Amid escalating geopolitical conflicts in the Middle East, risk aversion is rising in global markets, and the cryptocurrency market has experienced a pullback after a brief surge. On Wednesday, the world’s largest cryptocurrency by market capitalization, Bitcoin, fell by more than 3%. Earlier in the week, driven by multiple factors, Bitcoin had approached the $76,000 mark, hitting a new high since February.
Meanwhile, other major cryptocurrencies by market cap also generally weakened. Ethereum and Solana each fell by approximately 5%, indicating the pressure on the entire crypto asset class as market risk appetite declines. Affected by this, several US-listed cryptocurrency-related stocks also moved lower. As of press time, Circle (CRCL) was down over 1.5%, Strategy (MSTR) fell more than 5%, Coinbase (COIN) dropped over 4%, and Robinhood (HOOD) declined more than 2%.
Market analysis suggests that this correction is closely related to geopolitical risks. Hanson Birringer, Managing Director at Flowdesk, pointed out that following reports of an Israeli attack on Iranian oil facilities, the market quickly switched to risk-off mode. This, combined with the weak performance of the US tech stock sector, collectively exerted downward pressure on crypto assets.
From a market structure perspective, Bitcoin has repeatedly encountered resistance above the $70,000 level recently, indicating a lack of upward momentum. Blockchain data company Glassnode analysis indicates that short-term holders have consistently chosen to take profits in this price range, a phenomenon observed multiple times over the past few weeks, which has weakened Bitcoin’s momentum for a further breakout. Despite this, the current price of Bitcoin is still about 40% lower than its all-time high of approximately $126,000 set in early October this year, reflecting a cooling of overall sentiment in the crypto market amid intertwined factors such as changing expectations for Fed policy, geopolitical uncertainty, and fluctuating institutional demand.
However, some positive signals have also emerged in the market. Glassnode data shows that signals in the spot market are generally “divergent but positive,” with on-chain activity remaining stable, indicating that the market environment is gradually showing signs of stabilization and slow repair. Additionally, sentiment among institutional investors appears to be recovering. Data shows that over the past week, US-listed spot Bitcoin ETFs recorded net inflows for the third consecutive week, totaling over $750 million, indicating that institutional funds are re-entering this asset class.
For investors with $1,500 at hand, deciding between the higher-risk Bitcoin and the relatively safer S&P 500 ETF is a question worth considering.
One of Bitcoin’s main advantages lies in its unique return characteristics and low correlation with mainstream assets. Over the past three years, its price appreciation has far exceeded average market levels, but its volatility has also been three to four times that of US stocks. Simulations by Grayscale Research show that in a traditional 60% stock and 40% bond portfolio, increasing the Bitcoin allocation to around 5% can optimize the portfolio’s risk-adjusted returns without significantly increasing overall volatility. Research from Galaxy Asset Management has reached similar conclusions, finding that adding a small Bitcoin allocation helps improve the portfolio’s annualized return over specific periods.
However, for most investors, directly purchasing an index fund might be the more prudent choice. Take SPY, which tracks the S&P 500, as an example. Its 20-year annualized return is approximately 10.7%. Investing in this fund is equivalent to holding a basket of the largest publicly traded companies in the US, effectively diversifying risks associated with individual companies or sectors, and its price performance is closely tied to the fundamental growth of these companies.
