Bitcoin bounces back: Middle East tensions ignite Crypto surge

Amidst escalating tensions in the Middle East, Bitcoin emerges as a resilient player, rebounding from its sharpest decline in over a year. As markets grapple with the spectre of military conflict, the cryptocurrency surged nearly 6%, with smaller coins like Polkadot and Uniswap posting double-digit gains. With geopolitical events unfolding, crypto traders find themselves at the forefront of reacting to significant global shifts, signalling a potential paradigm shift in market dynamics.

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By Muyao Shen and Sidhartha Shukla

Bitcoin recovered from the steepest selloff in more than a year, an early indication of impending volatility across asset markets as investors digest the prospects of a military escalation in the Middle East.

The largest cryptocurrency rose as much as 5.9% and traded around $64,600 as of 11:40 a.m. in London on Sunday. Smaller coins like Polkadot and Uniswap rallied more than 10%, while Ether advanced 5%. 

Iran launched attack drones and missiles against Israel in apparent retaliation for a strike in Syria that killed top Iranian military officers, taking the conflict in the region into a dangerous new phase. With Iran’s action taking place while most markets were closed, crypto traders found themselves in the unusual position of being among the first to react to a major geopolitical event. 

“More investors than usual might be choosing to express their market views through crypto,” David Lawant, head of research at FalconX.

As Israel braced for an attack, the tension hurt stocks Friday and boosted havens such as bonds and the dollar. Coinglass data show about $1.5 billion of bullish crypto wagers via derivatives were liquidated on Friday and Saturday, one of the heaviest two-day liquidations in at least six months.

Leverage “has gotten completely overwhelmed in the last three days, so that’s caused prices to materially deteriorate” in digital assets, Zaheer Ebtikar, founder of crypto fund Split Capital, said in a phone interview.

Stock markets in the Middle East were mostly in the red on Sunday. Israel equities gave up earlier gains to trade slightly lower as of 8:36 a.m. London time.  

A significant military escalation between Israel and Iran would test the notion that Bitcoin and other cryptoassets offer a haven in times of turmoil, a view often expressed by boosters of the asset class. When Russia invaded Ukraine in early 2022, cryptocurrencies were in the early days of a market meltdown that lasted until the end of that year. 

Bitcoin is down from a mid-March record of $73,798. Demand for dedicated US exchange-traded funds that debuted in January helped the token reach an all-time high but net inflows into the products have moderated lately.

Crypto speculators are awaiting the so-called Bitcoin halving, which will reduce new supply of the token in half and is expected around April 20. Historically, the halving has proved a tailwind for prices, though there are growing doubts about whether a repeat is likely given Bitcoin recently hit a historical peak.

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