Crypto treads water as missiles fly in the Middle East

Unfortunately, when missiles start flying, it's a huge headwind for risk assets. While crypto has largely held its ground, this escalation poses some risks that can't be ignored.

And as we know, crypto lives and breathes as a high-risk, high-reward asset class. So what does this mean for majors like Bitcoin and the altcoins? 

Today’s market update breaks it down for you straight - no hype, no hopium, just the cold hard data.

Let’s dive in!

TLDR

• Escalating Middle East conflict is a short-term headwind for risk assets like crypto.
• Though crypto has held ground so far, prices could still see impact if tensions rise.
• Increased risks make large exposures unwise despite some remaining upside potential.
• For now, safer to stay on the sidelines than take large risks amid market uncertainty.

Disclaimer: Not financial or investment advice. Any capital-related decisions you make are your full responsibility.

Last week's close

Last Friday, the markets were digesting the released Jobs data and what it meant for the Fed and, in turn, the financial markets. 

With the Non-Farm Payrolls (number of jobs added in the US) coming in at 336k, well above the 170k estimates, markets were preparing for a Fed that may need to do more. 

However, we predicted that the DXY would need a reset while equities were coming off an oversold level. This means that equities could be open to a bounce, which could, in turn, help to push BTC higher. 

So, in the short term, DXY is down, equities are up, and BTC is up. All of this, we got right until it all went kaboom on Saturday when the conflict in the Middle East came. 

What does conflict in the Middle East mean for crypto?

On Saturday, Hamas attacked Israel. 

The conflict is likely to continue and also likely to escalate, which in the short term is a huge headwind for risk assets. 

We immediately saw this morning that risk assets turned lower/opened lower. The S&P is at $428, previously at $429, and BTC is at $27,500, previously at $27,900. 

 Of course, they’ve rebounded slightly to levels we saw at the back end of last week. So overall, this crisis in the Middle East is yet to trigger a huge move lower and current prices certainly do not reflect the risk-off price action we got earlier this morning. So, considering the conflict in the Middle East, risk assets have held up relatively well. 

Cryptonary’s take

There’s a decent chance that the ongoing conflict intensifies and escalates; this is a major headwind to risk assets, at least in the short term. 

Therefore, it would be wise not to have huge exposure to risk assets despite the fact we feel it's still possible we get a small amount of further upside before a more significant downside. Today has been a fantastic example of liquidity in a risk-off environment.

• S&P, down 0.08%
• BTC, down 1.60%
• ALTS, down 3-6%

Now imagine this over a 2-year Fed rate hike tightening cycle. The further along the risk curve you go (so S&P, then BTC, then Alts), the less liquidity each gets and the more that assets' price decreases.

For now, you are better off staying on the sidelines than risking on.

As always, thanks for reading.

Cryptonary, OUT!