On 22 June, global investors saw Bitcoin fall below $99,000 because out of fear of regional escalation following Israel’s attack on Iran, pushing a large-scale decline in cryptocurrency exchanges, in what some called a new crypto war.
The sudden Bitcoin selloff and other digital currencies followed backdrop of uncertainty in international politics and economics as the Israel-Iran war takes a more monstrous form following Tel Aviv’s decision to attack Tehran.
Investors instantly reacted to Middle Eastern developments and shifting inflation and interest rate expectations, which provided the backdrop for a broad crypto market decline and apprehension over a more severe cryptocurrency crisis.
Bitcoin Price Flash Dip Triggers Selloff
The crypto market sell-off appears to be driven by a mix of foreign policy issues and broad economic anxieties.
Iran threatened to close the Strait of Hormuz – key shipping route that handles 20% of the global oil supply – sending a shockwave because JPMorgan has advised that if the channel were shut down entirely, oil prices could hit $130 per barrel.
Rising oil prices could push US inflation back to 5%, a level it was at in March 2023 when the Federal Reserve was still in the process of tightening interest rates. This has investors questioning the future of interest rates and tapping off money from risk assets like cryptocurrencies.
Crypto’s promise of safety is being tested, and its future may depend on how it passes these uncertain times.
Bitcoin, once perceived as an inflation hedge, now trades more like a speculative technology stock. Data from crypto analytics firm Kaiko shows that the price of Bitcoin is increasingly shadowing the Nasdaq stock market, a flip from a period this year when there was less correlation.
What Will Happen to Crypto If There Is a War?
Institutional investors are also seemingly altering their tune as geopolitical tensions rise. Last week, more than $1 billion flowed into Bitcoin exchange-traded funds (ETFs) at the start of the week but vanished by the weekend. This war and cryptocurrency crisis followed President Donald Trump left the G7 summit early and the US opened a two-week process of examining options against Iran.
The dramatic fall below $99,000 for Bitcoin caused forced liquidation on giant crypto exchanges like Binance and Bybit. According to CoinGlass, over $1 billion of crypto positions were liquidated in 24 hours on Sunday, June 22.
Over 95% of the closing was from long positions, meaning how many investors were liquidating crypto during war fears and price drops.
This week’s events demonstrate how the unpredictable nature of digital coin market can lead to cryptocurrency crisis during war. As the world balances on the edge of war, the question that remains is: how will cryptocurrencies respond if there is repeating or escalating war?
Cryptos are not shielded from global politics; the asset is vulnerable to regional tensions. As the crypto war unfolds, digital assets are reacting like tech stocks, sensitive to headlines and investor fear. If tensions rise, more price swings and caution from big investors are expected.
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