With geopolitical tensions rising due to the recent flare-up between Israel and Iran, many financial markets have reacted in ways typical of such crises—investors are seeking safety, and volatility is on the rise.
In the crypto space, this has translated into Bitcoin dipping below $62,000, sparking questions about whether this could mark the end of October's usual bullish trend, often termed ‘Uptober.’ Instead, we might be witnessing the birth of a less favourable term: ‘Rektober.’
Market Reactions So Far
The conflict triggered immediate reactions across global financial markets, with Bitcoin losing 4% of its value in just hours after the news broke.
Other cryptocurrencies, including Ethereum, followed suit, and the overall market shed nearly 3% of its total value, dropping the market cap to $2.18 trillion.
Traditional safe-haven assets like gold saw increases, with prices rising by 1%, while oil surged over 3% due to concerns about potential supply disruptions in the Middle East.
Meanwhile, U.S. equities such as the S&P 500, Dow Jones, and Nasdaq also faced declines. This demonstrates the classic flight to safety seen in times of geopolitical unrest, with investors pulling capital from riskier assets like Bitcoin and moving into more stable investments.
Why Geopolitical Events Matter for Bitcoin
Historically, Bitcoin has had a mixed relationship with geopolitical events. In times of crisis, it can either serve as a hedge or, conversely, become highly volatile as investors offload risky assets.
While some argue that Bitcoin could eventually emerge as a 'digital gold' safe-haven, its current behaviour suggests it still reacts to short-term market fears. This could result in Bitcoin continuing its decline if the Israel-Iran conflict intensifies.
Bitcoin is highly sensitive to macroeconomic shocks, and prolonged conflict could drag down its price further, particularly if key energy supplies are impacted. Middle Eastern tensions historically elevate oil prices, spiking inflation globally.
For example, during the Gulf War, oil prices soared while equity markets struggled.
Is ‘Rektober’ Inevitable?
The possibility of this geopolitical conflict escalating into a broader war between global powers adds layers of uncertainty.
As the U.S. and its allies back Israel, and Iran potentially garners support from Islamic nations, the global markets may enter a prolonged period of risk-off sentiment, which usually spells trouble for assets like Bitcoin.
If Iran’s oil exports are curtailed, energy prices could climb even higher, further straining global economies.
A weaker U.S. dollar resulting from increased government spending on military support could create a paradoxical situation where inflation and market instability drive down Bitcoin and other cryptos.
In Summary: If the Israel-Iran conflict continues, the chances of October being a ‘Rektober’ for Bitcoin grow.
While October has historically been a bullish month for crypto, the combination of geopolitical uncertainty and macroeconomic factors may lead to extended market volatility.