By Simon Peters
History tells us that when missiles fly, markets retreat. Escalating tensions between the United States and Iran — following earlier diplomatic negotiations over Iran’s nuclear programme — have now spilled into direct military strikes. In traditional financial markets, such developments typically trigger immediate risk aversion. Capital flows toward perceived safe havens such as gold, the US dollar and government bonds, while equities and higher-beta assets sell off.
Given crypto’s strong correlation with risk assets in recent years, particularly technology stocks, one might have expected bitcoin and the broader digital asset market to experience sharp declines on the headlines alone. When US equities turn volatile, crypto markets have often followed — and frequently with amplified moves due to their speculative nature and embedded leverage.
However, this time the backdrop looks materially different.
Bitcoin has already endured five consecutive months of declines since reaching an all-time high of $126,500 in October 2025. February marked the fifth straight negative month, reflecting sustained selling pressure and deteriorating sentiment across the sector. The Crypto Fear and Greed Index recently fell to record lows, highlighting just how fragile investor confidence had become even before geopolitical tensions intensified.
When sentiment is already deeply pessimistic, markets tend to become less reactive to incremental negative news. Much of the excess leverage in perpetual futures and options markets — which can accelerate downward price spirals — appears to have been flushed out during the correction. This reduction in speculative positioning has likely helped dampen volatility during the latest geopolitical escalation.
Despite ongoing tensions, bitcoin is currently trading near $65,000 — around 9% above its February low. Rather than collapsing, the asset has been consolidating for several weeks. Such price behaviour may suggest that sellers are becoming exhausted and that longer-term investors are stepping in.
For institutional allocators and strategic investors with multi-year horizons, current price levels may represent accumulation opportunities rather than panic points. If this buying interest persists, it could help establish a floor and mark the early stages of a broader bottoming process.
For the GCC specifically, this dynamic is particularly relevant. The region has increasingly positioned itself as a global crypto hub, with regulatory frameworks in Dubai and Abu Dhabi providing clarity and attracting institutional players. As adoption deepens across the UAE and Saudi Arabia, regional investors are becoming more integrated into global risk cycles. However, maturing regulation and infrastructure also support longer-term conviction, which may cushion reactive flows during periods of geopolitical stress.
Looking ahead, macroeconomic forces are likely to prove more influential for crypto markets than the current conflict. The upcoming Federal Reserve meeting and interest rate decision will shape expectations around liquidity conditions. Crypto remains highly sensitive to shifts in monetary policy: tighter financial conditions tend to pressure valuations, while easing liquidity typically supports risk assets, including digital assets.
Regulation may also play a defining role. Progress around the proposed CLARITY Act in the United States could mark a structural milestone for the industry. A clearer regulatory framework would encourage traditional financial institutions to expand into crypto markets, support the development of additional exchange-traded products, and potentially unlock fresh institutional inflows. Structural capital flows often have a more lasting impact on price trajectories than short-term geopolitical shocks.
This does not mean that further escalation carries no risk. A broader regional conflict that significantly disrupts energy markets or global liquidity would inevitably weigh on risk assets, crypto included. Yet, at present, bitcoin appears to be navigating geopolitical turbulence with relative resilience.
While headlines are dominated by conflict, the more durable drivers of crypto markets remain macroeconomic policy, liquidity cycles and regulatory clarity. In that context, bitcoin may be transitioning from the correction phase of the past five months toward a more stabilised footing — with structural forces, rather than geopolitical noise, likely to determine its next major move.
(The author is a Crypto Analyst at eToro)