We are officially in ‘UPtober’ — the way crypto enthusiasts term October — and Bitcoin is coming off a strong month, defying the usual seasonal slump. Much of this momentum was driven by optimism around anticipated US Fed rate cuts, which lifted sentiment across the broader crypto market.
However, the road ahead is anything but clear. A series of factors, from escalating geopolitical tensions in the Middle East to the surge in open interest in futures contracts, coupled with a slowdown in spot market buying, have shifted the landscape. What was shaping up to be a robust rally has now become a complex mix of uncertainty and caution.
In today’s analysis, we’ll explore the significance of Bitcoin’s recent pullback and unpack the key drivers behind the shift in market dynamics.
Flattening buy volume in spot
According to analysts at Bitfinex, the aggressive spot market buying that had been a key driver of Bitcoin’s recovery since the local bottom on September 6 has recently started to lose momentum. What began as a strong surge in demand from spot buyers has now slowed, signalling a potential shift in market sentiment as the rally faces increasing headwinds.
Source: https://twitter.com/bitfinex/status/1840777572218462621
Historically, September has been a challenging month for the crypto market, and this year was no different. Notably, the total exchange volume for the month fell below the $1 trillion mark for the first time since November of last year. September closed with $987 billion in exchange volume across major platforms, reflecting a 19% decline compared to the previous month.
Source: https://www.theblock.co/data/crypto-markets/spot/cryptocurrency-exchange-volume-monthly
Open interests surge
Bitcoin’s open interest in futures contracts surged past $35 billion, raising concerns about potential overheating in the market. Historically, similar spikes in open interest have preceded local price peaks. As of September 28, Bitcoin open interest hit $35.6 billion, followed by a 10% drop, coinciding with a price pullback.
Source: https://www.coinglass.com/BitcoinOpenInterest
Open interest (OI) in Bitcoin futures reflects the number of active, unsettled contracts. A rising open interest means more traders are involved, but if it gets too high without strong spot buying, it can signal market risk, potentially leading to a price correction.
Iran-Israel conflict sparked sell-off
The escalating conflict between Iran and Israel has had an immediate and significant impact on the cryptocurrency market, following missile strikes by Iran. Bitcoin dropped over 6%, falling to around $60,200, while altcoins like Ethereum and Solana also took hits. This sell-off led to over $523 million in liquidations within 24 hours, primarily affecting long positions.
The heightened geopolitical tension is driving a risk-off sentiment across financial markets, challenging the narrative that Bitcoin serves as a “safe haven” during crises. Investor sentiment quickly shifted, as indicated by the drop in the crypto fear and greed index from 61 (greed) to 37 (fear) within just three days.
However, Bitcoin tends to recover fast
According to BlackRock, the last 6 times a major geopolitical event happened, Bitcoin managed to recover quickly and even register an increase in the following 60 days.
Source: BlackRock
NVT Golden Cross also provides hope
The NVT (Network Value to Transactions) Ratio is a key metric for assessing Bitcoin’s valuation relative to its transaction volume, often seen as a crypto equivalent to the price-to-earnings ratio in traditional markets.
Source: https://cryptoquant.com/community/dashboard/667fcccda3f5b8210d56f5c4?e=66fc3be75862d25bc172ca88
Recent figures show a notable decline in the NVT Golden Cross value, with a sharp drop from 2.9 on September 30 to 0.8 by October 2. This steep decrease signals a shift in Bitcoin’s underlying fundamentals. A value above 1.0 often suggests the market is overvalued, with rising prices outpacing actual network usage. However, as the NVT fell below 1.0, it indicates that transactional activity is now rising faster than the market cap growth, pointing to a bullish signal.
Historically October has been a good month for crypto
October has historically proven to be a standout month for the crypto market, delivering solid returns across the board. Over the past five years, the average gain in October has exceeded 22%, even during challenging periods. Notably, even the bear cycle of 2022, which weighed heavily on the market, saw a 5% uptick, closing the month in green.
Source: https://www.coinglass.com/today
Key takeaway: uncertainty looms
Historically, Bitcoin has often been viewed as a potential safe haven, but recent events are testing this assumption. With the Israel-Iran conflict escalating, Bitcoin has already shown signs of instability. Such tensions tend to drive investors towards traditional safe-haven assets like gold, reducing Bitcoin’s appeal in the short term.
Moreover, if Israel’s conflict with Iran intensifies, it could lead to a full-blown regional war, pushing global markets — including crypto — into risk-off territory. This could result in Bitcoin hitting multi-month lows as investors retreat from volatile assets. However, in the aftermath of such a downturn, Bitcoin has the potential to rebound, as it often does when market conditions stabilize and as uncertainty prompts long-term holders to accumulate.
Additionally, the US election adds another layer of hope and uncertainty. Depending on how crypto-friendly the next administration is, regulatory changes could swing market sentiment dramatically.
Overall, while October has historically been a strong month for crypto, this year, we urge retail traders to remain cautious. As we head into a period of uncertainty, staying vigilant and closely monitoring global developments will be key to successfully navigating the potential volatility ahead.
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Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.
