The crypto market is in heightened volatility and uncertainty as an indirect consequence of the ongoing tensions between Israel and Hamas. Despite that, many believe that geopolitical conflict can trigger the next crypto bull run.
When conflict or war strikes, financial markets are the first to tremble. Investors can become more risk-averse during uncertain periods and likely move their money to safer investments such as gold or bonds.
The US is also sending in gear, and there is no way to know how long, or how much all this will cost. Money is being spent in real time. As more nations enter the conflict, the risk of global war rises.
Lower, Then Higher
Riskier investments like stocks and cryptocurrencies are consequently under sell-off pressure. After the shocking news of the conflict broke out, Bitcoin dropped from around $27,900 to below $26,600 last Monday. Bitcoin's price was down 2.7% in 7 days.
Likewise, major altcoins experienced price drops with Ethereum (ETH), Binance Coin (BNB), Solana (SOL), Cardano (ADA), Dogecoin (DOGE), and Ripple (XRP) losing 3% to 7% their values in 7 days, according to CoinMarketCap.
However, despite the initial negative reactions, Bitcoin and the crypto market have become more resilient over time. At the time of writing, the largest cryptocurrency is trading at $28,481.
Some industry figures believe that the downturn is temporary and Bitcoin would likely rebound.
Jeff Mei, Chief Operating Officer at BTSE, said that the price of Bitcoin "has already stabilized" after temporarily dropping earlier this week. "Crypto assets have shown resilience in the face of rising geopolitical turmoil in the past," Mei added.
To prove this point, the executive also highlighted the same pattern that occurred when Russia launched an invasion of Ukraine in February 2023. Following Russia's move, the U.S. and its allies imposed sanctions on Russia, leading to a 7% decline in Bitcoin's price in a single day at the beginning of March. However, Bitcoin recovered and climbed to $48,000 by the end of March.
The Big Dogs Are Awake
Cryptocurrency's role in the Middle East conflict has been thrust into the spotlight, with both sides utilizing digital currencies for donations. Wall Street Journal recently reported that Hamas, the Palestinian militant group, initiated a campaign to secure cryptocurrency funding.
Simultaneously, crypto has been used to support Israelis affected by the ongoing conflict. This dynamic has spurred heightened interest in cryptocurrencies within the affected nations.
However, it's worth noting that the surge in demand, while significant in these specific regions, isn't the sole driving force behind the anticipated crypto rally.
The trading volumes, when viewed in the context of the broader market, remain relatively modest. Instead, the bullish momentum can be attributed to the inherent non-political and decentralized nature of cryptocurrencies.
In recent years, Bitcoin has gained recognition as a potential hedge against inflation and recession, often referred to as "digital gold." This perception has gradually eroded the market share of traditional gold investments. Bitcoin has recently displayed resilience to the influence of macroeconomic data.
Amid geopolitical tensions and surging energy prices, concerns about inflation are on the rise. The escalation of the Israel-Hamas conflict presents a potential threat to the American economy, prompting speculation about the U.S. Federal Reserve's intention to raise interest rates in upcoming FOMC meetings.
Moreover, not all analysts share an equally optimistic outlook in the short term. Some suggest that the persistent bond market sell-off could prove detrimental to many crypto startups. John Glover, CIO of Ledn, predicts that, without an influx of new capital into digital assets, the current rally may be relatively short-lived.
On a different note, the forthcoming Bitcoin Halving, scheduled for May 25, 2024, could fuel positive sentiment. Binance, a leading cryptocurrency exchange, has already commenced a countdown for the event, and many crypto enthusiasts are eagerly anticipating its arrival.
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