The conflict between Israel and Iran has reignited, causing the cryptocurrency market to retreat from its highs as the weekend approaches, erasing the gains made over the past week due to positive economic data from the United States. Although there was no conclusion to the China-U.S. trade negotiations at the beginning of last week, a preliminary agreement was reached, with both sides agreeing in principle to open trade, pending details to be finalized. As a result, the market sentiment was optimistic at the start of the week, and Bitcoin rose back above $110,000, waiting for Wednesday's CPI results to see if it can challenge new highs again.
Last Wednesday, the CPI announced a lower-than-expected figure, and on Thursday, the PPI and unemployment data also indicated that inflation in the U.S. was not deteriorating as anticipated, while the job market began to slow down. This data is entirely favorable for interest rate cuts, leading the market to speculate that cuts could occur as early as September, stimulating the market to maintain high volatility.
Unfortunately, the good times did not last long. Early Wednesday morning, news broke that the situation in the Middle East was becoming tense, and by Friday, direct conflict had erupted, causing the market to slump again. Interestingly, observing the daily trend of Bitcoin, the drop caused by the war between Israel and Iran was not as severe as the fallout from the previous week’s escalation between Trump and Biden. At least Bitcoin did not challenge the important threshold of $100,000 again.
On Thursday, focus on Powell's speech regarding interest rates.
This week, the market is expected to continue to be influenced by the situation in the Middle East. Whether other countries, especially the U.S., will actively intervene will cause some volatility in the market. Of course, the biggest black swan event would be if Iran actually developed and used nuclear weapons, but that probability is quite low.
On the contrary, if both sides engage in a 'limited conflict' like before, and Trump leads bilateral talks again, the market gloom will dissipate. Historically, after conflicts between the two sides, there have been significant price increases, and Bitcoin would have a good chance of returning to $110,000.
Setting aside the Middle East issue, the U.S. will announce retail sales data on Tuesday, unemployment figures on Wednesday, and then the Federal Reserve's interest rate decision early Thursday. The market currently expects interest rates to remain unchanged, so everyone is awaiting Powell's remarks at the press conference.
The economic data released last week showed that inflation is not deteriorating as much as expected due to tariffs. Let's see if Powell softens his stance on maintaining interest rates and whether he hints at when rate cuts might begin. If his remarks lean towards dovish, the market will become optimistic, but currently, the market speculates that he will maintain a brief hold on interest rates.
Today's fear index stands at 60, still in a state of greed.
The market has been quiet; typically, liquidity is low during weekends, and coupled with the looming bad news, most funds are in a wait-and-see mode. The positive aspect is that the conflict between Israel and Iran is escalating; however, the market has not declined further, and Bitcoin has recorded ETF fund inflows for five consecutive days. From a long-term perspective, the most important factor for Bitcoin is not geopolitical issues, but the U.S. Dollar Index (DXY). The dollar index has just fallen below 100, reaching the lowest level in over three years. Clearly, the dollar is declining, while Bitcoin generally moves in the opposite direction. Since the negative news is not pushing prices down, there will likely be a rebound when the bad news eases, so it's advisable to hold onto your investments and be patient.