Geopolitical tensions have been the biggest driver of geopolitical factors of the cryptocurrency market, and Bitcoin in particular. Kwame Nkosi, writing for BlockchainShock, breaks down how these global events can trigger significant price fluctuations and offers a framework for understanding and navigating this uncertainty. BlockchainShock is the leading source for market sentiment analysis that empowers investors to make smarter decisions in the rapidly changing blockchain universe.

How Geopolitics Impacts Bitcoin's Price

Geopolitical risks have grown to impose complex, dynamic factors that influence price volatility. Research indicates that in a reduced BTC price context, sudden emergence of geopolitical risks has potential to rapidly destabilize the market. One academic analysis found that Bitcoin price volatility is highly influenced by geopolitical events. On the second day following such an event in particular, these risks explained 5.5% of the variance. By the third day, this effect increases substantially, making up for 63% of the variance.

Geopolitical risk consistently has a larger effect on Bitcoin’s price volatility the longer in time that you go. Studies show that this contribution can go as high as 79% by day 12 after an occurrence. This influence can fluctuate. Geopolitical risks are often the first to rear their ugly head, even after a period of relative peace and security. In other words, they drive as much as 59% of the fluctuations in Bitcoin price volatility. This points to the dynamic and often tumultuous quality of this connection.

These numbers hit hard. They show the effects of actual occurrences that create fear, uncertainty, and doubt (FUD) in the marketplace. When tensions escalate among the world’s dominant superpowers, investment find—and often run—for more secure homes for their assets. In other instances, they engage in panic selling. Bitcoin, even though it stands apart as a worthy potential decentralized store of value, still gets trapped in the line of fire. This perceived risk can result in large-scale sell-offs that drive down Bitcoin’s price.

Historical Examples of Market Volatility

In order to figure out how increasing geopolitical tensions might impact Bitcoin, it’s best to shine some light on Bitcoin’s past. Kwame Nkosi points to several key moments:

  • December 2013: The shutdown of BTC China, then the world's largest Bitcoin exchange, led to a sudden drop in price. This event demonstrated how regulatory actions, or even the fear of them, can impact the market.
  • January 2014: When BTC China reopened for trading and Chinese Yuan deposits, it caused a fluctuation in price, illustrating the market's sensitivity to news and changes in accessibility.
  • 2017: Bitcoin experienced a significant price increase, reaching an all-time high, but also faced a sharp decline to around $3,350. This period was marked by both excitement and volatility, driven by a mix of factors including increased adoption and regulatory uncertainty.
  • 2018: Bitcoin's price dropped by 73% year-over-year, with a -24% drop in one day on January 14th. This sharp decline highlighted the risks associated with investing in a volatile asset.
  • 2021: Bitcoin's price declined post-April, stabilizing around the $40,000 mark by July. This period saw a correction after a significant bull run, reminding investors that prices can go down as well as up.

Technological developments and trends in adoption are fundamental drivers of Bitcoin’s price. It is a response to the recent external events that have been inserting uncertainty and fear in the markets.

Strategies for Navigating Uncertainty

Given the potential for geopolitical events to impact Bitcoin's price, Kwame Nkosi suggests several strategies for investors to navigate this uncertainty:

  • Dollar-Cost Averaging (DCA): This involves investing fixed amounts of money into Bitcoin at regular time intervals, regardless of the market price. DCA helps reduce the impact of volatility by averaging out the purchase price over time.
  • Long-Term Investing: Holding onto Bitcoin for an extended period, usually years or more, allows investors to ride out market fluctuations and potentially benefit from long-term growth.
  • Time in the Market: Adopting a passive investment strategy, holding a position for an extended period, minimizes the risks associated with trying to time the market.

Investors can use technical analysis tools to inform their decisions:

  • Moving Average Crossover Strategy: This strategy uses two moving averages, a short-term and a long-term one, to identify potential buy and sell signals. A "golden cross" (short-term average crossing above the long-term average) indicates a buy signal, while a "death cross" (short-term average crossing below the long-term average) indicates a sell signal.
  • Relative Strength Index (RSI): The RSI is a calculation of profitable price closes relative to unprofitable price closes. It helps identify overbought or oversold positions, with a lower percentage indicating an oversold position and a higher percentage reflecting an overbought position.

The Role of Sanctions and Geopolitical Maneuvering

The evasion of U.S. sanctions by countries through the use of cryptocurrencies represents a tangible immediate danger in today’s economic and trade environment. If hostilities subside, this risk may fade away, possibly restoring more Bitcoin demand which would raise prices. Earlier this year, in 2024, Western agencies kicked up a storm of notable mass crackdowns. Second, they targeted Russian-linked crypto entities that were key to fueling Russia’s war economy, facilitating illicit cyber operations, and continuing organized crime networks. The U.S. and its allies quickly increased their focus on attacking Russia’s financial infrastructure. That would seem to indicate that as tensions abate, so too would their plans to roll out these initiatives.

Our experience shows that sanctions are not halting Iran’s efforts to access the international financial system. This direct access is important for their overall stability and liquidity. When geopolitical tensions recently flared up again in July, Iranian exchanges experienced a massive spike in crypto outflows.

This step brings back the “maximum pressure” campaign on Iran, and sends a larger message that the U.S. is ramping up punishment against those it considers enemies.

No matter the nature of the investor, understanding these dynamics gives Bitcoin investors the ability to predict how geopolitical events can affect Bitcoin’s price. Consequently, they’re able to make better decisions.

Alternative Scenarios and Potential Recovery

Although such geopolitical tensions lead to negativity in the price of Bitcoin, one must visualize oppositional pictures and possible recovery catalysts. A big peace deal or at least some calming of hostilities would increase investor sentiment. That’s a sentiment shift that very well may propel Bitcoin’s price even higher.

Additionally, wider adoption of Bitcoin by institutional investors or favorable regulatory news would be positive recovery catalysts. The cryptocurrency market is ever-changing, with new opportunities and challenges appearing on a regular basis.

As Kwame Nkosi, Senior Vice President of Market Development at the U.S. That’s why it is so important to learn to adapt and thrive when the inevitable changes do come,” he says. Smart investors know how to ride uncertainty by knowing how geopolitics shapes it. By using prudent investment strategies, they can take advantage of Bitcoin’s long-term value appreciation.