Impact of Israel-Iran Tensions on Crypto Market This Uptober

BTC experienced a significant sell-off due to escalating tensions between Israel and Iran.
BTC is highly responsive to U.S. equity markets, making it vulnerable to geopolitical events.

After overcoming negative seasonal expectations in September with impressive gains, Bitcoin [BTC] and the cryptocurrency market have faced a challenging beginning in ‘Uptober.’

As the largest cryptocurrency, BTC fell by nearly 4% on October 1st, resulting in a total weekly loss of about 10%.

It declined from a high of $65K to a low of $60.1K amid the escalating Israel-Iran conflict.

This drop in BTC triggered a severe sell-off across the crypto market, painting the entire sector red over the past two days.

Source: CoinMarketCap

Escalation of Israel-Iran Tensions

The long-standing tensions between Israel and Iran have intensified in recent years, primarily through proxies such as Hezbollah and the Houthis from Yemen.

Recently, the adversaries have shifted towards a direct confrontation, peaking on October 1st when Iran reportedly launched a missile attack on Israel in response to Israel’s ground operations in Lebanon.

This development led investors to adopt a risk-averse stance, fearing the situation could escalate into a full-blown regional conflict.

U.S. equities, particularly dominated by technology stocks, experienced a significant sell-off. The tech-heavy Nasdaq Composite dropped by 1.5%, while the S&P 500 Index declined by 0.93%.

BTC mirrored this trend with a nearly 4% decline, bringing it down to levels close to $60K.

At press time, Ethereum [ETH] suffered the most significant decline among major cryptocurrencies, falling by 6% daily, followed closely by Solana [SOL] with a 5.8% dip.

On October 1st, U.S. spot BTC ETFs recorded $242.5 million in outflows, marking the highest level since early September.

This trend highlighted the risk-averse behavior of crypto investors, with many shifting their focus to gold.

The sell-off was not unexpected given BTC’s risk-on nature and its recent strong correlation with U.S. stocks.

According to the BTC Pearson Correlation, BTC has shown increasing sensitivity to U.S. equities since July.

Source: The Block

Quinn Thompson, the founder of macro-focused cryptocurrency hedge fund Lekker Capital, noted that the escalations represent a multifaceted dynamic that could affect U.S. elections, although he anticipates that tensions will subside shortly.

“If I had to place a bet, I would predict that the current situation will diffuse soon, with plenty of bluster similar to what we’ve witnessed in recent months.”

QCP Capital agreed on the potential short-term impact of the tensions, stating:

“Middle Eastern geopolitics will capture attention for the time being, but the shallow nature of the sell-off indicates that the market remains supportive of risk assets.”

If Thompson’s predictions come true, BTC and the broader market may experience a recovery soon.

In the interim, monitoring the $58K level will be crucial if the sell-off continues and BTC breaks below $60K.