As tensions between the United States, Israel, and Iran escalate, the financial markets are bracing for a significant impact on Bitcoin (BTC) and other risk assets. The conflict has already pushed US benchmark yields to their highest levels in nine months, and experts warn that further rises could spell trouble for the cryptocurrency market.
Yield Surge and Market Implications
Since the February 28 attack on Iran, the 10-year Treasury yield has climbed to about 4.42%, a level not seen since mid-2022. The 30-year yield has also risen to around 4.97%, while the 2-year yield has approached 3.95%–3.98%. These increases are driven by fears of prolonged inflation as a result of the war-driven oil spike.
Higher yields typically increase the opportunity cost of holding risk assets like stocks and Bitcoin. If the 10-year yield breaches the 5% mark, it could trigger a sell-off in the BTC market, which has become increasingly correlated with traditional financial instruments such as the S&P 500.
Historical Context: Oil Shocks and Market Reactions
Historically, oil shocks have had significant impacts on bond yields and stock markets. For instance, during the 1973 Yom Kippur War and Arab oil embargo, yields initially rose modestly but climbed sharply as inflation took hold, leading to a 41%–48% drop in the S&P 500. Similarly, the 1979 Iranian Revolution saw a 150–200 basis point increase in the 10-year yield over a year, with stocks experiencing a milder drawdown.
More recent conflicts, such as the 2022 Russia-Ukraine war, have also seen higher yields and an initial 5%–10% drop in the S&P 500. The current US and Israel–Iran conflict appears to be following a similar pattern, with the potential for further yield increases and market volatility if the situation persists.
Bitcoin’s Technical Outlook
From a technical perspective, Bitcoin is facing significant downside pressure. A breakout from its bear flag pattern could send the price below $50,000, aligning with prediction market bets that set a 70% probability of BTC falling below $55,000 in 2026 and a 46% chance of a drop below $45,000.
However, some experts, like BitMEX co-founder Arthur Hayes, see a silver lining. Hayes argues that an extended conflict could force the Federal Reserve to loosen monetary policy to support the American war machine, which could be bullish for Bitcoin. “The longer this conflict goes on, the higher the likelihood that the Fed has to print money to support the American war machine,” he said. “That’s when I’m going to buy Bitcoin when the central banks start printing money.”
Conclusion: Navigating the Uncertainty
The ongoing conflict and the resulting surge in bond yields present a complex and uncertain environment for Bitcoin and other risk assets. While the immediate outlook suggests potential downside pressure, the broader implications of monetary policy and geopolitical developments could introduce new variables. Investors and traders should remain vigilant and adapt their strategies to navigate these turbulent times.
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