Crypto Market Crash To 6-Month Low Amid Rising Tensions Between Iran and The US

Key Insights:

• President Trump induces crypto market panic after advancing towards Iran.
• Rising geopolitical temperatures hammer down on market sentiment.
• Over $1.7 billion worth of liquidations recorded in the crypto market in the last 24 hours.

The economic data released during mid-week had a neutral or slightly positive impact on the crypto market this week. As a result, the market anticipated a slight recovery in the second half of the week, but the performance in the last 2 days painted a different picture.

The crypto prices experienced a tsunami of capitulation in the last 24 hours. This was after President Donald Trump announced that the US military was advancing on Iran.

The total crypto prices market cap had previously achieved a slight recovery above $3 trillion. However, the Trump-induced rising geopolitical tensions triggered heavy outflows, and the total market cap fell by over 6% to $2.78 trillion at the time of observation.

The Trump-induced crash pushed the markets down to levels last seen in November, hence retesting a key 6-month support zone.

Crypto Market Crash as Geopolitical Tensions Escalate

Since Trump announced that the US military was advancing toward Iran, Russia and China have also moved pieces on the geopolitical chessboard. This means the risk of war erupting is quite high and investor sentiment is taking a hit.

The crypto prices fear and greed index dropped to 16 points in the last 24 hours. This is its lowest point so far this year and it suggests that the crypto market is now in extreme fear territory.

This outcome was not surprising considering that the crypto market sits at the extreme end of the risk spectrum. Digital asset investors, therefore, rush to protect their capital by pulling it when geopolitical uncertainties rise.

This was also how the digital assets responded in early 2022 when the Russia-Ukraine tensions escalated. Interestingly, the market was on track to take advantage of liquidity outflows from gold.

The precious metal retreated by over 5% from its peak on Thursday. However, Trump’s announcement triggered a contrary outcome. Instead, investors have been treating cash as a safe haven.

This was evident by the uptick in the US dollar index. The latter bounced back from a low of 95.5 on Tuesday and was back above 96.5 at the time of observation.

Crypto Prices Liquidations Offer Scope of Impact

The geopolitical conflicts came at a time when the crypto prices were expected to experience some recovery, especially after previously experiencing a rough second half of the week.

However, the FUD from the Iran-US escalation caught the crypto market off-guard and triggered a significant spike in long liquidation.

According to CoinGlass, long liquidations surged past $1.8 billion in the last 24 hours. Bitcoin (BTC) price alone accounted for almost $800 million in liquidations.

The liquidations confirmed the bullish bias that existed before the FUD event. However, this also raises a major question.

Will the crypto market bounce back immediately, or will prices remain subdued?

The 2022 geopolitical tensions had the market in a chokehold for weeks if not months. If past outcomes are anything to go by, then the elevated geopolitical tensions may continue to suppress the crypto market.

Of course, a lot has changed since then and an entirely different set of macro conditions are currently at play. This includes institutional involvement and a different regulatory environment.

Whale activity suggests expectations of a short-term recovery, while institutional activity reflected sentiment deterioration.