NEW YORK: Bitcoin briefly slid below US$70,000 last Friday as inflation fears tied to the Iran war rattled markets, overshadowing a fresh regulatory win for cryptocurrencies in the United States.
Bitcoin had fallen for three straight days after reaching a six-week high of nearly US$76,000 last Tuesday, as volatility in energy and oil markets continues.
The token was trading just at roughly US$70,000 in New York last Friday afternoon, little changed from a week ago.
Traders are pricing in a 50% chance of a Federal Reserve (Fed) hike by October as turmoil in the Middle East shows no sign of easing.
Traders are weighing whether higher oil prices will push up inflation or stall growth, said Jake Ostrovskis, head of OTC trading at Wintermute.
If the oil price increases are mainly inflationary, the Fed will avoid cutting. If growth slows, the central bank may have to cut, but market participants may flee risky assets, he warned.
“Either way, bitcoin sits in the crossfire – headline volatility from the conflict is driving sharp intraday swings as the market reprices the macro path in real time,” he said.
Worries about risk assets has limited the upside for bitcoin, even after the United States Securities and Exchange Commission (SEC) last Tuesday unveiled new details of how it will classify cryptocurrencies.
In a long-awaited report, the SEC said payment stablecoins, digital collectibles and digital commodities like bitcoin will not be classified as securities, which means holders could avoid greater regulatory burdens.
It wasn’t enough to boost the original cryptocurrency over a volatile week.
The so-called Fear and Greed Index – a tracker that estimates sentiment across crypto markets – fell back into its lowest tier of “extreme fear” last Friday, according to CoinGlass data, after a rebound into brighter territory during the week.
“Crypto market sentiment has deteriorated again,” analysts at venture capital firm Tagus Capital wrote in a note last Friday.
“The persistence of extreme fear suggests that positioning remains defensive, even as some market participants anticipate a relief rally.”
In another sign of institutional crypto appetite weakening, net flows for US-listed spot bitcoin exchange-traded funds have turned negative.
The funds recorded US$90.2mil in outflows last Thursday, adding to the US$163.5mil drained the previous day. That’s a reversal from the prior streak of inflows.
Bitcoin has been weathering the conflict in the Middle East better than most assets.
Other than a brief sell-off just after the United States and Israel initiated a bombing campaign against Iran on Feb 28, the token has remained relatively calm, even showing positive returns so far this month.
Bitcoin’s price is up roughly 7% in March, while gold is down around 13% after a long rally that saw bullion repeatedly hit record prices.
Meanwhile, the global benchmark Brent crude is up more than 40% as disruptions to trade and oil-field bombings take a toll.
Bitcoin’s recent strength may have been supported by traders closing out negative positions in options markets, which forced buying.
There is still significant downside protection, with roughly US$1.6bil in put options concentrated at the US$60,000 level, according to data on Deribit. — Bloomberg