The cryptocurrency market is preparing for upcoming volatility as geopolitical tensions escalate in the Middle East. Bitcoin and Ethereum are stabilizing after a historic crash earlier this week. With the Israel/Iran war that started on June 3 still raging, traders are hedging their bets. The crypto market at large has been hit hard, with the entire market losing about $66 billion in the last 24 hours. Meanwhile, traditional markets reacted to this increasing uncertainty.
Bitcoin's Price Dips Amidst Bearish Bets
After the breakout of hostilities between Israel and Iran, Bitcoin has still seen a net 3% dip, coming to rest in the $64k region. This decline comes at the same time that Bitcoin put options have been increasing, showing that negative sentiment is continuing to take root among traders. Specifically, look at the significant volume at the $60,000 level foreshadowing investor expectations for more downside risk.
Yet even with the latest price decline and overall bearish sentiment, Bitcoin exchange-traded funds (ETFs) have experienced massive inflows. These ETFs soaked up almost 10,000 Bitcoin or almost $1 billion, justifying strong institutional demand for the cryptocurrency.
"Puts act as a hedge, especially for spot holders. It’s more risk management in the short term." - Liu
XRP traders are jumping on the defensive as well, preparing to hedge their positions in preparation for an expected price drop. This massive surge in hedging activity is indicative of the risk off mood permeating the crypto market right now.
Ethereum Feels the Impact
Ethereum hasn’t been immune to the turmoil either, as the ongoing geopolitical crisis continues to worsen. Since the recent high on June 3, this cryptocurrency has lost almost 50% of its peak value, down to $2,900. Like Bitcoin, Ethereum is seeing some resistance at this point after a significant drop earlier this week.
Further complicating the state of the market is the conflict’s potential to upend global oil supplies. Iran, one of the world’s largest oil producers and the fulcrum of US-Iran tensions, produces around 4% of the world’s oil supply. The Strait of Hormuz is perhaps the most important chokepoint in the world. It processes roughly 30% of the world’s seaborne oil and 20% of liquefied natural gas, so the continuing conflict could create major disruptions in these vital fuels.
Traditional Markets React
The real-world uncertainty that permeates the conflict has extended to traditional financial markets as well. US stocks fell on the news, a sign of investor concern. Upstream oil and gas prices jumped as fears heightened over a possible supply interruption. At the same time, gold—which is normally considered a safe-haven asset—fell. Shares of Coinbase, the largest cryptocurrency exchange in the world, sank up to 4%.
"As news shifts sentiment between fear and greed, uncertainty grows." - Liu
Geopolitical uncertainty is still on the rise. Prediction market Polymarket has US strikes against Iran at 61% odds before the end of July. This increase in the sense of military action is adding to all the heightened market angst and risk aversion.
