The latest conflict between Israel and Iran has already introduced unprecedented volatility into the cryptocurrency market. Ethereum (ETH) is not exempt. Ethereum is getting hit just as hard. Miles O’Connor is an altcoin economist with the Ethereum Foundation. Here, he breaks down what happened, discusses how Ethereum’s price played a role, and provides tips for making sense of – and staying afloat in – these choppy waters. He’s got a unique combination of those technical analysis skills and the ability to connect the dots on how these major geopolitical events can move the crypto markets.

Geopolitical Tensions and Ethereum's Price Swings

Furthermore, the Israel-Iran conflict has ignited a spike in market volatility, which led Ethereum to temporarily fall under the $2,300 mark. The first-ever shock reaction sent Ethereum crashing down to $2,110. It was a backtest of the lower bound of a symmetrical triangle formation and the 100-day Simple Moving Average (SMA). This floor became a major line of defense, keeping the drop from being much deeper. The ceasefire announcement proved to be the needed spark for a recovery, sending Ethereum skyward.

After the ceasefire announcement, Ethereum surged significantly, increasing 7.7% from $2,230 to $2,401. This dramatic comeback signaled a rebound of optimism toward the real estate market, if only in the temporarily booming market. What’s especially curious, though, is that institutional demand skyrocketed during that stretch. Yet on the day of the ceasefire announcement, US spot Ethereum ETFs brought in over $100 million in net inflows. This inflow indicates that institutional investors were using the dip as a buying opportunity, helping to fuel and solidify the recovery.

The conflict led to a meaningful wave of selling, mainly from short-term holders. A steep drop-off with the 90 and 180-day Mean Coin Age is a definite sign of this action. This caused many investors, who were only in Ethereum for the short haul, to close out of their positions amid the confusion. Short-term investors are extremely skittish and reactive to geopolitical tumult. They are quick to crystallize gains or prune losses in times of turmoil.

Technical Indicators: Navigating the Uncertainty

At present, Ethereum’s moving averages and oscillators offer a neutral short-term view. This indicates that the market is fairly balanced, with neither bullish or bearish indicators leading the way. When you take a step back and look at longer-term trends, it’s a different story. The 1-week Chg rating is a buy signal, meaning that the stock has a good chance of moving up over the next week. On the other hand, the 1-month rating continues to hold at neutral, indicating a longer-term positive trend has yet to be seen.

To gain a better understanding of how geopolitical events impact cryptocurrency markets, it is helpful to look at historical data. Academics have previously found evidence that Bitcoin returns are impacted by geopolitical risks after all. Recent research applying quantile regression and Markov regime-switching models have determined a strong influence on the price of Bitcoin. Indeed, geopolitical risks can account for over 70% of the variation in Bitcoin price volatility. Another study found that on day 3, geopolitical risks accounted for 63% of the variance in Bitcoin prices. Given the lower Bitcoin price landscape, this finding was especially significant. The onset of the Russia-Ukraine war in early 2022—which plunged both traditional and crypto markets into turmoil—further exacerbated investor and consumer uncertainty. Bitcoin’s price did jump—though that increase was later neutralized by unrelated market factors. Since 2022, geopolitical conflicts have undeniably become the variable that most affects cryptocurrency market volatility.

11 Another study employed GARCH models and found that geopolitical risk shocks have a strong increasing effect on Bitcoin price volatility. These effects are first detected starting on day 5. Even worse, these studies only look at Bitcoin. Nevertheless, their findings offer important insights into just how geopolitical events can make ripples across the wider cryptocurrency market, including Ethereum.

Potential Scenarios and Price Targets

Looking forward, a few key drivers will shape ETH’s price direction. Target prices from sell-side houses have called for a range of $4,000-$4,500 Ethereum. This target represents a nearly 76% premium over Friday’s closing price. Even that is not enough to exceed the all-time high of 2021.

If the price manages to break above the $2,600 resistance level, it would probably lead to a move towards the $2,800 resistance area. It may even increase up to $2,920. This optimistic scenario would need persistent buying pressure and a strong positive sentiment in the market.

Long-term predictions for Ethereum's price vary, but some forecasts suggest the following potential ranges:

  • Increased adoption and TVL: If Layer 2 (L2) activity continues to grow, with combined L2 TPS breaking 100 while core-chain gas stays low, roll-up adoption could add net demand rather than cannibalizing Layer 1, potentially driving up Ethereum's price.
  • Restaking TVL crossing $25 billion: If restaking TVL crosses $25 billion, it could indicate re-staking's migration from experiment to infrastructure, which could be great for yield and potentially drive up Ethereum's price.

Consider these predictions to have a large margin of error. They rest on a great deal of assumptions and models that do not necessarily line up with what future markets may look like.

  • November:
    • Minimum: $5,468
    • Maximum: $6,146
    • Average: $5,649
  • January:
    • Minimum: $4,318
    • Maximum: $4,906
    • Average: $4,525

Given the inherent volatility of the cryptocurrency market and the added uncertainty of geopolitical events, it's crucial to adopt a proactive approach to risk management. One potential strategy is to have the diversified portfolio that everyone has always talked about. We find that Bitcoin’s resilience as a proto-safe-haven asset does indeed mitigate downside risk in portfolios during the periods of crisis.

Navigating Volatility: A Proactive Approach

Miles O’Connor’s analysis reveals just how deeply intertwined real world, geopolitical chaos and the crypto markets have become. Although the Israel-Iran conflict has brought a new level of uncertainty, it has provided opportunities for savvy investors. By understanding the underlying dynamics, monitoring technical indicators, and adopting a proactive approach to risk management, investors can navigate these turbulent times and potentially capitalize on the opportunities that arise.

Miles O’Connor's analysis highlights the complex interplay between geopolitical events and cryptocurrency markets. While the Israel-Iran conflict has introduced volatility, it has also presented opportunities for informed investors. By understanding the underlying dynamics, monitoring technical indicators, and adopting a proactive approach to risk management, investors can navigate these turbulent times and potentially capitalize on the opportunities that arise.