Bitcoin, once seen as a hedge against geopolitical turmoil by some investors, is now behaving like a risk asset sensitive to liquidity at a time when energy prices are rising and macro stress is spreading.
This shift in behavior is evident as the conflict between the United States and Iran escalates, impacting oil prices, the dollar, and overall financial conditions before affecting the crypto market, which is already displaying signs of exhaustion.
This has reignited talks about a potential deeper downturn than previously anticipated by the market.
Why this is important: This change in Bitcoin’s response under stress signifies a departure from attracting defensive flows during geopolitical risk to reacting to tighter financial conditions, escalating oil prices, and a stronger dollar. This alters how investors position themselves around macro shocks and increases the likelihood of more significant declines if liquidity continues to contract.
Oil shock drives the first wave of repricing
The recent market repricing gained momentum after President Donald Trump’s remarks on April 1 dampened hopes for a quick resolution in the Middle East.
By indicating a potential escalation in US military actions over the next few weeks without a clear end in sight, investors shifted to a defensive position.
The initial impact was felt across equities, particularly in the energy sector.
US stocks experienced intraday declines, with the S&P 500 down 0.23% and the Dow Jones Industrial Average off 0.39%. In Asia, the sell-off was more pronounced, with South Korea’s KOSPI dropping 4.2% and MSCI Emerging Asia falling 2.3%.
Oil prices reacted sharply. Data from Oilprices.com showed that West Texas Intermediate crude surged 11.41% to $111.54 a barrel, its largest absolute gain since 2020, while Brent rose 7.78% to $109.03.
This surge followed US-Israeli military strikes that began on Feb. 28 and Iran’s decision to close the Strait of Hormuz, a critical passage for global oil and natural gas flows.
These developments have significant implications for the crypto market as a sustained increase in crude prices directly impacts inflation expectations, tightens financial conditions, and reduces the market’s tolerance for speculative investments.
With the dollar index up 0.48%, Treasury market spreads widening by 27%, and the VIX approaching 25, the broader macroeconomic landscape is turning against risk assets that rely on ample liquidity and stable investor interest.
Bitcoin entered the shock already weakened
The escalation in Iran may have accelerated the recent sell-off, but it did not create the market’s fragility. Bitcoin was already losing support before the deteriorating geopolitical situation.
CryptoQuant data indicates that selling pressure continues to outweigh institutional accumulation despite initial support from spot exchange-traded funds and corporate buyers like Strategy. The firm’s 30-day apparent demand growth stands at -63,000 BTC, suggesting that there hasn’t been enough fresh demand to absorb the existing supply.
A similar trend is observed among large holders. Wallets held by whales with 1,000 to 10,000 BTC have transitioned from accumulation to one of the most significant distribution phases in the cycle. The one-year change in whale holdings has shifted from an increase of approximately 200,000 BTC at the peak in 2024 to a deficit of 188,000 BTC.
Medium-sized holders have also pulled back. Wallets holding between 100 and 1,000 BTC, which are considered crucial market support, have seen their holdings increase by only 429,000 BTC in the current market cycle, compared to around 1 million BTC in late 2025.
This weakness is particularly evident in the United States. Coinbase Premium, a common indicator of US spot demand, has remained negative even as Bitcoin traded in the $65,000 to $70,000 range. This suggests that American buyers, both retail and institutional, have not returned in sufficient numbers to stabilize the market.
Essentially, these figures paint a picture of a market that was already losing resilience before the escalation of war headlines.
Leverage is turning a weak market into a fragile one
Furthermore, Bitcoin’s current weak spot demand poses a greater risk when leverage plays a significant role in the market.
In stable markets, leverage can help sustain price levels, but in times of macroeconomic shock, leveraged contracts are more likely to be liquidated, either voluntarily or through forced selling.
This shift from orderly weakness to a cascade effect occurs when prices decline, leveraged long positions are forced to liquidate, prompting further selling, and the market reacts more to positioning stress rather than conviction.
Analysts at Bitunix informed CryptoSlate that Bitcoin is currently stuck in a passive pricing environment, with resistance around $69,400 still unbroken and increasing downside liquidity near $65,500. In a more hostile macroeconomic environment, this lower threshold could trigger a broader wave of liquidations.
Options markets are sending a similarly cautious signal. Data from Greeks.live indicates that 28,000 BTC contracts expired on April 3 with a put-call ratio of 0.54 and a maximum pain point at $68,000, representing $1.8 billion in notional value.
According to the firm:
“Bitcoin performed poorly in both price and market sentiment during the first quarter of this year, and the first week of the second quarter has also been weak. Rebuilding confidence may require time and capital support; currently, all indicators point to bear market conditions.”
Why $10,000 is still a tail risk
Bitunix has labeled the current environment as a triple-constraint regime influenced by heightened inflation expectations, policy constraints, and escalating geopolitical risks.
This framework helps elucidate why the crypto market is reacting so sensitively, as liquidity cannot ease significantly if oil prices remain high. Simultaneously, market confidence cannot easily recover if the risk of war continues to rise, making speculative positions harder to defend as the dollar strengthens and volatility increases across asset classes.
Given this context, the more probable scenarios for BTC still point to lower price levels.
In a moderate scenario where the conflict remains contained but inflation remains high, unwinding leveraged futures could pull Bitcoin from around $70,000 to $50,000, resulting in a correction of approximately 25% to 30%.
Conversely, a harsher bear-case trajectory could unfold if ETF outflows accelerate, spot demand remains weak, and the dollar continues to tighten financial conditions. In this scenario, Bitcoin could decline to the $20,000 to $30,000 range, erasing 60% to 70% of its value from recent levels.
| Scenario | Price range | What could drive it | Market effect | Probability framing |
|---|---|---|---|---|
| Relief bounce | $71,500 to $81,200 | Geopolitical tensions ease, oil pulls back, and broader risk sentiment improves. | Bitcoin recovers toward resistance as liquidation pressure subsides. | Possible, but dependent on macro stabilization. |
| Moderate downside | Around $50,000 | Conflict remains contained, but inflation stays elevated and leveraged futures positions unwind. | Roughly 25% to 30% correction from the recent $70,000 area. | Plausible downside case. |
| Mid-term bear case | $20,000 to $30,000 | ETF outflows accelerate, spot demand remains weak, and the U.S. dollar continues to tighten financial conditions. | Bitcoin enters a deeper contraction, wiping out 60% to 70% from recent levels. | More severe, but still within historical drawdown patterns. |
| Tail-risk black swan | Around $10,000 | Prolonged Strait of Hormuz closure or wider regional war sends oil to $150 to $200 a barrel and triggers a collapse in global liquidity. | Bitcoin suffers an extreme drawdown as speculative capital exits the market. | Tail risk, not the base case. |
A drop to $10,000 is considered a black swan event, requiring a prolonged closure of the Strait of Hormuz or a more extensive regional conflict leading to oil prices soaring to $150 to $200 a barrel. This would result in a significant tightening of global liquidity, causing equities to plummet by over 30%.
Under these conditions, speculative capital in the crypto market would dwindle, leaving Bitcoin vulnerable to a substantial drawdown, similar to what has been witnessed in previous market cycles.
For now, the key takeaway is that Bitcoin is not acting as a safe haven amidst the current geopolitical tensions. Instead, it is behaving like a highly responsive risk asset whose trajectory hinges on liquidity
