Bitcoin Faces 5% Drop Amid Geopolitical Tensions and Market Uncertainty, Leading to $526 Million in Liquidations

The cryptocurrency market took a hit recently. Bitcoin's price dropped over 5% late Tuesday, leading to a staggering $526 million in liquidations within just 24 hours. Long positions made up $453 million of that, while short positions accounted for $73 million, according to CoinGlass.

As of early Wednesday, Bitcoin was down 3.5%, trading at $61,720. Ethereum (ETH) wasn’t faring much better, falling over 6% to $2,480, based on CoinGecko data.

Analysts believe this setback is temporary. They argue it doesn't signal a long-term bear market. In fact, factors like China’s stimulus, U.S. employment figures, and clarity on FTX payments to creditors could give Bitcoin a boost in the coming months.

“Markets don’t like uncertainty,” said Samir Kerbage, chief investment officer at Hashdex. He noted that the uncertainty surrounding the upcoming November elections adds pressure to the crypto space.

The sell-off followed alarming news from the Israel Defense Forces (IDF), which reported that over 100 missiles were launched into Israel from Iran. This escalation triggered sirens in major cities like Tel Aviv and Jerusalem, as noted by Sky News. Military analyst Alistair Bunkall stated that this attack is “far bigger” than previous incidents.

In the wake of this geopolitical turmoil, Bitcoin and Ethereum spot ETFs saw significant fund withdrawals. On October 1, Bitcoin spot ETFs recorded a total net outflow of $243 million. This was the first outflow after eight consecutive days of net inflows, according to SoSo Value.

Fidelity's ETF (FBTC) experienced a notable outflow of $144 million, while ARKB reported $84.3 million in net outflows. BlackRock's ETF (IBIT) had an inflow of $40.8 million, but it wasn't enough to counter the overall trend. Ethereum spot ETFs faced similar challenges, with net outflows totaling $48.5 million. Grayscale's (ETHE) and Fidelity's (FETH) lost $26.6 million and $24.9 million, respectively.

The market downturn also impacted crypto-related stocks, particularly Bitcoin miners. Marathon Digital (MARA) saw its shares plummet by up to 9%. CleanSpark (CLSK) dropped nearly 6%. Core Scientific (CORZ) and Riot Platforms (RIOT) both fell by about 4%. Even Coinbase, the leading U.S. cryptocurrency exchange, experienced an 8% decline in its share price.

For some context, Avinash Shekhar, Co-founder and CEO of Pi42, mentioned that historical trends suggest Bitcoin may show bullish momentum and reach new highs by late October.

“Fed Chair Jerome Powell's comments about the U.S. economy and a commitment to lower interest rates 'over time' have certainly boosted confidence in the market,” he added. “We can expect minor corrections, and altcoins, especially ETH, are likely to show growth.”

Presto Research pointed out that the recent BTC price action (BTC -4% vs. gold +0.8%) after the attack may seem puzzling. This is particularly interesting given BlackRock's recent position of BTC as a risk-off asset, similar to gold.

The firm argued that Bitcoin's short 15-year history places it in the early stages of mainstream adoption. This results in a risk profile that resembles an internet startup. “This dual characteristic makes BTC a blend of a risk-on and risk-off asset,” they concluded.