- Bitcoin and most cryptocurrencies declined sharply today due to escalating geopolitical tensions in the Middle East and rising inflation fears ahead of the Federal Reserve’s interest rate decision.
- The sell-off mirrors broader market weakness, driven by rising oil prices and uncertainty over future monetary policy, though historical trends suggest crypto may rebound after such shocks.
Bitcoin and most cryptocurrencies experienced a notable decline on Tuesday as rising geopolitical tensions and economic uncertainties dampened investor sentiment ahead of a key Federal Reserve interest rate announcement.
Bitcoin slipped from this week’s peak of $108,915 to an intraday low near $105,500, while Ethereum (ETH) fell over 2.2%. The total market capitalization of all cryptocurrencies shrank to approximately $3.28 trillion. The sell-off extended across altcoins, with significant losses seen in tokens such as SPX6900 (-13%), Immutable (-9.35%), Fartcoin (-9.25%), Pepe (-8.53%), and Worldcoin (-7.58%). Crypto liquidations surged 25% within 24 hours, reaching over $359 million.
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The downturn in crypto markets paralleled declines in traditional equities, as major indices like the Dow Jones and Nasdaq 100 dropped by 165 and 100 points respectively. The widespread risk aversion was largely driven by escalating concerns over the conflict in the Middle East. Former U.S. President Donald Trump urged Tehran residents to evacuate, implying that further bombings could occur soon. Tensions intensified following a collision and fire involving two oil tankers near the strategically vital Strait of Hormuz, which is a critical artery for global oil supply.
The resulting spike in crude oil prices—with Brent and West Texas Intermediate crude both rising over 2.2%—added to fears of rising energy costs and inflationary pressures. This stands in contrast to Monday’s more optimistic mood, fueled by media reports suggesting that Iran might seek diplomatic talks to resolve the crisis.
The Middle East conflict is having a tangible impact on cryptocurrencies through its effects on oil prices and inflation expectations. Increased energy and shipping costs, reflected in the World Container Index hitting its highest level since January at $3,543, contribute to broader inflationary concerns. Higher inflation typically influences the Federal Reserve’s monetary policy stance, reducing the likelihood of imminent interest rate cuts. This matters because historically, cryptocurrencies tend to perform better during periods when the Fed is easing monetary policy or signaling future rate reductions.
Despite today’s downturn, historical data shows that Bitcoin and other cryptocurrencies often recover strongly after major geopolitical or macroeconomic shocks. For example, during the onset of the COVID-19 pandemic in March 2020, Bitcoin briefly fell from over $10,000 to under $4,000 before rallying to record highs later that year. More recently, Bitcoin dipped to $74,457 in April but rebounded to a new peak in May following geopolitical speeches and market events.
Moreover, institutional data from firms like BlackRock highlights Bitcoin’s emerging role as a safe-haven asset that can outperform traditional stocks following major global events, suggesting potential for recovery once current uncertainties ease. For now, however, the combination of geopolitical risks and inflation concerns is weighing heavily on crypto prices worldwide.