Gold and Oil Rise, Cryptos Fall as Markets React to Middle East Crisis
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Loading... - Ivan Ivanov
- 15 Oct 2024
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In the wake of escalating tensions in the Middle East, financial markets have experienced significant shifts, with oil and gold prices rising while cryptocurrencies have taken a hit. The catalyst for this market volatility was Iran's missile attack on Israel, which heightened fears of further escalation in the region.
The crypto market reacted swiftly to the news, with nearly $248 million wiped out in the first four hours following Iran's attack. Bitcoin, which had recently reached highs of over $66,000, fell to as low as $60,780. This decline in cryptocurrencies has reignited the debate over their status as safe-haven assets. In contrast, investors have flocked to gold and crude oil, both of which have seen price increases. Gold, traditionally viewed as a refuge in times of uncertainty, approached its record high of $2,685. Meanwhile, both main crude oil contracts surged by more than 5 percent at one point on Tuesday, reflecting heightened demand amid geopolitical tensions.
The divergence in market behavior has led to discussions about the reliability of cryptocurrencies as safe-haven assets. Precious metals analyst Jesse Colombo highlighted on social media that Bitcoin and other cryptocurrencies tend to decline during geopolitical crises, unlike precious metals. He argued that this pattern confirms his belief that cryptocurrencies are not safe havens but rather risk assets similar to high-flying tech stocks. Blockhead, a financial analysis platform, echoed this sentiment, noting that despite being dubbed "digital gold," Bitcoin has not consistently behaved like a safe-haven asset. In August, Bitcoin's performance mirrored that of stocks rather than gold during market downturns, and its correlation with gold turned negative last month, challenging the notion of Bitcoin as an economic hedge.
Valentin Fournier, a BRN analyst, explained that while Bitcoin is often labeled a store of value, it remains a highly volatile asset that reacts strongly to risk-off sentiment. During sudden uncertainties, such as the recent Middle East crisis, Bitcoin experienced losses, whereas traditional safe-haven assets like gold appreciated. Fournier attributed this to two main factors: Bitcoin's design as a long-term store of value rather than a short-term hedge, and its status as a relatively new asset subject to speculation, leading to greater price fluctuations compared to established assets like gold.
The market volatility follows a warning from Israel's Prime Minister Benjamin Netanyahu that Iran will "pay" for its actions after firing around 180 missiles at Israel. Iran claimed the attack was in response to Israel's "aggressive acts," including the killing of Hezbollah leader Hassan Nasrallah. In response, Israel announced it would send additional forces to its ground operation in Lebanon and advised more villages to evacuate.
As the situation in the Middle East continues to unfold, financial markets are likely to remain volatile, with investors closely monitoring developments and adjusting their strategies accordingly. The contrasting performances of gold, oil, and cryptocurrencies underscore the complexities of navigating market dynamics during geopolitical crises.
