Bitcoin dropped on Tuesday as investors moved into risk-off positioning after attacks between the United States and Iran intensified.
Bitcoin Magazine reported that the largest cryptocurrency had initially brushed off President Donald Trump’s threats toward Iran, as well as the first strikes. That changed on Tuesday as tensions escalated. Bitcoin was recently down more than 2% on the day, trading at $77,363. On Friday, it had climbed to nearly $81,282.
Tensions escalated on Tuesday
According to Trump, the U.S. attacks on Tuesday came after Iran tried to place mines in the Strait of Hormuz and after an attack on an American military base in Jordan.
U.S. Central Command said in a post on X that Iran had also attacked commercial ships. The post said: “Today at 12 p.m. ET, U.S. forces began striking Islamic Revolutionary Guard Corps (IRGC) targets in Iran. The strikes follow recent attempted attacks by the IRGC against commercial shipping in the Strait of Hormuz and against American service members deployed to the region.”
Central Command also said the strikes followed recent attempted attacks by the Islamic Revolutionary Guard Corps against commercial shipping in the Strait of Hormuz and against American service members stationed in the region.
Iran later responded with a “decisive operation” against U.S. military bases, according to Iranian media. Oil surged after the news.
Bitcoin’s reaction to geopolitical stress
The article said bitcoin has been sensitive to geopolitical tensions this year, especially after Iran and Israel attacked Iran. War-related headlines have usually put immediate pressure on the cryptocurrency, while it has later rallied when Trump raised hopes of a ceasefire.
Bitcoin Magazine added that although bitcoin’s price has been relatively muted in recent months, its swings have become more pronounced since mid-August.
Oil, inflation, and rate expectations
The report said bitcoin’s immediate reaction to rising oil prices is usually negative. More expensive energy can add to inflation pressure, and higher inflation can lead the Federal Reserve to delay rate cuts. That, in turn, can restrict the liquidity bitcoin often needs to build momentum.
Federal Reserve Chair Kevin Warsh last week delivered his first major speech since taking over the central bank and said inflation in the world’s largest economy had not fallen enough.
Traders are no longer pricing in a rate cut this year and instead expect a rate hike. The article noted that bitcoin has historically performed well in low-rate environments.
August rally followed Treasury liquidity support move
Even so, bitcoin posted one of its strongest runs in August after the U.S. Treasury said it would at least double the size of its liquidity-support buyback operations in response to surging borrowing costs.
That announcement hurt the dollar, while non-yielding assets such as bitcoin and gold benefited, according to the report.
The article first appeared on Bitcoin Magazine and was written by Mathew Di Salvo.