Bitcoin Drops 8% on Iran Attacks, Trade War Fears

Bitcoin (BTC) experienced a brief dip below $100,000 on Monday following attacks on United States military bases in Qatar by Iran. Despite rebounding to $108,000 by Wednesday, the sentiment in the BTC derivatives markets has shifted to a more cautious stance, indicating that traders are less optimistic about further price increases. This shift in sentiment is reflected in the Bitcoin perpetual contracts funding rate, which dropped to its lowest level in seven weeks on Wednesday. In neutral markets, long positions typically pay to maintain leverage, making negative rates uncommon. This drop occurred even as Bitcoin rallied to $108,000, suggesting underlying concerns about the sustainability of recent price gains.

One of the primary causes for the erosion in confidence is the global trade war initiated by the US in April. While temporary truces were established, some are nearing expiration, including the agreement with the eurozone, set to lapse on July 9. The Trump administration has made over 50 tariff policy changes since taking office, leading to investor concerns that the trade conflict could intensify. This uncertainty has contributed to a more cautious investor posture, with some profit-taking expected above $105,000.

Adding to the unease, the US gross domestic product posted a 0.5% year-over-year decline in the first quarter, attributed to a massive trade deficit as North American companies ramped up inventories ahead of anticipated tariff hikes. Despite this, Bitcoin traders are frustrated that US small-cap stocks have shown resilience while BTC remains well below the $112,000 mark. The Russell 2000 index, which excludes the 1,000 largest US-listed firms, surged to a four-month high. Since many investors still classify Bitcoin as a risk-on asset, fears surrounding “reckless artificial intelligence spending driving sky-high valuations” have acted as a ceiling for Bitcoin’s price. Gartner Consulting analysts noted that “most agentic AI projects right now are early-stage experiments or proofs-of-concept that are mostly driven by hype and are often misapplied.”

Another source of risk comes from the growing number of firms that have added Bitcoin to their balance sheets. An unexpected move happened as Bit Digital, a New York-based Bitcoin mining company, announced its intention to divest its mining infrastructure and BTC holdings to purchase Ether (ETH) instead. As of March 31, Bit Digital held 24,434 ETH and 417.6 BTC in reserves. This development has raised fears that other miners may also liquidate their BTC positions, especially since mining revenues have fallen to a two-month low. While macroeconomic conditions still support a potential Bitcoin all-time high, given the growing pressure on central banks to adopt loose monetary policies, the threat of a temporary correction below $100,000 remains a real possibility.