Geo-tension Pushes Crypto to Panic: Bitcoin Slides as US–Iran Strike Risk Rises
Crypto markets are registering extreme stress as bets rise that the US may strike Iran in the near term. The Crypto Fear & Greed Index plunged to 5 (“Extreme Fear”), matching readings seen during major dislocations like the 2020 COVID crash and 2022 bear lows. Bitcoin has fallen below key technical levels and trades under its 50-day moving average; the broader crypto market has erased roughly $2.22 trillion — over 50% from its peak, making this one of the largest drawdowns by dollar amount. Prediction market Polymarket shows increasing probabilities of US military action in early March, reflecting growing geopolitical risk priced into markets. At the same time, stablecoin liquidity is contracting: USDT supply reportedly declined by more than $3 billion in 60 days, a pattern last seen around the FTX collapse and near 2022 cycle lows. Analysts and commentators (including Coin Bureau) warned the selloff ranks among the largest in history and could become even deeper if a strike occurs. However, shrinking stablecoin supply and capitulation-level sentiment can also signal late-stage selloffs that precede market bottoms. For traders: expect heightened short-term volatility, elevated liquidation risk, and potential safe-haven flows; monitor Bitcoin technical levels, stablecoin supply and on-chain liquidity, options/skew metrics, and geopolitical newsflow for trade signals and risk management.
Bearish
The immediate market reaction is bearish. Extreme fear readings, a >50% market cap drawdown (~$2.22 trillion erased), and Bitcoin trading below its 50-day moving average signal defensive positioning and selling pressure. Rising Polymarket probabilities for a US strike on Iran increase geopolitical tail-risk that typically triggers short-term risk-off moves and forced liquidations in crypto. Shrinking USDT supply (-$3bn in 60 days) indicates reduced stablecoin liquidity, which can exacerbate price declines during selloffs by lowering available buy-side capital. Historically, comparable stress events (2020 COVID crash, 2022 bear lows, FTX collapse period) produced sharp short-term drops and heightened volatility; in some cases, capitulation marked the end of downtrends (e.g., 2022 late-stage bottom), but in the near term markets remain vulnerable to further downside if a military strike or escalation occurs. For traders: expect elevated short-term downside risk and volatility, wider spreads and higher funding rates on derivatives; longer-term impact depends on whether liquidity and sentiment stabilize—shrinking stablecoin supply and capitulation-level fear could set the stage for a relief rally once geopolitical risk recedes, but timing is uncertain. Key indicators to watch: Bitcoin support/volume at major levels, stablecoin supply flows (USDT/USDC), options skew/IV, funding rates, liquidations, and real-time geopolitical developments.