Crypto Market Crashes 25% as Israel-Iran Tensions Spark Sell-Off

Crypto prices experienced a significant crash on Thursday evening as investors adopted a risk-off sentiment following Israel’s attack on Iran’s nuclear sites. This geopolitical event sparked fears of a broader conflict in the region, leading to a sell-off in the crypto market. Bitcoin (BTC) plummeted below $105,000, while the market capitalization of all cryptocurrencies tracked by CoinMarketCap fell to $3.26 trillion. The 24-hour liquidations surged by 252% to over $1.15 billion, with 247,950 traders being liquidated.

Most altcoins performed worse than Bitcoin. SPX6900 (SPX) token plunged by 20%, while Fartcoin (FARTCOIN), Celestia (TIA), and Bonk (BONK) fell by over 15%. The stock market also declined, with futures tied to the Dow Jones, S&P 500, and Nasdaq 100 falling by over 1%.

Israel’s attack on Iran’s nuclear sites will have some impact on the crypto market. In addition to triggering fear among investors, a prolonged war could push crude oil prices higher over time. Brent and West Texas Intermediate benchmarks rose by over 10% on Friday. Higher crude oil prices could make inflation stickier and push the Federal Reserve to maintain interest rates higher for longer, affecting riskier assets like cryptocurrencies.

However, a look at past “black swan” events shows that Bitcoin and other altcoins tend to recover after the initial knee-jerk reaction. For example, Bitcoin plunged to a multi-month low of $74,488 in April after Donald Trump delivered his “Liberation Day” speech, in which he announced retaliatory tariffs. Bitcoin then surged to a record high of $111,928 two months later. Similarly, Bitcoin dropped from $10,480 to $3,948 in March 2020 after the COVID-19 pandemic began. It then surged a few months later and peaked at $68,897 in November 2021. Bitcoin and other altcoins fell to $34,000 when Russia invaded Ukraine in 2022, then bounced back to nearly $48,000 a month later. Therefore, there is a likelihood that Bitcoin and other altcoins will bounce back as the current fear subsides.

The main reason why the crypto bull run may continue is that Bitcoin, which influences the industry, has strong fundamentals and technicals. Fundamentally, demand is rising as ETF inflows grow, with BlackRock’s IBIT now holding over $72 billion in assets. Companies like Trump Media, GameStop, Strategy, and MetaPlanet are accumulating the coin. This demand is soaring as supply on exchanges and over-the-counter venues has plunged. Santiment data shows that supply on centralized exchanges has dropped to 1.2 million, down from 1.5 million in January. As the chart above shows, Bitcoin’s funding rate has also surged — a sign that market participants expect it to bounce back. Further, this pullback is part of Bitcoin’s handle in the cup-and-handle pattern. This pattern often results in a strong bullish breakout, with Bitcoin’s target projected above $140,000.

Despite the immediate drop in prices, some experts remain optimistic about the long-term prospects of the crypto bull run. Hashkey's Han Xu, for instance, suggests that the market could be entering a new mid-phase rather than an end. Xu's prediction is based on the idea that the current downturn is a temporary correction rather than a sign of a broader market decline. This perspective is supported by the fact that the end of quantitative easing, which has been a significant driver of the recent bull run, is still some time away.

The geopolitical tensions between Israel and Iran have also had an impact on traditional financial markets. The Indian central bank, for example, is expected to intervene to stabilize the rupee, which has been under pressure due to the oil shock resulting from the conflict. This intervention could have broader implications for the global economy and, by extension, the crypto market.

The recent developments have also sparked discussions about the potential for a new crypto bull run. Some analysts have pointed to historical patterns, such as the RSI (Relative Strength Index) peaks during previous bull runs, to suggest that the current market could still reach new highs. However, these predictions are based on technical analysis and do not account for the unpredictable nature of geopolitical events.

In summary, the recent conflict between Israel and Iran has introduced significant uncertainty into the crypto market. While some experts remain optimistic about the long-term prospects of the bull run, the immediate impact of the conflict has been a sharp decline in prices. The market's reaction to geopolitical risks highlights the need for investors to remain vigilant and adaptable in the face of changing circumstances. As the situation continues to evolve, it will be crucial for market participants to stay informed and make informed decisions based on the latest developments.