(Kitco News) – The specter of war took a toll on asset prices on Tuesday as Iran launched hundreds of ballistic missiles at Israel in the largest escalation in the Middle East conflict in recent history, prompting traders to exit most markets while the price of oil surged.
In addition to the flare-up, market watchers were also given reason to pause further investments on Monday after Federal Reserve Chair Jerome Powell said that while the central bank intends to do what it takes to keep the economy “in solid shape,” they see no rush to initiate additional large interest rate cuts, implying that future cuts will likely be done in smaller increments.
“This is not a committee that wants to cut rates quickly,” Powell said while fielding questions following a speech at the National Association for Business Economics. “We will do what it takes in terms of the speed with which we move.”
Also weighing on sentiment Tuesday was the start of a strike by dockworkers on the East and Gulf coasts. This strike threatens to bring half of the ocean shipping in the U.S. to a standstill, leading to a series of knock-on effects that could cost the economy billions of dollars per day, stoke inflation, put jobs at risk, and make the U.S. political scene more chaotic than ever with less than two months to go until the election.
The latest JOLTS jobs data showed 8.04 million jobs open at the end of August, up from 7.71 million in July. This further reinforced that while the labor market is cooling, it's not rapidly slowing.
The various headwinds combined to see the major indices open lower and remain underwater throughout the trading day. At the closing bell, the S&P, Dow and Nasdaq all finished in the red, down 0.93%, 0.41%, and 1.23%, respectively.
Data provided by TradingView shows that Bitcoin (BTC) lost support at $64,000 in the early going on Tuesday and saw a sharp sell-off as Middle East tensions escalated, retesting support at $61,000 in the afternoon before bulls managed to push it back above $61,200.
BTC/USD Chart by TradingView
At the time of writing, BTC trades at $61,253 for a decline of 3.74% on the 24-hour chart.
While digital gold is struggling, physical gold continued to enjoy a safe-haven bid, with spot gold hitting an intraday high of $2,673/oz and trading at $2,662/oz at the time of writing for a gain of 1.1% on the session.
Oil also surged higher after Iran launched its attack, and trades at $70.56 for a gain of 3.51% on the session at the time of writing.
A strong finish to 2024 predicted
While Bitcoin is struggling to gain momentum on Tuesday in the face of mounting headwinds, it’s coming off its best September performance on record, which has the crypto community in bullish spirits.
“September was characterized by an outperformance of cryptoassets and Bitcoin against major traditional assets including gold,” wrote André Dragosch, Head of Research at ETC Group. “Both cryptoassets and gold outperformed global equities and bonds in September.”
“The outperformance of hard assets like Bitcoin and gold in September was also consistent with policy actions by major central banks such as the Fed and the PBoC which reduced key interest rates and reserve requirement ratios for banks,” he added. “Bitcoin and gold remain the best-performing assets year-to-date.”
Dragosch noted that the arrival of the “Fed pivot” was marked by a 50 basis point cut and said, “it is quite likely that the most recent interest rate cuts are just the beginning of a more protracted global monetary policy easing cycle that will last well into 2025.”
“Markets are still pricing in additional 200 bps in Fed rate cuts until the end of 2025 and a terminal rate of ~3% which is also consistent with the long-run rate telegraphed by the Fed itself,” he said. “An ongoing easing cycle should provide a significant tailwind for scarce assets like Bitcoin and other cryptoassets which stand to profit the most from an easing in financial conditions and an increase in global liquidity.”
“In general, Fed interest rate cuts are historically associated with an increase in narrow monetary aggregates such as M1 (“liquidity”) that are stimulated by an increase in bank lending activity,” he added.
“It is quite likely that cryptoassets (once again) could be the best asset class in 2025 as global money supply has already reached a new all-time high and is currently accelerating,” Dragosch said.
While crypto traders have been shouting from the rooftops that Bitcoin’s 7.4% gain in September suggests a major rally higher is on the way, Dragosch said that what is “probably even more important is the fact that the performance seasonality for Bitcoin will continue to improve over the coming months.”
“On average, October and November have delivered a monthly performance for Bitcoin of 29.5% and 37.9%, respectively, based on our own calculations since 2010 based on Glassnode data,” he said. “So, we expect the positive performance in September to continue in Q4 as well.”
“Since reaching its all-time high in March 2024, the market has been stuck in what we call ‘chopsolidation’ – a volatile but consolidating range-bound market,” he added. “This stagnation was due to factors like government Bitcoin sales, the Mt. Gox trustee's Bitcoin distributions, and macroeconomic capitulation in August 2024. We anticipate that Bitcoin will break out of its chopsolidation phase in Q4, with the Fed's recent pivot potentially serving as the perfect catalyst for the next leg up.”
“With further Fed rate cuts expected and seasonal trends favoring strong performance in the final months of the year, Bitcoin and other cryptoassets are anticipated to benefit from increasing liquidity and could see significant gains through 2025,” Dragosch concluded.
Altcoins hit hard
The mounting headwinds took a toll on the altcoin market, with only 20 tokens in the top 200 managing to record gains on Tuesday.
Daily cryptocurrency market performance. Source: Coin360
EigenLayer (EIGEN) was the biggest gainer, increasing 11.9%, followed by gains of 11.4% for FTX Token (FTT) and 7.7% for Celo (CELO). Ether.fi (ETHFI) saw the largest decline, falling 16%, while DOGS (DOGS) lost 15.7%, and Hamster Kombat (HMSTR) fell 15.6%.
The overall cryptocurrency market cap now stands at $2.17 trillion, and Bitcoin’s dominance rate is 56.4%.
