Bitcoin recovered from the steepest selloff in more than a year, an early indication of impending volatility across asset markets as investors digest the prospects of a military escalation in the Middle East.

The largest cryptocurrency advanced to $65 930 as of 8.29am SAST on Monday.

Iran launched attack drones and missiles against Israel in apparent retaliation for a strike in Syria that killed top Iranian military officers, taking the conflict in the region into a dangerous new phase.

With Iran’s action taking place while most markets were closed, crypto traders found themselves in the unusual position of being among the first to react to a major geopolitical event.

“More investors than usual might be choosing to express their market views through crypto,” David Lawant, head of research at FalconX.

As Israel braced for an attack, the tension hurt stocks on Friday and boosted havens such as bonds and the dollar. Coinglass data show about US$1.5-billion of bullish crypto wagers via derivatives were liquidated on Friday and Saturday, one of the heaviest two-day liquidations in at least six months.

Leverage “has got completely overwhelmed in the last three days, so that’s caused prices to materially deteriorate” in digital assets, said Ebtikar.

Stock markets in the Middle East were mostly in the red on Sunday. Israel equities gave up earlier gains to trade slightly lower as of 8.36am London time.

Escalation

A significant military escalation between Israel and Iran would test the notion that bitcoin and other crypto assets offer a haven in times of conflict, a view often expressed by boosters of the asset class. When Russia invaded Ukraine in early 2022, cryptocurrencies were in the early days of a market meltdown that lasted until the end of that year.

Bitcoin is down from a mid-March record of $73 798. Demand for dedicated US exchange-traded funds that debuted in January helped the token reach an all-time high, but net inflows into the products have moderated lately.

Read: MicroStrategy now owns 1% of all bitcoin

Crypto speculators are awaiting the so-called bitcoin halving, which will reduce new supply of the token in half and is expected around 20 April. Historically, the halving has proved a tailwind for prices, though there are growing doubts about whether a repeat is likely given bitcoin recently hit a historical peak. — Muyao Shen and Sidhartha Shukla, (c) 2024 Bloomberg LP