Bitcoin prices continued their descent on Monday, succumbing to downward pressure fueled by a flurry of market panic triggered by an Iranian strike against Israel. This geopolitical turmoil also propelled the dollar to five-month highs, exacerbating Bitcoin‘s decline.
The world’s largest cryptocurrency witnessed a 1.6% drop over the past 24 hours, settling at $63,382.7 after a brief intraday rebound.
The primary catalyst for Bitcoin’s decline was the deteriorating risk appetite following Iran’s drone and missile strike against Israel over the weekend. This prompted traders to flock to safe-haven assets like the dollar and gold, causing Bitcoin to lose ground.
The surge in the dollar, reaching a 5-½ month high, exerted significant pressure on Bitcoin, contrary to its usual behavior as a digital safe haven during times of increased market risk. Despite its reputation, Bitcoin saw limited refuge demand amidst the escalating tensions between Iran and Israel.
However, amidst indications that the conflict may not escalate further, Bitcoin experienced a slight reprieve. Reports of Iran concluding its strike against Israel, coupled with Israeli ministers contemplating no immediate retaliation, alleviated some concerns.
Joe Vezzani, the co-founder and CEO of LunarCrush, emphasized the heightened sensitivity of Bitcoin to breaking news, particularly during weekends when traditional markets are closed. He noted that while initial reactions can be pronounced, they often retract as investors digest new information.
Nevertheless, the geopolitical tensions also impacted inflows into Bitcoin exchange-traded funds (ETFs), with their momentum showing a notable slowdown recently. Citi analysts highlighted the gradual increase in Bitcoin ETF inflows, attributing them as a primary driver for Bitcoin prices, especially amidst anticipation surrounding the halving event.
In addition to Bitcoin’s woes, other major cryptocurrencies experienced volatility amid the tumultuous weekend. Ethereum, the second-largest cryptocurrency, rose 1.4% to $3,114.78, while Solana declined by 2% and XRP climbed 1.6%.
However, the prospect of higher U.S. interest rates, fueled by hotter-than-expected inflation data and hawkish signals from the Federal Reserve, dampened enthusiasm across the crypto market. Traders adjusted their expectations, pricing out bets on Fed interest rate cuts in June, a scenario unfavorable for crypto markets accustomed to low-rate environments.
Despite a strong start to the year, marked by capital inflows into Bitcoin, recent weeks have witnessed a slowdown in these flows, raising uncertainties about Bitcoin’s potential for further gains. The token has oscillated within the $60,000 to $70,000 range for the past month after reaching record highs exceeding $73,000 in early March.
In a separate development, Economic Secretary Bin Afolami announced at the Innovate Finance Global Summit that the U.K. government plans to introduce legislation by mid-2023 to regulate stablecoins and various crypto activities. This decision aligns with the groundwork laid by the 2023 financial markets bill and underscores the U.K.’s commitment to fostering a regulatory framework for cryptocurrencies, overseen by the Financial Conduct Authority and the Bank of England.
