Geopolitical escalations in the Middle East have hit fever pitch over the past week with the U.S. and Israel initiating coordinated strikes on Iran. As we enter the fourth day of the conflict, the world’s eyes are now focused on the potential escalation of a broader Middle East standoff and its economic implications. Retaliatory attacks from Iran have deepened the fears of an extended war and has brought tremendous uncertainty about the future of the strategically important Strait of Hormuz – a key region in the gulf through which roughly 20% of the world’s oil shipments flow. As these developments unfold, the confluence of geopolitical risk, energy market disruptions and rising inflation expectations has pushed commodities like oil and gold higher while rattling risk assets. Markets are now in full risk-reprice mode. That said, the reaction to the news has, so far, been far from uniform. Gold saw a renewed bid as markets opened on Monday, rising to a high of $5,419 before retracing to around $5250 at the time of writing, showing both safe-haven demand and short term profit taking. Crypto, on the other hand, has been a lot more volatile. As news filtered in on Saturday, BTC dropped sharply to the lows of $63K, only to rebound yesterday with the total crypto market cap adding roughly $140 billion. That strength, however, has already begun to wane, once again showing that Bitcoin continues to trade with risk sentiment rather than following its “digital gold” thesis. That surface level divergence between gold and Bitcoin is only one part of the story however. While global portfolio managers may not be treating Bitcoin as digital gold just yet, inside Iran itself a very different dynamic is unfolding, one that reveals what Bitcoin’s wartime role may actually be. Gold Hits $5,400 Again While Bitcoin Keeps Sliding: Here’s Why It’s important to note upfront that gold is now experiencing a modest pullback, but the broader trend remains unmistakably upward. After printing highs of over $5,400 per ounce yesterday, the metal is now around 2% down on the day. Some consolidation is hardly surprising given gold now sits within touching distance of setting a new all time high. The underlying driver is clear, the effective closure of the Strait of Hormuz with tanker traffic dropping nearly 70% and more than 150 vessels anchored outside, has amplified fears of supply disruption. Brent crude has skyrocketed to the $83 mark, rising over 17% since Friday, making this the sharpest spike since the 2022 Russia-Ukraine invasion. Bitcoin, however, is telling a different story. Rather than absorbing safe-haven flows, it has been retracing back to the $66K level after posting a rebound to the $70K level just yesterday. BTC is now around -47% down from its all time highs of $126K set in October last year and down -23% year to date. In contrast, gold has delivered over +19% since the start of the year, widening the performance gap between the two that stretches all the way back to last year. Source: Newhedge This divergence is also clearly visible in their rolling correlation, which currently sits at around -0.62 showing that the two assets are moving in opposite directions amidst rising macro uncertainties. Early signs suggest that Bitcoin continues to behave more like a high beta risk asset tied to liquidity conditions than a defensive, though this assessment is based on very early developments around the macro conditions. Bitcoin at $66K Confirms it’s a Risk Asset, Not a Hedge Bitcoin’s price action over the last four days emphasizes the argument that, at least for now, it is trading more like a risk asset rather than a geopolitical hedge. When the initial strike broke on February 28th, BTC quickly sold off to the low $63K range. After attempting a rally yesterday, BTC failed to hold the momentum and is currently once again between $67-$66K, hinting that buyers remain cautious in the face of the uncertainties around the conflict. The macro linkage will likely become more clear if the conflict escalates even further. In the likelihood of this happening, a sustained move in Brent crude above $90 would likely harden inflation expectations, potentially delaying or even removing any Fed rate cuts from the table. If this were to play out, liquidity tightens, real yields stay elevated and high beta assets including Bitcoin and crypto usually face renewed pressure. Now from a technical standpoint, $65K stands as a critical support level, an area that BTC has managed to hold throughout February. A decisive break below this could open the path to the psychological level and the latest local low region of $60K. Another key level to the downside would be the 200 week simple moving average at $58.5K, a crucial technical indicator that has historically been a zone where strong bids tend to come in and often seen as a structural support area for BTC. On the upside, the bulls would need a strong daily close above the $70K mark to regain structural momentum and shift the short-term narrative back in their favour. Inside Iran’s 700% Crypto Withdrawal Surge on Nobitex Inside Iran, the dynamics playing out on the ground tell a far more visceral story about what bitcoin and other cryptocurrencies actually mean to people under extreme duress. According to blockchain analytics firm Elliptic, Iran’s largest crypto exchange, Nobitex, which handles roughly 87% of the country’s crypto trading volumes with over 11 million users saw a spike of more than 700% in withdrawals minutes after the first U.S.-Israel airstrikes. Within a single hour after the news came in, withdrawals were close to $3 million as users moved their assets into external platforms and wallets away from local banking systems. This seems to suggest that crypto rails were used as a medium of capital flight to bypass traditional financial barriers. Source: Elliptic The rapid rise in withdrawals here brings in a more fundamental question into the mix. What is BTC designed to hedge, market volatility or systemic failure? For ordinary Iranians, this event shows that Bitcoin wasn’t seen as a portfolio hedge by any means but rather a means to find an accessible exit and preserve purchasing power as their local currency collapses. While the digital gold and macro hedge thesis cannot be fully put to the sidelines as the conflict is still developing and in its early days, this withdrawal spike offers a poignant reminder of crypto’s utility and capability during conflicts: a permissionless financial escape valve for individuals in crisis zones where banking infrastructure has failed. Oil, the Fed, and Bitcoin: What to Watch This Week This week is likely going to be driven by the bigger macro picture and how the price of oil reacts to the geopolitical developments around the Strait of Hormuz. Currently Brent crude is trading between the $81-$83 per barrel range. However, if we see prolonged closures in the Strait of Hormuz, this will likely push prices even higher this week. If this were to happen, this transforms from an energy story to an inflation story. Higher oil pushes up transport and production costs, which feeds into consumer prices. If inflation stays elevated, the Federal Reserve is far less likely to cut rates anytime soon. That keeps liquidity tight and typically weighs on high-beta assets like bitcoin. In that chain reaction, crypto doesn’t act like a hedge, it reacts like a risk asset. For Bitcoin, so far, its divergence with gold is still in effect and there are no signs of a correlation in the two asset classes as a geopolitical hedge. That said, BlackRock has come out with interesting data that highlights BTC’s geopolitical behaviour with a comparison to how gold and the S&P 500 performed 10 and 60 days after these events took place. The result showed that after surviving the initial volatility, BTC often came out as the strongest performer. For instance, the January 2020, US-Iran escalation shows this sort of scenario playing out. Source: BlackRock While this situation has no clear end point yet, it’s important to be mindful that these are still early days and more data will be needed before drawing any firm conclusions. For now, the divergence with gold remains intact. Claim your free seat in an exclusive crypto trading community - limited to 1,000 members.
