- 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.
Source: BTC/USDT, TradingView
