Crypto markets rebounded on Wednesday, recovering from a selloff triggered by the escalating conflict in the Middle East and shaking off earlier pain in other asset classes.
Bitcoin rallied as much as 5.7% to briefly surpass the $71,890 mark, hitting its highest value in nearly a month. It gave up some of its gains in early New York morning trading, hovering around $71,343. Ether also surged — up as much as 6.3% to $2,092 — with cryptocurrencies forming a sea of green.
The world’s largest cryptocurrency had weathered a rocky few days since US and Israeli forces attacked Iran on Saturday, at one point dropping as low as $63,038 that day. Since then, investors have largely rallied around digital assets, with spot Bitcoin exchange-traded funds in the US raking in more than $680 million in inflows on Monday and Tuesday, according to data compiled by Bloomberg.
“This is a victory for cryptocurrencies, given the impressive selloff those financial markets and gold experienced the day before,” said Alex Kuptsikevich, chief market analyst at FxPro. “Perhaps some traders are looking at crypto as a safe haven.”
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Futures for US stock rebounded, while Europe’s Stoxx 600 rallied. Asia’s benchmark index had plunged the most in nearly a year on Wednesday, led by a record selloff in South Korean equities. Gold briefly traded below $5,000 per ounce on Tuesday, before rising to trade above $5,180 on Wednesday morning.
“Sentiment remains highly wary on financial markets as investors assess the latest developments in the Middle East and brace for fresh turbulence,” said Susannah Streeter, chief investment strategist at Wealth Club.
Despite Wednesday’s rebound, crypto markets remain on edge, with Bitcoin still about 40% below its October peak following a months-long selloff. That backdrop has put Bitcoin in a unique position amid geopolitical turmoil, providing the basis for a rally while other asset classes may be due a breather.
“All things considered, the backdrop coming into last week reflected a statistical anomaly in Bitcoin and a very different regime compared with both gold and equity indexes,” said Vetle Lunde, head of research at K33.
Crypto advocates have often compared the cryptocurrency to gold, viewing it as a digital version of the safe haven asset that investors might turn to in turbulent times. That narrative failed to stick as Bitcoin fell in recent months while gold rallied. The token has since outperformed gold in recent days, bouncing around 9% since Friday before the Iranian conflict began. Gold is down almost 2% over the same period.
“Gold is struggling as the bond markets are repricing for inflation risk,” said Fadi Aboualfa, head of research at Copper Technologies Ltd. “It’s possible investors are taking early speculative bets on future money easing as the war prolongs.”
Still, crypto’s volatility and the ongoing military action means that any rebound in digital assets could be short-lived. The expanding war moved into its fifth day on Wednesday, with Israel and Iran continuing to exchange airstrikes and missile fire. Hundreds of people have died in Iran and dozens elsewhere in the region, while the US says six of its servicemen have been killed.
“We still consider the situation too fragile to say that the bottom has been reached,” Kuptsikevich added. “Bitcoin is vulnerable due to the increased volatility of stock indexes, which is forcing institutional investors to reduce their leverage.”
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