Amid geopolitical conflicts, will the crypto market welcome the "halving" with a sharp drop?

Original title: "Under the "round-based" geopolitical conflict, the crypto market welcomes the "halving" with a sharp drop? "

Original author: Frank, Foresight News

"When the cannon is fired, gold is worth a lot of money"?

This morning at around 9:00, with the breaking news of "a strong explosion near the Iranian capital Tehran" and "explosions in Iran, Syria, and Iraq" occupying the front page headlines, the situation in the Middle East has become tense again under the "round-based" back-and-forth between Israel and Iran, and the price of gold has quickly broken through $2,400, soaring for five consecutive weeks.

At the same time, Bitcoin, which was previously regarded as "digital gold", went the other way, falling below the integer thresholds of 63,000 USDT, 62,000 USDT, and 61,000 USDT, and once lost 60,000 USDT, reaching a recent low of 59,587 USDT (OKX spot data, the same below); Ethereum also fell below 3,000 USDT and 2,900 USDT in the same period, reaching a low of 2,864 USDT.

According to Coinglass data, more than $100 million was liquidated in the past 4 hours, including $94.57 million in long orders. The cottage market was even more wailing, and there were many cases of halving in the past half month.

What is quite dramatic is that, at the time of posting, OKLink data shows that it is less than 20 hours away from the fourth Bitcoin halving, but the market has poured cold water on everyone with the attitude of "asset halving in advance", making market expectations more pessimistic.

Whether this round of decline is a trend reversal or a mid-term correction has become the key for everyone to participate in the next market trend.

What are the reasons for the plunge?

To briefly summarize the reasons that may have contributed to this round of sharp declines, they should be mainly divided into two dimensions: internal and external, including factors such as geopolitical conflicts, the Fed's collective hawkishness, and internal incentives for ETF fund outflows.

The impact of the Middle East conflict on the global financial market

The first is naturally the impact of the Middle East geopolitical conflict on the global financial market. First of all, we need to make it clear that since the institutions entered the market last year, especially after the spot ETH passed at the beginning of this year, Bitcoin’s "safe haven asset" attribute has actually become a kind of metaphysics. In essence, it is a "risk asset" - more closely related to the global macro environment and the bull and bear cycles (recommended reading: "When the cannon is fired, there will be a lot of gold"? A guide to crypto investment under geopolitical turmoil).

The series of conflicts between Iran and Israel has, to some extent, increased the possibility that geopolitical risks in the Middle East will drag down global oil supply. After the latest news of the conflict broke out this morning, the price of WTI crude oil futures in the United States rose by more than 2.5% during the day, reaching $85 per barrel at one point, and the price of Brent crude oil futures also rose to more than $89 per barrel.

If the conflict expands and even involves the nuclear facilities of both sides, it may cause oil prices to continue to rise, which will undoubtedly make the US's anti-inflation process worse, and further increase the possibility that the Federal Reserve will choose to continue to raise interest rates in the future. Therefore, as a "risk asset", Bitcoin's decline seems to be justifiable due to the strengthening of expectations for interest rate hikes.

At the same time, this also casts doubts on the U.S. stock market, which has been in a state of panic recently. Affected by the news this morning, the decline of the three major U.S. stock index futures widened, with the Nasdaq 100 index futures falling by more than 2%, the S&P 500 index futures falling by 1.5%, and the Dow futures falling by 1.32%.

The Fed's overall attitude turned hawkish

In addition, in the past two months, the market's original expectation that the Fed would turn to interest rate cuts in the middle of this year has been significantly shaken, mainly because more and more senior Fed officials have begun to mention "interest rate hikes":

First, "the third-in-command of the Federal Reserve" and President of the New York Fed, Williams, warned that if the data showed that the Fed needed to raise interest rates to achieve its goals, then the Fed would raise interest rates; Atlanta Fed President Bostic also said that if U.S. inflation rises, he is open to raising interest rates.

More importantly, in Powell's speech this week, he also said that there was a lack of further progress in inflation, and it might be appropriate to let high interest rates play out for a longer period of time, and Nick Timiraos, a reporter for the Wall Street Journal who has always been regarded as the "new Fed news agency", commented that the Fed's outlook has changed significantly, which seems to have broken their hopes of "preemptive" rate cuts.

You should know that at the end of last year and the beginning of this year, the market expected the Fed to cut interest rates 5-7 times in 2024, and the first rate cut was in March... This also prompted the US Treasury yields to soar again, with the 10-year yield breaking through the 4.75% mark, and Wall Street investment banks even warned that they might "return to the 5% era" in the short term.

At the same time, a series of financial-related data have been released intensively in the United States since April, including retail sales data, initial jobless claims, non-farm payroll data, etc., all of which have performed strongly. Regardless of their credibility, at least from the data dimension, they have once again provided room for interest rate hikes.

Against this background, it is reasonable for some risk funds to adjust their positions.

ETF funds have been net outflows for 5 consecutive days

In addition, there is a signal worth paying attention to - according to SoSoValue data, Bitcoin spot ETF had a total net outflow of US$23.15 million on April 18, and has been net outflows for 5 consecutive days.

As of the time of publication, the total net asset value of Bitcoin spot ETF is US$52.41 billion, the ETF net asset ratio (market value to the total market value of Bitcoin) is 2.82%, and the historical cumulative net inflow is US$12.24 billion.

It is particularly noteworthy that Ethereum has taken the lead in dropping to the vicinity of the 120-day line, and the weekly line of BTC/ETH has also been three consecutive negative lines, which is extremely ugly in form.

It should be noted that the 120-day line has always been regarded as one of the most important bull-bear dividing lines, so whether Ethereum can hold this trend line and rebound strongly, and the subsequent performance of Bitcoin, is particularly critical.

　　Disclaimer: Includes third-party opinions. No financial advice. See Risk Warning.