The cryptocurrency market performed stably amid the plunge in U.S. stocks and the AI sector. Bitcoin regained its footing at $64,000, while Ethereum rebounded to the $3,000 range. The performance was in line with expectations, proving that Bitcoin still has its safe-haven properties in times of regional wars and conflicts. In addition, Bitcoin is also experiencing a halving. Although many analysts point out that the halving may cause the price of Bitcoin to fall, I maintain my original view that Bitcoin is expected to benefit from the rebound due to rising risk aversion.
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There were two major events in the global risk asset market last week. The first was that inflation pressure in the United States still existed and was not as optimistic as previously expected, causing the Federal Reserve (Fed) to revise its previous interest rate expectations. More than three Fed officials also said that interest rate cuts this year may be postponed or even have to wait until next year, but the investment market is still slowly revising interest rate expectations. According to Fed Watch interest rate futures, the market currently expects a one-basis-rate cut in interest rates to be postponed until the third quarter of this year.
However, the forecasts issued by Federal Reserve officials are more pessimistic. They generally believe that the earliest possible date may be December this year, or they may have to wait until next year. The market is also quite hesitant about this, and bond yields have only risen slightly. This has led to some negative changes in the cryptocurrency market, but market sentiment is already not very good. After seeing the change in official attitude, investors withdrew some funds. Bitcoin fell to $61,000 during this period, but the selling force was not very strong. The decline was still caused by the excessive leverage of the contract.
Considering that cryptocurrencies have previously soared due to the continuous influx of buying from Bitcoin ETFs, many investors choose to use dozens of times of contract leverage in pursuit of maximum returns, especially small and medium-sized cryptocurrencies. For example, Altcoin offer more than 20 times leverage. Although traders have converged a lot and five times leverage is the strategy adopted by most retail investors, Altcoin have fallen by more than 20%, which can easily lead to forced liquidation after being magnified five times.
Therefore, this wave of decline was divided into two times. The first time was when Altcoin fell due to the influence of the overall market. Due to the high volatility of Altcoin, the decline of more than 20% at any time led to the liquidation of huge contracts, triggering the first wave of pullback. The second wave was when Bitcoin fell below US$60,000. This was when mainstream currencies with generally lower leverage and volatility had more obvious contract liquidation phenomena. The conflict between Israel and Iran was actually an event that stabilized the price of Bitcoin.
Risk aversion offsets interest rate reversal pressure, Bitcoin price is supported
Next, the conflict between Israel and Iran in the Middle East further escalated. When Iran retaliated against Israel, Bitcoin fell significantly along with the U.S. stock market. At this time, many people thought that the safe-haven effect of Bitcoin had disappeared, and even began to question whether Bitcoin was a safe-haven asset, because the two happened on the same day. Many Altcoin traders suffered heavy losses on that day and believed that Bitcoin was no longer a safe-haven asset, but subsequent events completely slapped the analysts' views in the face.
Later, when news came out that Israel planned to strike back at Iran, the price of Bitcoin rose from another $61,000 to $64,000, and once reached a high of $65,000. In contrast, US technology stocks were bleak, and AI concept stocks plummeted due to the impact of SMCI's failure to announce its performance in advance. The price performance of Bitcoin can be said to be quite strong. Compared with technology stocks, Bitcoin is currently more like a digital gold asset. If gold rises, Bitcoin is likely to rise. The current market's risk aversion sentiment is strong.
Therefore, the last wave of Bitcoin plunge was not caused by the conflict between Israel and the Middle East. The bigger factor was the shift in the interest rate policy of the Federal Reserve and the high leverage of the crypto market contracts. Traders must wait for the market leverage contracts to be sorted out before they can determine the direction of the next wave. Returning to its essence, Bitcoin is still a safe-haven asset that can provide a value storage tool under regional conflicts, but it does not avoid the risk of stock declines. It is a "regional war hedging tool."
At the same time, more and more analysts have pointed out that the halving of Bitcoin may cause a sharp drop in prices. The reason is that the income of miners has dropped sharply, causing some mines with poor operational discipline to sell their inventory first to pay for previous investments or operating expenses. But I have a different idea. Fund companies are expected to celebrate the halving of Bitcoin. With the reduction in supply and the increase in safe-haven demand, the probability of prices continuing to rebound should be higher.
Currently, the trend of Bitcoin is following that of gold, and the risk-averse nature of geopolitical conflicts is also quite obvious. The uncertainty of the Middle East conflict is increasing in the short term. We believe that this may bring some buying support to Bitcoin, and the probability of price consolidation is high. After the expectations for interest rate cuts ease, Bitcoin will be expected to challenge the $70,000 mark again.
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