- Bitcoin (BTC) dipped around 8% as tensions escalated between Iran and Israel in the Middle East during the weekend.
- Why did the cryptocurrency react this way despite its touted status as a hedge against economic or geopolitical uncertainties akin to gold?
Bitcoin dropped over 8% on Saturday as the world braced itself for the ongoing tensions in the Middle East. During that time, Iran recently responded to the April 1 airstrike in Damascus, which led to the death of its top military asset in both Syria and Lebanon, by sending in over 200 drones and missiles toward Israel.
Israel’s Iron Dome air defense system was able to intercept most of the attacks and was able to minimize its losses. However, the real one that took a hit in the hostilities was BTC, which lost its momentum at the $70K range as it approached a significant event in its ecosystem: the halving.
Now, this begs the question, “Why?”
Bitcoin has always been hyped as a great hedge against economic and geopolitical uncertainties like gold. Now that we may be at the precipice of a larger conflict, why did it just behave negatively?
Bitcoin Investors Got Rattled
There’s a simple explanation behind this short-term fluctuation based on the analysis of The Wall Street Journal. According to the report it posted at the time of Iran’s retaliation, the massive price swing in BTC was nothing but a knee-jerk reaction of investors.
Since Bitcoin and other cryptocurrencies could be easily traded 24/7, and considering that the Iran-Israel incident happened at market close heading to the weekend, they were the easiest assets to sell off by cautious investors. Thus, Iran’s attack immediately led to BTC’s price tanking below the $62K mark.
It should be noted, however, that prices recovered to $64K roughly a day following the attacks as bullish traders and investors saw a good opportunity to buy the dip. Nevertheless, this only underscores Bitcoin’s flexibility as an asset because of its 24/7 availability for trading.
As of this trading at 4:30 AM UTC, Bitcoin has regained more than 1.3% of its value in the 24-hour chart at $64,880.
Bitcoin and Gold
It’s worth discussing that gold price was somehow shaken by the bad news in the Middle East, too. It underwent a correction over the weekend, losing its ground from around $2,430 to $2,330 before its recovery to $2,357 to date.
Gold has better accessibility than stocks due to some markets like the Commodity Exchange (COMEX) operating from Sundays to Fridays at Eastern Time standard. Therefore, some of its investors were still able to capitalize on the conflict.
Now, if we look back at the charts, Bitcoin and gold are still highly correlated on a wider scale. The data from Longtermtrends indicate the one-year rolling correlation coefficient of the two falling at 0.97, which is only 0.03 points short of having a perfect positive correlation at 1.
This only means that the two—one being the world’s oldest hedge while the other being a rising alternative—are still functioning as hard assets amid the problems in the Middle East.
Is BTC Aligning Itself with Stocks?
Some analysts like Korbit’s Kim Min-Seung have raised interesting observations on the price movements of Bitcoin lately though. He noticed that the price trends of the leading crypto by market cap have started swaying away from its mere reliance on Bitcoin miners and whales to moving in tandem with US stocks.
Kim said the new dynamics were seemingly unlocked by the approval of spot Bitcoin exchange-traded funds (ETF) in the US. Its entry into the new segment of the market in January has allowed it to be traded similarly to other ETFs and stocks wherein it has since shown deviation from its dependence on bad news regarding “interest rates, pandemics, policies, and wars.”
The new mechanics have resulted in both traditional traders and bots buying and selling Bitcoin in the market based on stock market trends. Should this become the new standard, it may definitely change the way we see and trade BTC in the future.
So far, Bitcoin has done a great job in its purpose as a hedge. This can be demonstrated by its capacity to log all-new highs at every halving since its inception. It only goes on to show that the real beauty of BTC is not in its short-term price fluctuations but rather in its long-term price appreciation. The next halving cycle will unlikely be any different, especially now that it is experiencing unprecedented institutional adoption.