Despite positive gains in September, the crypto market is facing challenges in what some are calling ‘Uptober.’
Bitcoin (BTC) and other cryptocurrencies started the month on a rough note, with BTC dropping nearly 4% on October 1st, leading to weekly losses of around 10%.
The decline in BTC’s price, from $65K to $60.1K, was attributed to escalating tensions between Israel and Iran.
This drop in BTC value triggered a broader sell-off in the crypto market, causing a red trend across the sector in just 48 hours.
Escalating Israel-Iran Tensions
For years, Israel and Iran have been engaged in tensions indirectly through groups like Hezbollah and the Yemen-based Houthis.
Recently, these tensions escalated to a direct confrontation, reaching a peak on October 1st when Iran reportedly launched missiles at Israel in retaliation to Israel’s actions in Lebanon.
Investors reacted by turning to risk-off mode, concerned that the situation could escalate into a full-blown regional conflict.
In response, U.S. equities experienced a significant sell-off, with tech stocks leading the decline. The Nasdaq Composite dropped by 1.5%, and the S&P 500 Index fell by 0.93%.
BTC followed the trend with a 4% decrease, hovering around $60K levels.
Ethereum (ETH) experienced the most significant sell-off among major cryptocurrencies, down by 6%, while Solana (SOL) dropped by 5.8%.
On October 1st, U.S. spot BTC ETFs reported daily outflows of $242.5 million, the highest since early September, highlighting investors’ shift towards safer assets like gold.
This sell-off was not unexpected, considering BTC’s risk-on status and its recent strong correlation with U.S. stocks.
An analysis of BTC’s Pearson Correlation suggested an increasing sensitivity to U.S. stock movements since July.
Despite the situation, Quinn Thompson, the founder of Lekker Capital, a macro-focused crypto hedge fund, viewed the tensions as a complex play that could impact U.S. elections. He believed the tensions would ease in the short term.
“But if I had to bet, I would anticipate that the current situation will subside soon, with a lot of posturing similar to recent months.”
QCP Capital echoed a similar sentiment regarding the short-term effects of the tensions, noting that geopolitical issues in the Middle East would dominate attention for the time being.
“The shallow sell-off indicates that the market remains interested in risk assets.”
If Thompson’s forecast is accurate, a rebound in BTC and the overall market could be on the horizon.
Meanwhile, investors are keeping a close watch on the $58K level to determine if a further sell-off could push BTC below $60K.