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Bitcoin has failed once again to prove itself as a digital version of gold as Iran's missile attack on Israel has sent the cryptocurrency market into freefall.
Overnight, Iran launched around 200 missiles at Israel in response to the killing of Hezbollah leader Hassan Nasrallah and others. Many of the missiles were intercepted by Israel's iron dome defense system but some hit the ground, including in West Bank.
But the conflict is far from over. Iran's Islamic Revolutionary Guard Corps claimed responsibility for the attack, warning that further Israeli retaliation would trigger more strikes. Israel has vowed to respond, with Prime Minister Netanyahu warning that Iran "made a big mistake" and will face consequences.
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Even the United States has agreed to intervene, offering full support for Israel but is assessing the situation to determine an appropriate response.
Fearing the worst, the crypto market plunged upon hearing the news. Nearly $248 million was wiped out in the first four hours of Iran's attack. Bitcoin fell as low as $60,780 despite reaching highs of more than $66,000 over the weekend.
Meanwhile, gold has held its ground, slipping around 0.3% since the attack while Bitcoin fell over 2.0%.
Despite being touted as "digital gold," Bitcoin has never quite earned the moniker. In August, we highlighted how Bitcoin acted more like stocks than gold when markets plummeted and carry trades unravelled. Bitcoin's correlation with gold turned negative last month, breaking up the theory of the token as an economic hedge.
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Some analysts say it is not feasible to assume that institutional investors are allocating capital to Bitcoin for the same rationale as gold and that these two assets serve distinct functions in investment portfolios.
As BRN analyst, Valentin Fournier, explains, "Although Bitcoin is often labelled a store of value, it remains a highly volatile asset that reacts strongly to risk-off sentiment. In moments of sudden uncertainty, like last night’s events, Bitcoin experienced minor losses, while traditional safe-haven assets like gold appreciated."
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"This occurs for two key reasons," Fournier continued. "First, Bitcoin was designed to be a superior store of value over the long term, rather than a stable short-term hedge, especially against other currencies that depreciate due to inflation.
#Bitcoin has slipped following #Iran's missile attack on #Israel. Although Bitcoin is often labelled a store of value, it remains a highly volatile asset that reacts strongly to "risk-off" sentiment. (1/4)
— BRN (@thebrn_co) October 2, 2024
"Second, as a relatively new asset with significant potential for appreciation, Bitcoin is still subject to considerable speculation, leading to greater price fluctuations compared to more established assets like gold."
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