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Bitcoin behaves as a “risk asset”, but has rapid recoveries.
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The price of oil skyrockets due to the possibility of greater shortages.
October started “on the wrong foot.” A few hours into the tenth month of the year, war conflicts in the Middle East, Russia and Ukraine escalate to new heights. There are even those who dare to say that the world is on the brink of World War III.
In this context, financial assets are performing variedly. While bitcoin has a fall that takes it close to $60,000, the ounce of gold continues to trade near its all-time highs and the price of oil shoots up.
CriptoNoticias explained minutes ago what is happening with bitcoin. Basically, the market still perceives it as a “risky” asset Therefore, its price tends to react downwards to situations that are perceived as chaotic or critical. This is because investors prefer to position themselves in assets that are usually considered safer, such as Treasury bonds or gold to preserve their capital.
The price of bitcoin has fallen 2.50% compared to Monday. Source: CoinMarketCap.
Regardless, bitcoin historically has rapid upward recoveries in scenarios like this. Its bullish fundamentals always end up prevailing.
The case of oil is particular. Today, prices have risen 5%. According to financial bulletin analysts ‘The Kobeissi Letter‘, «Escalating tensions in the Middle East, with Iran launching a major missile attack against Israel, has led investors to seriously consider the possibility of a full-scale conflict. This fear has raised oil prices.
The price of oil rises. Source: TradingView.
There are three main reasons why oil is rising in a situation like the one presented here, all related to the supply and demand of this raw material.
First of all, it must be considered that the Middle East is a region of great oil production. Any confrontation that threatens the production or transportation of oil generates concern about global supply. The possibility of attacks damaging key infrastructure, such as refineries or transportation routes, raises fears of shortages, sending prices soaring.
Investors usually react to uncertainty by seeking ensure access to oil before its availability is affected. Because conflicts can limit exports from these countries, it creates a perception of lower supply in the global market and puts upward pressure on prices.
Furthermore, in times of war or international tensions, the countries who depend on oil for their industries seek to secure long-term supplieswhich increases demand in the markets.
Unlike oil, major stock indices (e.g. the S&P500) They tend to behave like “risk” assets (that is, in a similar way to what bitcoin does). Today, the index that tracks the main American stocks has reacted downwards to the war news:
The price of the S&P500 falls. Source: The Kobeissi Letter – X.
The analysts of ‘The Kobeissi Letter’ say:
If we analyze the historical behavior of the S&P 500 during major geopolitical conflicts, we observe that, on average, this index falls by 2% when a major conflict begins. However, the average total decrease of these events is 8.2%. Although this is a general pattern, there are multiple factors that influence the results, making the projections more complex.
The Kobeissi Letter, financial analysis newsletter.
For the aforementioned specialists, “A key aspect to consider is whether war breaks out during a recession or not”. CriptoNoticias has reported that, although there is no declared recession, in the United States there are various indicators which show that the economy would be heading towards such a situation.
According to Kobeissi analysts, in the event of a recession, the market tends to fall 11.5% in the year after the start of the war. On the contrary, in a non-recession scenario, the return in the following 12 months is usually 9.2%, positive.
Still, there are exceptions to the rule. It is noted in the financial analysis bulletin that “not all war conflicts have had a negative impact on the markets. During World War II, for example, after an initial decline, the S&P 500 soared, as investors saw the war as an opportunity for American economic expansion. However, they clarify that “that was a unique and transformative conflict for the American economy, very different from those we face today.”
A different situation was experienced after the attacks of September 11, 2001. As the economy was already in recession, the impact was worsened and the S&P500 fell 18% in the subsequent 12 months.
For these and other reasons, Kobeissi analysts conclude that “although financial markets tend to react negatively to the onset of a conflict, broader economic factors such as the presence or absence of a recession and rate cut cycles have a bearing.” significant impact on medium and long-term performance.
As can be perceived, the situation appears to follow a chaotic outcomeand possibly this global tension will continue to increase in the coming months.
In such a context, bitcoiners can be grateful, since price drops give them new purchasing opportunities. In the medium and long term, the bullish fundamentals for BTC remain in force and it is expected that the digital currency will be heading to new heights in its price.
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