(Kitco News) – Crypto traders licked their wounds in early trading on Wednesday as dreams of ‘Uptober’ confronted the hard reality of war on Tuesday, with the escalation in conflict between Iran and Israel leading to an exodus from the crypto market, resulting in Bitcoin (BTC) falling from $64,000 to retest support at $60,000.
“The crypto market lost 4.2% in the last 24 hours to $2.16 trillion, deepening a corrective pullback after rising to a two-month high of $2.30 trillion,” said Alex Kuptsikevich, senior market analyst at FxPro. “This looks like a reaction to a flight from risk amid Iran’s missile attack on Israel. Cryptocurrencies took a hit along with risk assets, while the dollar, gold and oil rose sharply.”
“Bitcoin fell below $61K on Tuesday, losing around $3,000 (almost 5%),” he added. “A technical factor added to the selling: the day before, BTCUSD had fallen below its 200-day moving average, reinforcing the exit of ‘weak hands’ from the asset.”
BTC/USD Chart by TradingView
Kuptsikevich noted that “Bitcoin found local support as it approached its 50-day moving average just above $60.3K,” and said, “Geopolitics seem to have interfered with the bullish trade, pushing Bitcoin away from the upper boundary of the multi-month channel. However, it did manage to climb above the previous highs. Within this trend, a move towards the lower border would suggest a decline to the $52K area.”
As for the widespread expectations that October would be a breakout month for the crypto sector, macro strategist Alex Krüger offered a more measured analysis on why ‘Uptober’ was unlikely to live up to expectations.
“It's been bizarre observing everyone turn outright exuberant and calling for ‘Uptober.’ From doom to gloom, in a heartbeat,” he said. “Yes, the prior FOMC was very bullish, unexpectedly so for all the macro doomers, but that was two weeks ago.”
“Conflict in the Middle East notwithstanding, this is an election year in the US,” he highlighted. “Major uncertainty lies ahead. Who wins does make a big difference. Particularly so if the Democrats win a clean sweep. And speculators don't like uncertainty. In election years, the month of October is accordingly the most volatile, and equities historically display slightly negative returns.”
“This just makes sense. Unlike nonsense, such as saying ‘when September is positive, October is also positive,’” Krüger said. “That is what you would call a spurious correlation. It should not take a very high IQ to appreciate that.”
That said, Krüger noted the possibility that certain data points could help juice the markets higher but ultimately recommends that traders refrain from going all-in until after the election.
“Of course if payrolls come in very strong this coming Friday equities would rip, as we are in a ‘good news is good news’ regime,” he said. “But the time to press & hold is after the elections, possibly starting on Election night itself.”
According to analysts at QCP Capital, the war-inspired pullback will be short-lived as concerns in the broader global economy will soon put a bid under Bitcoin.
“Middle East geopolitics will steal the limelight for now, but the shallow sell-off suggests that the market remains well bid for risk assets,” they wrote. “This minor setback shouldn’t distract from the bigger picture.”
“Policy actions and the economic situation in China are reminiscent of Japan in the 1990s,” they added. “To combat deflation in Japan, the BoJ cut rates, introduced Negative Interest Rates and started the then novel Quantitative Easing Program. The flush of liquidity from the PBoC and potential fiscal support will likely support asset prices in China, with bullish sentiment potentially spilling over globally to support risk assets, including crypto.”
QCP analysts also noted that during a recent question and answer session with Fed Chair Jerome Powell, he supported further rate cuts in 2024. “Assets prices are expected to remain supported heading into 2025, as both the largest (the Fed) and 3rd largest (PBoC) central banks in the world have started their cutting cycles in earnest,” they said.
Crypto analyst CRG struck an optimistic tone, suggesting that the pullback on Tuesday “could be the quarterly low” despite it being the first day of the quarter.
“Markets love to put in highs/lows early on in the candle,” he said. “Plus geo-political moves have a high tendency of getting faded.”
He noted that while there may still be “some turbulence based on the extent of Israel's retaliation, the market's expecting it now, so likely won't come as a surprise - may have a muted impact. Time will tell. Liquidity will start ramping up from now, which BTC should sniff out immediately.”
“Bears are praying on an all out war to break out to be proven right, it's their only hope of postponing the inevitable: $100k BTC is coming,” he concluded.
But before Bitcoin can finally achieve the long-sought-after $100,000 price point, veteran trader Peter Brandt said it must first “close above 71,000,” followed by a new all-time high, to confirm “that the trend from the Nov 2022 low remains in force.”
The recent rally in Bitcoin did NOT disturb the 7-month sequence of lower highs and lower lows. $BTC
Only a close above 71,000 confirmed by a new ATH will indicate that the trend from the Nov 2022 low remains in force pic.twitter.com/lFO9A20VPD— Peter Brandt (@PeterLBrandt) October 2, 2024
Bitcoin analyst Willy Woo weighed in on Brandt’s comment, saying the “Structure mid term is bearish moving to neutral and trying to get bullish. ATH will take time.”
“Short-term structure suggests 1-3 wks stand down to cool off before the next bullish attempt,” Woo added. “I don’t think we get Uptober, sideways Oct, and Nov-Dec for laser eye parties. Long term is bullish.”
At the time of writing, Bitcoin trades at $61,658, a decline of 0.90% on the 24-hour chart.
