Friday, April 19, 2024

the market’s reaction to the escalating tension, and what the bigger picture at play means for the crypto ecosystem

"It's still magic even if you know how it's done." – Terry Pratchett ||

Hi everyone! Just when you were probably hoping for a gentle segue into the weekend, well, today is shaping up to be quite a day…

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IN THIS NEWSLETTER:

• Escalation? The market does not seem worried.

• That bigger picture, though…

• The IMF and BTC cross-border flows

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WHAT I’M WATCHING:

Escalation? The market does not seem worried.

Another Friday, another escalation. Ok, I know this one is different (they all are) and I know escalations happen on other days of the week as well, but still…

Earlier today, Israel retaliated for last week’s attack from Iran, which in turn was a retaliation for Israel’s bombing of the Iranian consulate in Damascus earlier this month.

Markets are still reacting as I type, but the message prices are sending is not what mainstream media would have you believe.

Oil jumped, yes, but did not come close to reaching the highs of last Friday as concerns about Iran’s intentions mounted. Indeed, it has already settled back, dropping below its pre-news level. Oil traders do not seem fussed about Israel’s move, which is odd because the next step could be uglier.

(chart via TradingView)

The same with gold, that tried-and-tested global risk barometer: its muted spike has been unwound.

(chart via TradingView)

And as for the newer, 24/7 global risk gauge BTC – well, there’s something else going on there.

(chart via TradingView)

Last Saturday, when news emerged that Iran had launched drones and missiles at Israel, BTC dropped sharply, bounced feebly and then drifted lower for the next few days. Until this morning.

On news of Israel’s retaliation, BTC again dropped, but with less emotion than over Iran’s move. And then it bounced with enthusiasm, briefly breaking through $65,000.

So, BTC moved risk off with Iran’s attack on Israel, risk on with Israel’s attack on Iran. If you’re confused, you’re not alone.

Of course, a market rarely speaks with one voice, especially with so many other narratives in play – oil has supply/demand issues, gold has central banks buying, BTC has the halving, new onramps and a broadening utility. Any typical geopolitical indicator may say more with what happens after the initial reaction than with the move itself.

For instance, the oil price is telling us that traders are more concerned about weak global demand than about potential supply chain disruptions. The gold price is also saying that investors don’t necessarily think Israel’s attack means WWIII is imminent. And BTC’s price as I type suggests that store-of-value interest is picking up again and that the halving (expected later today) is meaningful, even if only in terms of attention.

That bigger picture, though…