Bitcoin traders yanked the ripcord on Monday as they exited leveraged positions amid an escalation of geopolitical tension in the Middle East.
With US airstrikes hitting Iran’s military infrastructure over the weekend, crypto markets retreated and Bitcoin briefly dipped below $100,000 but has since recovered slightly to $102,000.
Bitcoin’s estimated leverage ratio, or ELR, cratered dramatically as the asset tumbled to its lowest price in two months, CryptoQuant shows.
ELR measures how much leverage traders are using compared to how much actual Bitcoin is on exchanges. It’s a risk metric, and a massive fall indicates widespread risk-off behaviour.
That means traders are closing high-leverage positions, either proactively or because of forced liquidations. Data from Coinglass shows more than $420 million in liquidations in the last 24 hours. Over two-thirds of those closed positions were in positive bets on long positions.
The prevailing risk-off approach likely indicates that traders are fleeing volatility rather than chasing the upside of a possible swift Bitcoin rebound.
And that’s a curious irony since the conventional narrative, at least among Bitcoin proponents, is that it’s a hedge asset that’s invulnerable to geopolitical shocks.
Some traders are even lining up bearish bets on options contracts that will pay out if Bitcoin drops to as low as $95,000 this week.
And punters on the crypto market crystal ball Polymarket are also similarly pessimistic about Bitcoin’s near-term performance. In only one week, they have reduced their expectation of Bitcoin setting a new all-time high in July from a 70% chance to 10%.
Still, the immediate pessimism might be a knee-jerk reaction rather than a full-blown crisis of confidence. BitMEX co-founder Arthur Hayes said Bitcoin’s current weakness was only temporary. Hayes has predicted that Bitcoin will reach $250,000 this year.
While Bitcoin has recovered some, that could change if the situation in the Middle East continues to deteriorate.
“The caveat today and into this week is the Strait of Hormuz being a critical passage for global oil trade, which handles about 20% of the world’s supply,” Jonathan de Wet, chief investment officer at Zerocap, a digital asset trading firm, said in an email. “Iran may block this, providing the next test for Bitcoin’s changing nature.”
