalation of tensions in the Middle East led to a rapid rise in market panic, risk assets were sold off, and market volatility increased. After Iran launched missiles at Israel yesterday, 11 spot Bitcoin exchange-traded funds ($BTC ETFs) had a total outflow of $242.6 million. Other major cryptocurrencies and hot bitcoin miners also have also been affected by the turmoil in the Middle East.
This disturbing news highlights the impact of geopolitical events on the crypto market.
Due to concerns about escalating tensions in the Middle East, investors quickly withdrew their capital in $BTC ETFs and major cryptocurrencies.
When conflict occurs, investors often look for more stable investments (like gold or bonds).
Yesterday was the second time Iran fired hundreds of missiles at Israel (after the initial attack in April). Shortly after, 11 spot $BTC ETFs saw outflows of up to $242.6 million.
Many digital assets underperformed, showing the sensitivity of the crypto market to geopolitical events.
$BTC ETFs saw the third largest outflow in 5 months
Iran launched missiles against Israel in retaliation for the deaths of several prominent Iranian figures (including Hezbollah leader Hassan Nasrallah and Iranian Revolutionary Guard commander Abbas Nilforoshan).
On the same day (October 1), US spot $BTC ETFs saw the third largest outflow in five months, ending an eight-day streak of inflows since September 27, totaling $494 million.
This marks the most significant outflow trend since September 3, when nearly $288 million flowed out of ETFs.
Fidelity SmartSource Bitcoin Fund ($FBTC) was the most affected, with a loss of $144.7 million. ARK 21Shares Bitcoin ETF ($ARKB) followed closely behind with outflows of $84.3 million.
But despite the geopolitical turmoil, Blackstone iShares Bitcoin Trust ($IBIT) has remained strong. It recorded $40.8 million in inflows yesterday and had no outflows for the 15th consecutive day.
$BTC Falls 6.67%, Other Majors Plunge
$BTC ETFs are not the only digital assets affected by the escalating conflict. Bitcoin's price fell to its lowest value in two weeks, down about 7% (from a high of about $64,000 to a low of about $60,000). Its price has since recovered about 4% (to about $61,000).
However, $BTC is worth about 8% more than it was at the end of last month (about $66,000). This reflects a lackluster start to October (October is typically a positive month for “risk assets” like crypto (and stocks), gaining an average of 22.9% over the past nine years).
As usual, when $BTC falls, other currencies follow.
To illustrate the impact of geopolitical events on crypto markets, the negative outcome of the Iran-Israel war contrasts with the Fed’s decision to cut U.S. interest rates by 50 basis points on September 18.
Two days before the Fed cut rates in half, the price of Bitcoin rose by 5%, while $BTC ETFs attracted $250 million in investments.
Moreover, $BTC rose by about 12% after the positive decision, while $SOL, $ETH, and $BNB rose by 9%, 5%, and 3%, respectively.
BTC suffered its biggest drop in more than a month, while gold rose, falling as much as 6% at one point, and was down 3.5% in 24 hours. This is the worst start to the most bullish month in the asset’s history, traders at Presto Research wrote in a note on Wednesday. Polymarket bettors see a 49% chance of Israel retaliating against Iran this weekend. “October has historically been a strong month for BTC, with only two of the past 11 years in the red,” Presto said. It noted that gold has outperformed over the past 24 hours to gauge the different maturity levels of the two assets.
“Last night’s price action for BTC (BTC -4% vs. gold +0.8%) following the May Iran attack is puzzling, especially given BlackRock’s recent move to BTC as a safe haven asset similar to gold,” wrote researchers led by Peter Chung. “The reality is that the difference in the short-term price action of the two assets reflects their different maturity stages.” “Gold is a more mature asset with a 5,000-year history as a store of value, so there is less room for incremental network effects. BTC, on the other hand, has the same attributes that make gold a good store of value (better in many cases), but is only 15 years old. This means it is in the early stages of mainstream adoption and its narrative remains poorly understood,” they added.
As evidenced by U.S. rate cuts and Iranian missile attacks, global events affect crypto investors in both positive and negative ways.
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