Cryptocurrencies took a significant hit on Tuesday, with Ethereum briefly dipping below $2,500 and Bitcoin falling below $62,000. The decline was fueled by a combination of geopolitical tensions and economic uncertainty.
Iran-Israel Conflict Caused Mild Downturn in Bitcoin and Other Cryptos
The immediate catalyst for the market downturn was the firing of missiles from Iran into Israel. While investors initially anticipated a relatively muted response from Iran, the potential for a major escalation in the Middle East caused widespread concern.
Lekker Capital founder Quinn Thompson explained that markets are forward-looking and tend to price in potential risks. “Even if there is only a 20% chance of a major escalation, given how bad of an outcome that is for markets, they must re-rate pricing to reflect that,” he said.
Adding to the pressure on markets was the upcoming release of key economic data, including the US jobs report on Friday. Investors often hedge their positions ahead of such events, contributing to a decline in risk assets like stocks and cryptocurrencies.
Thompson also noted that the crypto market had been overheated in recent weeks, with many assets priced above their fair value based on technical indicators. This made them more susceptible to sell-offs when faced with negative news.
