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David Duong, Head of Global Investment Research at Coinbase, offered his assessment of the impact of tensions in the Middle East on cryptocurrency markets.
In an analysis titled “Oil, Bombs, and Bitcoin,” it was argued that news flow regarding Iran overshadowed the internal dynamics of the cryptocurrency market.
According to Duong, the April 6 deadline given by the Trump administration to Iran to open the Strait of Hormuz is seen by markets not as a threshold focused on a single outcome, but rather as a process that could lead to a repricing of the geopolitical risk premium in energy and risky assets due to prolonged tensions. This situation, he says, has left the crypto markets in a vulnerable position, especially over the weekend. Duong noted that cryptocurrencies are still one of the few markets where investors are taking positions, but in recent weeks, perpetual futures contracts in commodities have begun to partially take over this role.
The analysis stated that if a potential agreement between the US and Iran reduces risks to oil prices, risky assets could refocus on macroeconomic fundamentals. Conversely, it noted that a larger-scale US military operation could shock oil supply, tightening financial conditions and increasing the likelihood of a global recession. A limited and short-term military intervention was deemed more likely to create a temporary increase in volatility rather than a lasting trend in the market.
Duong also pointed out that China being the largest buyer of Iranian oil is a significant factor limiting more extreme scenarios. However, as long as Tehran continues to view its nuclear capabilities as leverage, it is difficult for the geopolitical risk premium to completely disappear from the markets, and crypto assets will continue to be affected by this uncertainty.
*This is not investment advice.