American poet Charles Bukowski famously stated, “The crowd is always wrong,” a sentiment that encapsulates the current state of the financial markets.
Just a day ago, social media was abuzz with concerns that the U.S. airstrike on Iran’s nuclear sites, along with discussions about Iran considering the closure of the Strait of Hormuz, would spark a significant increase in oil prices, causing stocks and cryptocurrencies to plummet.
However, the reality has been quite different. Oil prices on both sides of the Atlantic surged by only 3% and have since retracted most of those gains, as reported by RialCenter.
Currently, a barrel of Brent crude is trading at $77, up just 1.4% for the day, after briefly reaching a five-month high of $77.79. Likewise, West Texas Intermediate crude rose to a peak of $78.58 before retreating to $76.75.
In the meantime, bitcoin, the leading cryptocurrency by market value, has bounced back above $101,000 after dipping below $98,000 on Sunday, when fears over a spike in oil prices led to short-term Deribit-listed BTC puts trading at an 8%-10% volatility premium to calls. Futures for the S&P 500 are down by merely 0.3%.
The muted response in oil prices indicates that the market may not anticipate Iran following through on its threats to block the Strait of Hormuz, which could destabilize its crucial alliances in Asia, especially with China.
Research from analysts at ING suggests that the market does not expect the strait to be obstructed: “Brent is back below $80/bbl after briefly spiking above this level earlier in the trading session,” they reported.
More than 80% of oil transported through the Strait ends up in Asia, implying that any disruptions would affect Asia more severely than the U.S. Iran would likely be cautious about antagonizing countries like China by obstructing oil flows.
Energy market specialist Anas Alhajji posits that Iran’s threats to shut the Strait are mainly rhetorical, having been employed at least 15 times since the 1980s. In a recent post, he elaborated that the actual closure of the strait involves complicated logistics and military implications.
This suggests a closure would hurt Iran’s allies more than its adversaries, who do not rely on Iranian oil and could use alternative pipelines to bypass the Strait.
BTC Holds Key Support
The likelihood of a drastic increase in oil prices may not come to fruition soon, potentially allowing BTC and other risk assets to avoid a downturn. A sharp rise in oil prices would elevate the risk of major economies slipping into stagflation, the most detrimental scenario for most assets, including bitcoin.
BTC’s chart indicates that bears could not maintain a position below the support level at $100,430 on Sunday. Buyers stepped in around that level on June 5, driving prices up to $110,000 in subsequent days.
The muted response to oil prices indicates a potential for history to repeat itself. Conversely, if the price falls below support, attention may shift to the intersection of the 100- and 200-day simple moving averages at around $95,900.
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