Geopolitical Tensions Spark 3% Bitcoin Drop, 250 Billion Dollar Crypto Market Loss

On June 22, the United States launched airstrikes on three Iranian nuclear facilities, escalating tensions in the Middle East. The Iranian parliament's National Security Committee concluded that closing the Strait of Hormuz was an option, but the final decision rested with the Supreme National Security Council. The Strait of Hormuz, located between Oman and Iran, is a critical waterway for global oil trade, with approximately one-third of the world's seaborne oil passing through it. In response to the U.S. airstrikes, Iran condemned the action as "atrocious" and reserved the right to defend its sovereignty, interests, and the safety of its people.

The heightened geopolitical tensions led to a surge in market risk aversion, prompting investors to sell off risky assets. Cryptocurrencies, including Bitcoin, experienced a significant drop. Bitcoin fell below 100,000 dollars, with a 3% decline within 24 hours. Other major cryptocurrencies such as Ethereum, Ripple, and others also saw substantial declines, resulting in a loss of 250 billion dollars in total market capitalization within a short period.

Investors quickly sold off digital currencies, including Bitcoin, anticipating a potential rise in oil prices due to the geopolitical tensions. This expectation was driven by concerns that inflation could rebound, potentially limiting the Federal Reserve's ability to further lower interest rates. On the evening of June 22, Bitcoin plummeted from 102,000 dollars to below 100,000 dollars, reaching a low of around 98,500 dollars. By the time of reporting, Bitcoin's price had slightly recovered, rising back above 100,000 dollars. Other cryptocurrencies like Solana, Ripple, and Dogecoin also experienced significant declines during the same period, dragging down the overall performance of the cryptocurrency market.

Some institutions view Bitcoin and other digital currencies as speculative assets rather than safe-haven assets. This means that in a volatile macroeconomic environment, investing in Bitcoin may not provide the stability and security that investors seek in their portfolios. The recent sell-off of Bitcoin can be attributed to several factors. One key driver was the macroeconomic risk posed by the potential closure of the Strait of Hormuz by Iran, which could lead to a surge in international oil prices. This, in turn, could cause U.S. inflation to rebound to 5%, the highest level since March 2023.

Additionally, Bitcoin's recent correlation with U.S. tech stocks suggests that it is behaving more like a high-beta tech stock in the current market environment. This correlation has been particularly evident in recent weeks, coinciding with a surge in inflows to Bitcoin spot ETFs. The sell-off of Bitcoin may also be influenced by technical factors. When Bitcoin's price fell below 99,000 dollars, exchanges like Binance and Bybit experienced forced liquidations. During the peak period, over 10 billion dollars in cryptocurrency positions were liquidated within 24 hours, with more than 95% of these positions being long. This highlights the market's over-exposure before the weekend.