Bitcoin Drops 5% Amid Middle East Tensions, Institutional Demand Remains Strong

Bitcoin (BTC) price has experienced significant volatility due to escalating tensions in the Middle East. The cryptocurrency dropped to as low as $103,396 on Tuesday, causing a similar decline in the broader altcoin market. This volatility led to the liquidation of over $513 million from the crypto-leveraged market, with long traders accounting for $421 million of the losses. Despite this, the BTC fear and greed index remained around 68 percent, indicating that crypto traders are optimistic about an impending bullish rally.

Institutional demand for Bitcoin remains robust. The Bitcoin balance on centralized exchanges has continued to decline, dropping to about 2.08 million from 2.26 million on April 24, 2025. This decrease is largely driven by U.S. spot Bitcoin ETFs and institutional investors, with Strategy and Metaplanet being major contributors. Over the past five days, U.S. spot BTC ETFs have recorded a net cash inflow of approximately $1.46 billion, led by BlackRock’s IBIT.

Despite the recent volatility, BTC price has been forming a bullish continuation pattern. Following a 5 percent drop in the past 24 hours, retesting a crucial support level around $103k, BTC price rebounded over 1 percent to trade around $105k on Tuesday during the mid-North American trading session. In the two-hour timeframe, BTC price retested a bullish breakout from a falling logarithmic trendline, with the Relative Strength Index (RSI) hovering around oversold levels, suggesting a potential rebound in the near future. However, a consistent close below the support range between $103k and $101k could trigger further bearish sentiment in the subsequent weeks.

Bitcoin's price has shown resilience, retesting key support levels as market participants await the Federal Open Market Committee's (FOMC) decision. Historically, Bitcoin has responded positively to FOMC statements, and a similar trend is expected this time. The FOMC's median forecast, if it signals two or more rate cuts this year, could soften the U.S. dollar, potentially benefiting Bitcoin. This scenario may also influence other central banks, given the interconnected nature of global financial markets.

Bitcoin's near-term price outlook is influenced by various factors, including geopolitical tensions and legislative updates. The ongoing Israel-Iran conflict has added to market volatility, with Bitcoin dropping to $104,000 amid escalating tensions. This geopolitical uncertainty has dragged major altcoins lower, reflecting the broader market sentiment.

The current price action suggests that Bitcoin is retesting key support levels, with the price descending toward the EMA 200 and the KYY support zone. This support zone, approximately between $33,430 and $33,480, is crucial for Bitcoin's bullish momentum. A clean candle close above $0.0205 on the 4H chart with strong volume could signal a bullish breakout, while a breakdown below $0.017 would indicate a fakeout risk, warranting caution among traders.

Market participants are closely monitoring the FOMC's decision, as it could provide clearer direction for Bitcoin's price. The FOMC's statement and the subsequent market reaction will be critical in determining whether bulls can take control and drive Bitcoin's price higher. The upcoming decision is expected to influence not only Bitcoin but also other cryptocurrencies and global financial markets.