Bitcoin
and other cryptocurrencies were falling Wednesday, with token traders seeming fearful of how escalating violence in the Middle East could hit the most risk-sensitive assets—something the stock market seems to be looking past.
The price of Bitcoin has retreated 2% over the past 24 hours to around $27,150, settling above its recent trough near $27,000—its lowest level so far this month—after trading around $27,700 on Tuesday. The largest digital asset now looks vulnerable to falling back into the $26,000 zone, which had dominated trading for weeks until a rally at the end of September.
“This is the fifth consecutive day of decline after a failed attempt to consolidate above the 200-day moving average late last week,” said Alex Kuptsikevich, an analyst at broker FxPro. “A consolidation below $27,000 will likely intensify the selloff and open the way for a quick drop to $26,000 (previous local highs) and further to $25,000.”
Cryptos appear to be decoupling from the stock market, with the
Dow Jones Industrial Average
and
S&P 500
on track for their fourth straight session of gains as Bitcoin heads for a fifth day of losses. While tokens and stocks are not always correlated, they have recently traded together against a macroeconomic backdrop—shifting expectations over the future of interest rates—that impacts cryptos and equities alike.
“I think a lot of investors are preparing themselves for a significant pullback for Bitcoin in light of the escalating geopolitical tensions globally,” said Phillip Shoemaker, blockchain investor and executive director of Identity.com, a crypto-focused identity verification group. “Many are concerned about a surge in oil prices as a result of what’s happening in the Middle East that, in turn, could have a knock-on effect on a lot of assets, especially those further along the risk curve.”
Indeed, investors in the stock market seem to be looking past Israel’s declaration of war on Hamas—which has drawn the U.S. military into the Eastern Mediterranean—after unprecedented violence from Gaza over the weekend. The conflict threatens to escalate in a region that is key for crude, including potentially complicating a deal between Israel and Saudi Arabia—a major energy player—that may have been supportive of a decline in oil prices.
A surge in the price of crude in recent months has renewed inflationary pressures that have worried investors because it could mean that the Federal Reserve may keep interest rates higher for longer than once thought. Higher rates tend to hurt risk-sensitive assets like stocks and cryptos. When returns are higher on risk-free cash or government debt it removes incentives for investors to pile into riskier bets like Bitcoin. Expectations of higher rates or a move higher in government bond yields tends to exacerbate selling in the riskiest assets, like tokens or tech stocks, first.
If traders are, indeed, selling Bitcoin in fear of what war in the Middle East means for risk assets, it likely doesn’t bode well for stocks. It’s not ironclad, but cryptos have historically been a leading indicator of risk sentiment in wider markets, falling in advance of declines seen later in stocks.
Beyond Bitcoin,
Ether
—the second-largest crypto—fell 1% to $1,570. Smaller tokens, or altcoins, were weaker, with
Cardano
down 2% and
Polygon
slipping 2%. Memecoins were more mixed, with
Dogecoin
up less than 1% and
Shiba Inu
shedding 1%.
Write to Jack Denton at [email protected]
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