The financial markets are now receiving a harsh wake-up call. After showing some strength at the beginning of the week, Bitcoin has now experienced almost a 5% decline and has started to pull back with many of the traditional core indices (i.e., S&P 500, Dow Jones, and Nasdaq). Even gold, which is usually viewed as a safe-haven asset, has been pressured downwards. In contrast, crude oil has increased in price by over 7% recently and has skyrocketed by 53% since the beginning of the conflict between the United States, Israel, and Iran in late February. From this perspective, it is easy to see that investors are actively reducing their risk exposure as geopolitical tensions continue to build.
A Coordinated Exodus from Risk Assets
The weak market is not just about cryptocurrency; it is a massive, coordinated change in the global flow of capital. Over the last 3 months, almost $64 Billion has been pulled (out) from the S&P 500 and Nasdaq 100 Exchange Traded Funds as per The Kobeissi Letter. This is the largest capital outflow (ever) from these fund sets and reversed an inflow of $50 Billion just a few months ago (November). This outflow accounts for approximately 5% of the total AUM (Assets Under Management) in the funds; further demonstrating how much traditional investor confidence is shaken as a result of the war.
Bitcoin Mirrors the Stock Market Slide
Digital assets are certainly not immune to the broader panic. Spot Bitcoin ETFs, which recently enjoyed a surge in popularity, have mirrored the weakness seen in traditional equities. Over just two days, these funds recorded $253 million in outflows. While the monthly flows still look positive on paper at $1.48 billion, this temporary bright spot sits against a grim backdrop. Between November and February, the market bled $6.3 billion in cumulative outflows. This highlights an incredibly fragile recovery in investor demand that is easily broken by international headlines.
Struggling to Absorb Selling Pressure
Behind the scenes, blockchain data confirms that the market is buckling under the weight of current events. Analytics firm Glassnode recently pointed out that the market is severely struggling to absorb the ongoing selling pressure. At one point, net realized profit-taking accelerated to around $17 million per hour. The price of Bitcoin quickly fell below $70,000 due to geopolitical uncertainty affecting demand, according to Glassnode. As a result, the market was not able to trade properly resulting in no more than mild sell-offs.
Echoes of Past Geopolitical Crises
Historical analysis is an important way for experienced investors to interpret current events. There are numerous parallels between today’s global unrest and the event that led to the 2022 Russia/Ukraine War. Carlitosway (a cryptocurrency market commentator) noted that both events occurred 4 years apart in February and both were met with short-term rallies before collapsing by 64% the following November, as a result of the initial rally being followed up with significant selling pressure. A similar sequence seems to be unfolding now, with an initial 10 percent rally last week already losing its steam.
The Road Ahead for Digital Assets
Energy prices increase with energy price increases; the liquidity market is tight; there are many distressed sellers of investments. A prolonged phase of stability is likely or we are just beginning to recover from the selling pressure caused by the lack of liquidity. Crypto analyst Finish recently shared a sobering outlook, suggesting that Bitcoin might need to find a bottom around $55,000 before a genuine recovery can begin. Until the conflict in the Middle East reaches a resolution, the broader financial environment remains strictly “risk-off,” leaving experts to adopt a highly cautious stance on the future of digital assets.
