Key Insights:
- Geopolitical tensions flared as Iran and Israel began clashing openly Thursday night.
- Bitcoin and altcoins were hit in the ensuing crypto crash; massive liquidations were recorded.
- History suggests that although such panic situations occur quite rapidly, recoveries are even more swift.
BTC price plunged below $104,000 while crude oil and Gold surged sharply when Israel launched Operation Rising Lion against Iran on June 12th. In a series of air strikes, Israel eliminitated several of Iran’s top military commanders and two of its top nuclear scientists; Iranian media had cofirmed the deaths.
What Caused the Crypto Crash
In what is being seen as a new flashpoint in an aready disturbed region, markets are responding with liquidations. Assets perceived as ‘safe’ are rapidly attracting liquidity in the aftermath of Israel’s military operation against Iran.
Iran has responded with a salvo of ballistic missile and drone attacks. Although Israel’s battle-tested air defense system managed to repel most of the Iranian drones, some missiles found their mark. Such escalations caused a crypto crash across the globe.
The most notable reaction from the market was the surge in crude oil prices, reflecting the anticipation of supply stocks. The Middle East is the Oil capital of the world and home to most of the OPEC nations.
Meanwhile, the U.S. Dollar Index (DXY) tumbled to the lowest since 2022, indicating the loss of some faith in the greenback.
Bitcoin was not left out of the shock that hit the financial markets. The OG crypto asset’s price dove under the $104K level, causing over $1 Billion in liquidations on crypto markets.
As the data provided by CryptoQuant showed, the price of BTC made a similar high, but open interest made an obvious lower high.
This could be interpreted as a sign of decreasing leverage interest despite the price-strength, which is usually a bearish divergence. This shows a note of investor caution.
This macro environment development implies a risk-off and volatile environment. The risk was being taken off the table by market participants in fear of a broader conflict, and crypto might not be an exception.
This is not normal market noise but it may be the beginning of a wider financial reset should tensions between Russia and Ukraine continue and as capital defenses continue to rotate.
How Altcoins Performed
Following this crypto crash, Bitcoin fell as much as 4.5% to $103,700 and Ethereum tumbled 10% to $2,471.
The selling seen was equivalent to more than $1 Billion in long liquidations as sightings of risk assets and rotation into bonds and gold indicated a risk-off reaction of the classic kind.
As per the 24-hours liquidation heatmap, Bitcoin experienced the highest liquidations by a single asset, amounting to $429.54 million. Ethereum came next with $227.73 million worth of liquidations.
Altcoins were no exception and liquidated some serious funds: Solana (SOL) – $46.08 million, Dogecoin (DOGE) – $25.40 million, and XRP – $22.23 million. The liquidations in the smaller altcoins, collectively labeled as “Others,” totaled $113.31 million.
What is clear in the chart is the liquidation pressure across the board particularly on the leveraged longs as panic set in the market.
As regular safe-havens have been receiving inflows, and volatility is increasing, it seems that crypto traders are reevaluating risk.
As long as the tensions persist, the downside pressure may stay, and the market may remain defensive, even with many tokens displaying oversold conditions.
What Could Happen After the Crypto Crash
As markets have always been shaken by geopolitical conflict, yet in crypto, the effect is unlikely to be prolonged. Historical occurrences depicted that although panics occur quite rapidly, recoveries are even more swift.
When the U.S. killed Qassem Soleimani of Iran in January 2020, Bitcoin declined by 5% overnight. However, Bitcoin recovered in much less than 10 days.
The same happened in February 2022, when Russia attacked Ukraine: Bitcoin dropped by 8%, Ethereum by 10%, as people were fearful of WW3.
Nevertheless, BTC recovered in a couple of weeks and contributed to a mid-year rally. Then the Israel-Hamas conflict in October 2023 induced another steep decline, followed by a 6-percent rise of BTC in a week and ETH even quicker.
Why? War undermines government authority, reveals the frailties of fiat, and moves the population to decentralized systems. Crypto flourishes when trust in the old system breaks.
And once more, following the most recent sell-off triggered by the war, crypto is under fear. Yet based on past experience, this downturn might turn out to be the shakeout prior to a further advance. Panic fades. Patience pays.