Nord Stream, one of the pipelines bringing Russian gas to Northern Europe, was sabotaged on Monday.
On the same day, the price of Bitcoin dropped from $20,300 to $18,800 in the space of a few hours.
Are the two phenomena related? Which is to say, was it the news of the Nord Stream sabotage that caused Bitcoin to plummet on Monday?
Did the Nord Stream sabotage cause Bitcoin’s descent?
In reality, the timing does not coincide, but the impact may have been there.
Early unconfirmed rumors that Nord Stream may have been sabotaged began circulating many hours before the collapse. Indeed, when these rumors began to circulate, the price of Bitcoin rose from $20,000 to $20,300.
The US markets were closed, and were about to open higher, so the price of Bitcoin only anticipated this rise.
Typically, all that is needed to move financial markets are rumors. It is not the news that confirms or denies them that moves the markets, but often it is the rumors themselves.
The fact that when the first indiscretions were published, the price of Bitcoin went up, shows either that they had no impact, or that the markets considered those indiscretions to be wrong.
Confirmations followed later in the day, but these were published hours before Bitcoin’s collapse.
Two explosions recorded on seismographs a few hours prior to the leaks being spotted at the same coordinates according to SVT.
— Oliver Alexander (@OAlexanderDK) September 27, 2022
In fact, those confirmations were published minutes before the opening of the US markets, which opened sharply higher on Monday.
So not even the publication of the sabotage confirmation was able to cause Bitcoin’s price to collapse.
However, such news certainly contributed significantly to fear-mongering, even if that growth was initially hidden by the positive performance firstly of Bitcoin’s price and then of the US stock market.
Negative performance for both Bitcoin and the US stock market
The crash was triggered about an hour and a half after the opening of the US markets, when first the Nasdaq and then Bitcoin began to fall.
While it is true that at that time images had begun to circulate on social media showing the aftermath of the sabotage damage to Nord Stream, it is hard to imagine that it was these images that triggered the panic, hours after the confirmation of the sabotage was published.
Indeed, it is actually very rare for markets to react to news hours after its publication, so much so that even over the next few hours the price of Bitcoin still fell as low as $18,500.
Thus the trigger seems to be due to something else, and in particular something that caused the US stock markets to fall first, and then Bitcoin as a result.
The correlation between Bitcoin and the dollar index
Bitcoin’s two declines have occurred at the same time as two significant rises in the Dollar Index, which is the index that measures the value of the US dollar against a basket of foreign currencies.
The first of these rises was triggered after the Nasdaq had begun to fall, so it was itself a consequence of the Nasdaq’s decline. In contrast, the second occurred in the night, with US exchanges closed, and triggered Bitcoin’s further decline almost 24 hours after the first rumors about the possible sabotage of Nord Stream.
It was therefore a complex situation in which sabotage may also have played a major role, but not a primary one.
The fact is that there was already plenty of fear in the financial markets since the middle of last week. In a context where various fears regarding a possible escalation of the war between Russia, Ukraine, and Europe had already been swirling for days, the news of the sabotage of one of the pipelines that brings Russian gas to Europe only stirred up those fears.
At first, the markets did not react, probably because they were giving more weight to the possible rise in the opening of the US stock markets, but as soon as this brief rise came to a halt, the fear that had accumulated in the previous hours prevailed.
The UK connection
It is worth noting that another element that is creating fear in financial markets, particularly those in Europe, is the evolving political, economic, and financial situation in Great Britain.
In fact, the British pound also followed a similar path to Bitcoin at those junctures, although with several exceptions that occurred at other times.
The British pound has been falling very sharply since 23 September, which is when the new government hinted that it will increase the already high public debt. Investors feared that this increase in debt would be financed by issuing new pounds, and this fear was confirmed yesterday by official statements from the central bank.
Thus, especially in Europe, fears related to Russia were compounded in financial markets by fears related to Britain, so much so that the pound fell in conjunction with Bitcoin between Monday and Tuesday night.
Except that the pound then fell again yesterday at the same time as Bitcoin rose slightly. So the apparent correlation would have broken down on Tuesday, although then later in the day both Bitcoin and the pound recovered somewhat.
The general macroeconomic situation
As can be easily imagined, this is a rather complex situation, where there is not a single event that moves the markets in one direction, but several events that impact almost simultaneously and make it move in different directions.
If we extend the analysis to a longer period, such as September 2022, we see that with ups and downs the price of Bitcoin is continuing to fluctuate between $19,000 and $20,000, despite some brief excursions above and below these thresholds.
In contrast, for instance, the Nasdaq trend is a downtrend, with current values being 7% lower than they were at the end of August.
In other words, events impacting the markets are causing Bitcoin’s price to move only over a very short period, because for the past month it has essentially been lateralizing, rather effortlessly, just below $20,000. This reasoning can also be made about the Nasdaq, but only if one extends the analysis to the past three-plus months.
The fact that current levels are similar to those of June, despite the fact that the situation in Russia has definitely worsened since then, really suggests that for now the bad news coming out of Eastern Europe is only likely to have short-term impacts on the markets.