Bitcoin Holds Steady Amid Israel-Iran Tensions, U.S. Involvement Risk

Bitcoin has remained within the range of $100,000 to $110,000 despite the escalating geopolitical tensions between Israel and Iran. The market's direction, however, remains uncertain as the U.S. threatens to join the conflict. Market experts have warned that further escalations could exacerbate inflation and dampen risk sentiment later in the year.

QCP Capital, a Singapore-based crypto trading desk, highlighted that Bitcoin faces a dual risk from both the war and inflation. The firm cautioned that if the Israel-Iran conflict remains unresolved, it could keep Bitcoin on edge. Specifically, any interference with the Strait of Hormuz, a critical global oil shipping corridor, could spike oil prices and further strain risk markets. QCP analysts warned that if Tehran feels cornered, a disruption or full blockade of the Strait of Hormuz becomes a credible risk, potentially triggering another inflationary spike at a time when global macro conditions are already strained.

On June 17, QCP Capital warned of a likely global risk-off move if the U.S. joins the conflict. President Donald Trump’s hawkish tone for Iran’s ‘unconditional surrender’ did not offer market relief for a mediated deal. Reports indicated significant U.S. military equipment moving eastwards, with key Middle East assets put on high alert. According to prediction site, the odds of the U.S. joining the Israel-Iran war before July jumped over 60%, and the chances spiked higher to 90% for a similar move by August, indicating a high expectation of U.S. involvement.

QCP Capital also noted that the conflict could push the Fed to hold off on a rate cut in the second half of the year. For this week’s Fed rate decision, the firm expected the Fed to hold rates steady but strike a hawkish tone. Markets currently price in two rate cuts in 2025, but QCP analysts believed the Fed may signal just one. Such a revised rate-cut outlook could weigh on Bitcoin and broader digital markets.

Meanwhile, Bitcoin has been acting more like equities rather than a risk-off hedge asset. Despite being touted as the best alternative hedge against wars and inflation, Bitcoin was more positively correlated to stocks than gold. The digital asset had a -0.07 correlation with gold and a +0.61 alignment with the Nasdaq Composite, acting like a high-beta tech stock rather than a hedge. Option traders expected a rebound in the short term despite a drop from $108,000 to $103,000, as shown by rising 25 Delta Skew for 1-week and 1-month tenors. However, the 6-month tenor remained negative, underscoring the demand for puts and hedging activity for end-year option expiry.

Overall, Bitcoin has remained resilient despite the ongoing Israel-Iran war and potential U.S. involvement. However, the potential impact of the war on inflation could dent risk-on markets and Bitcoin later in the year. The market's direction remains uncertain, and the dual risk from the war and inflation could keep Bitcoin on edge.