Last week (10/2-10/8), the sentiment in the cryptocurrency market continued to rise, but the fund performance did not follow suit and instead experienced a pullback.

The total market capitalization showed a downward trend, falling from $1.11 trillion to a low of $1.07 trillion, currently rebounding to $1.09 trillion.

The market sentiment index increased from 48 to 49, approaching neutrality from fear, indicating an improvement in investor sentiment.

Crypto Total Market Capitalization (yellow) and Fear Greed Index (blue) trend from January 1, 2023, to October 8, 2023; Source: MacroMicro.

Although user sentiment improved, there was a lack of new funds, and the performance of mainstream coins remained weak. Avalanche (AVAX) performed the best, rising by 8%, followed by a 3% increase for Chainlink (LINK).

Bitcoin Cash (BCH) performed the worst, declining by 8%, followed by a 3% decline for Uniswap (UNI) and Polkadot (DOT).

Price changes of major cryptocurrencies from October 2, 2023, to October 8, 2023; Source: MacroMicro.

In addition, the price of Bitcoin rose by 2%, and its market dominance increased by 1% to over half of the total market capitalization, currently at 50.3%. Ethereum's price declined by 2%, and its market share dropped by 0.4%, remaining at 17.7%.

On October 7th, the Palestinian armed group Hamas launched a military operation called "Al-Aqsa Flood" in the Gaza Strip, firing over 5,000 rockets and capturing multiple Israeli soldiers and officers.

In response, the Israeli Defense Forces launched airstrikes in retaliation, issuing a nationwide "state of war" alert, with Prime Minister Netanyahu urging Israeli citizens to evacuate Gaza.

The global financial markets were affected by the outbreak of the war. Assets such as oil, gold, and the US dollar saw varying degrees of price increases, while global stock markets experienced a setback. The performance of the cryptocurrency market, led by BTC, was relatively flat, with no significant price increase or decrease.

Geopolitical conflicts typically lead to capital outflows towards safe-haven assets such as gold, silver, and cryptocurrencies. However, not all political conflicts intensify the demand for BTC, as seen in the case of the Russia-Ukraine conflict in 2021, where BTC prices actually declined.

Currently, although the Palestine-Israel conflict has not caused a significant change in BTC prices, as the situation escalates, the safe-haven function of BTC will become more prominent, particularly if the conflict evolves from military to economic or if the scope of the conflict expands. In such cases, the demand for BTC as a safe haven is likely to increase. So, which scenario is most likely to occur?

Currently, different countries have different positions on the Palestine-Israel conflict. Western countries led by the United States condemn Hamas' actions as a form of terrorism, believe that Israel has the right to self-defense, and have announced continuous support for Israel. Countries like Iran and Russia express support for the actions carried out by Hamas, while other Arab countries call on both sides to exercise restraint and avoid escalating the war.

It can be seen that behind the conflict are different camps and interest groups, and their choices will determine the duration and severity of the war. With multiple countries balancing each other, the likelihood of a large-scale war breaking out is relatively low.

However, it is difficult to avoid small-scale military conflicts, and the forms of conflict may be diverse, such as control over oil or economic sanctions. This is also a common means of diverting domestic conflicts through international issues, based on which it can be inferred that the Palestine-Israel conflict will further escalate.

In an environment of uncertainty, capital flight is a normal phenomenon, and safe-haven assets such as gold and BTC will benefit. Furthermore, if the political conflict leads to economic sanctions and trade settlements are hindered, BTC, as a decentralized payment tool not controlled by any authoritative institution (including governments), will also become favored by trading partners. An example of this is Iran choosing BTC as a settlement tool for oil transactions during the 2020 US-Iran conflict.

In reality, regardless of the type of conflict, the more intense it becomes, the stronger the demand for BTC. Conversely, if the contradictions are not sharp and the duration is short, the demand for BTC will be weaker, or may not even constitute demand, as seen in the case of the short-lived Wagner Group rebellion.

On September 2nd, BTC surged to $28,500 then fell back; on September 6th, another attempt to rise failed. On September 7th, the Palestine-Israel conflict erupted, but BTC did not experience a significant increase and instead traded sideways around $28,000.

Bitcoin daily price chart, source: TradingView.

Currently, BTC is priced at $27,600, within the range of $25,000 to $31,000. There is some resistance at this level, which may lead to a temporary pullback. However, overall, the outlook for BTC remains bullish, with an expectation of continued upward movement and a potential third touch of the upper boundary at $31,000 within the range.

Bitcoin daily price trend forecast chart, source: TradingView.

If the Palestine-Israel conflict continues to escalate, it would be more favorable for BTC to experience a rally. However, considering the current global economic conditions, it is important to temper expectations for a breakout from the range unless there is a monetary stimulus such as a rate cut by the Federal Reserve injecting additional funding.