Bitcoin (BTC 1.72%) has had a strange couple of weeks. After the U.S. and Israel attacked Iran, financial markets braced for impact, and then, quite uneventfully, Bitcoin dipped briefly to a price of a little more than $63,000 per coin before promptly recovering to the low $70,000s.
For an asset with a reputation for volatility, that's a notably restrained reaction. The question here is whether holders should read that resilience as a green light, a dreadful warning sign, or something more nuanced. Let's dive in and unpack what the best course of action is.
Image source: Getty Images.
Why Bitcoin hasn't broken
The conflict hasn't touched Bitcoin's infrastructure, and it almost certainly won't, even under some pretty pessimistic assumptions about what might occur.
Bitcoin mining operations and custody platforms have no meaningful concentration in Iran, Israel, Lebanon, or the Gulf states, so there is negligible risk of physical disruption of the network itself. In terms of holders among the combatants, Iran's government likely holds some Bitcoin off the books of the central bank, but even given that possibility, no major warring party, save for the U.S., has disclosed holdings large enough to matter for prices in the event of a forced-sale scenario. Nor are any of the top 40 biggest Bitcoin holders among public companies based in the Middle East.
CRYPTO: BTC
Key Data Points
So there's no direct risk to Bitcoin. That may be part of the reason Bitcoin spot exchange-traded funds (ETFs) had roughly $619 million in net inflows during the first week of March, even as oil prices spiked (and then slumped) and markets were in turmoil.
The scenario that should give buyers pause
None of the above eliminates the macro risk to Bitcoin, which is very real at the moment.
The Strait of Hormuz, which is used to transport roughly 20% of the world's liquefied natural gas (LNG) and at least 31% of all crude oil, has been effectively shuttered since Iran's Revolutionary Guard declared it closed. Bob McNally, a former White House energy advisor, has called a prolonged closure of the strait "a guaranteed global recession," which sounds quite scary because it is.
Recessions trigger selling of risky assets. Bitcoin, for all its resilience at the moment, is still a risky asset.
If you already hold Bitcoin with a multi-year horizon, the war doesn't change the underlying thesis. Nor does it change the fact that the coin belongs in every crypto portfolio, and many (if not most) traditional portfolios too. But the conflict raises enough near-term doubts that new buyers should resist deploying a large lump sum of their capital into Bitcoin or any cryptocurrency right now.
A resolution to the conflict is still, by a hair, the more probable outcome than prolonged conflict. Just be aware that if you will need your investment money soon, it makes sense to hold back and wait a little bit.
