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Bitcoin and the Iran-Israel war
Bitcoin suffered a sharp drop on Saturday amid a frightening rise in geopolitical tensions. Following news that Iran’s fundamentalist rulers had launched a massive airstrike against Israel, the price fell from around $70,000 to $62,000, a drop of more than 10%, while some altcoins plummeted by 15% or more. Cryptocurrency markets have recovered slightly following news that Israel and its allies shot down more than 99% of incoming drones, cruise missiles and ballistic missiles, but Bitcoin was still trading near $65,000 on Monday morning.
While the crisis appears contained, at least for now, the scary episode represents a new challenge to one of the cryptocurrency world’s favorite narratives: If the world went to hell and countries collapsed, Bitcoin would thrive as a store of value. Instead, as the sudden drop in prices over the weekend showed, investors are more likely to dump Bitcoin than buy it. In the meantime, gold– which many consider the original and definitive store of value – rallied at the height of the weekend crisis.
It’s true that Bitcoin’s sudden drop was fueled by a wave of liquidations as traders, some of whom were leveraged 50x or more, failed to cover their positions after prices plummeted for the first time to war news, which led to further sell-offs. Unlike these short-term traders, there are many more people holding Bitcoin for the long term, and it’s a safe bet that few of them have sold or been tempted to do so.
However, this does not change the fact that, in the midst of the latest geopolitical crisis, more people have chosen to sell Bitcoin rather than buy it. The broader market has treated Bitcoin as a risky asset to be fled in favor of traditional safe havens such as gold, bonds and the US dollar. Regardless of whether the broader market view is correct, this is what happened when Iran started firing missiles.
While Bitcoin, at least for now, cannot claim to be an economic safe haven, this weekend’s events show that cryptocurrency markets could serve as something else entirely: an early warning signal. Unlike traditional markets, cryptocurrency exchanges operate around the clock. Meanwhile, many people in the cryptocurrency world follow geopolitical events closely. These conditions cause cryptocurrency prices to be among the first to respond to major news events, and when such events occur outside of market hours, they could serve as a good predictor of what will happen at the opening bell. No doubt people are already working on trading algorithms to do just that.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
DECENTRALIZED NEWS
An ex–Amazon The engineer was sentenced to three years in prison for stealing $12 million from two cryptocurrency exchanges. (TechCrunch)
Prosecutors showed the Mango markets The hacker, who is on trial for stealing $110 million, searched the web for terms such as “elements of fraud” and “prescription.” (Bloomberg)
THE head of the IRS‘s Criminal Investigations Unit said the agency is preparing for a significant increase in cryptocurrency-related fraud and tax evasion cases. (Cointelegraph)
The chief legal officer and top communications executive for the asset manager Global, which tried and failed to become a player in the Bitcoin ETF space, are the latest to leave the company. (WSJ)
THE SEC has launched an investigation against Dapper Labs, known for its NFT partnerships with the NBA and NFL, but decided to drop the case. (Fortune)
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