Crypto Fundamental Analysis: Optimism in the Middle East helps confidence recover in the market

The first week of May comes to an end, and with it, a recovery in confidence has begun to emerge in the cryptocurrency market, partly driven by recent optimism surrounding a potential quick resolution toward a peace agreement in the Middle East in the short term. This environment has allowed risk appetite, including for cryptocurrencies, to regain relevance.

However, the end of the week was also marked by the release of US NFP employment data and, despite solid results, this has revived concerns about a potentially more aggressive central bank. Therefore, while geopolitical optimism may continue to support confidence in the short term, market focus could shift back toward monetary policy in the coming weeks.

Situation in the Middle East shows improvement

The week’s development has been positive for market confidence, as midweek reports indicated that the United States had begun suspending surveillance operations in the Strait of Hormuz following meaningful progress toward a potential peace agreement with Iran.

The situation has continued to evolve, with Iran stating that it is carefully evaluating the peace proposal presented by the United States and that an official response will be delivered in the short term. This scenario could lead to the first formal agreement after several weeks of tension in the region.

These developments have been relevant for market sentiment, as they have reduced uncertainty and created a more favorable environment for risk appetite, including cryptocurrencies.

This effect was reflected in Bitcoin network activity, where the number of confirmed transactions per day showed a rise midweek, reaching levels close to 600,000 transactions. This increase, alongside the rise in Bitcoin’s price, suggests that buying activity may have been dominant in the short term, reinforcing the idea that geopolitical optimism has acted as a relevant catalyst for confidence.

Source: Blockchain

Short-term market sentiment may continue to focus on optimism around a concrete advancement in Middle East negotiations. As more positive updates emerge, this could continue to support confidence and sustain buying pressure in the crypto market in the coming sessions. However, the medium-term outlook could become more complex.

 

Can NFP change the outlook?

At the end of the week, US NFP data was released, showing job creation of 115,000 versus the 65,000 expected, indicating a stronger-than-expected labor market.

This highlights the resilience of the US economy, even in a high-rate environment. However, it may also have mixed implications, as stronger employment can lead to additional inflationary pressures and open the door for a more aggressive stance from the Federal Reserve.

Looking at the Fed’s probability outlook after the data release, expectations still point toward stable rates, with more than a 70% probability of no change through December 2026. However, there is also a growing probability (above 20%) that a rate hike could be considered by early 2027.

Source: cmegroup

In this context, it will be important to closely monitor central bank communication in the coming weeks. Any signals pointing to a more restrictive policy stance could reintroduce concerns about higher rates, impacting liquidity and, consequently, demand for risk assets such as cryptocurrencies. This could lead back to a phase of indecision in the medium term.

 

Bitcoin relative to other markets

At present, Bitcoin maintains a highly positive correlation close to 1.0 with US equity indices such as the S&P 500, indicating that both markets have been moving in a similar direction over the past 50 sessions.

This suggests that the recovery seen in equity markets is also being reflected in Bitcoin’s price action. It is important to note that this correlation can change over time.

Source: Data – TVC, StoneX, Tradingview

This relationship is relevant because the increase in correlation with traditional assets suggests that the crypto market has once again begun to behave as a risk asset in the short term. In this context, the broader improvement in market sentiment appears to be extending into cryptocurrencies.

Overall, if the current confidence environment holds, it may continue to support a more stable demand in the crypto market, as investors seek exposure to higher-risk assets.

 

Confidence begins to stabilize

Looking at the Fear and Greed Index, it stands out that, although there have been no significant advances in recent sessions, the indicator remains around the 48 level, within neutral territory, suggesting a stable short-term sentiment.

Source: Coinmarketcap

This behavior indicates that there is room for a more consistent recovery in confidence, as long as macroeconomic conditions continue to support an environment of optimism. In this sense, any further improvement in the indicator could help sustain a more stable buying pressure in the crypto market in the coming sessions.

 

Written by Julian Pineda, CFA, CMT – Market Analyst

Follow him on: @julianpineda25