Conflict in the Middle East exacerbates BTC's "high dive", falling below $66,000 in the short term

Crypto markets plunged on Friday as risk aversion in traditional markets spread to digital assets amid heightened geopolitical uncertainty.

Tensions between Iran and Israel have escalated further. The United States sent warships to protect Israel and American troops from a potential direct attack on Israel by Iran, which threatened to retaliate for an Israeli attack in Syria last week, The Wall Street Journal reported on Friday . U.S. President Joe Biden told reporters that he expects Iran to attack Israel "sooner or later."

Wall Street's "fear index" - the Chicago Board Options Exchange ( Cboe ) Volatility Index (VIX) has surged to its highest level since October last year.

The U.S. stock market experienced its worst day since January. The three major stock indexes all fell more than 1% on the day, with the Dow Jones Industrial Average closing down 1.24%, the Nasdaq Composite down 1.6%, and the S&P 500 down 1.45%. Coinbase 's COIN fell 6.21% to $246.68, and MicroStrategy 's MSTR fell 4.86% to $1,476.

Bitcoin tested $71,000 during early trading on Friday, then plummeted to below $66,000 after lunch, retreating to an intraday low of $65,230, with a price fluctuation of more than 8%. As of press time, Bitcoin has rebounded above $67,000, and the 24-hour decline has narrowed to 5%.

ETH, the second largest cryptocurrency by market value, fell 12% in the short term to $3,100, and then rebounded slightly to above $3,200, narrowing the decline to 8%.

The altcoin market suffered a slump, with Cardano 's ADA, Avalanche 's AVAX, Bitcoin Cash (BCH), filecoin (FIL) and aptos (APT) all plummeting by 15-20%. The total market value of cryptocurrencies has shrunk to $2.42 trillion, a 24-hour drop of more than 7%.

The shock triggered the largest leveraged margin call in a month.

According to data from crypto liquidation tracker CoinGlass , as of the closing of the U.S. stock market, approximately 277,000 cryptocurrency traders were liquidated, with total losses approaching $1 billion and a 24-hour liquidation amount of $878 million, including $785 million in long positions and $93.41 million in short positions.

The current overall cryptocurrency market capitalization is $2.43 trillion, down 7.3% in the past 24 hours, and Bitcoin’s market capitalization dominance rate is 54.3%.

U.S. Treasuries and the dollar index (DXY) surged as traders rushed to hedge, gold, long seen as a safe haven, surged to a record high above $2,400 before giving back gains, while oil rose 1%.

Jose Torres, senior economist at Interactive Brokers, told Bloomberg that the latest developments show that investor sentiment and risky assets are vulnerable to geopolitical conflicts, persistent inflation and oil prices.

He noted: "Investors have pushed back their expectations for the start of the Fed's easing cycle, and geopolitics could replace the Fed as one of the biggest drivers of market volatility ."

Implied volatility rises on Bitcoin options

Kaiko Research said in a report that the implied volatility of Bitcoin options has risen sharply, reversing the previous week's downward trend. Kaiko research analyst Adam McCarthy said that rising prices usually mean that market participants have less confidence in the direction of prices. When implied volatility rises, traders are usually willing to pay more to protect existing positions or speculate on potential price movements (up or down).

Kaiko said that implied volatility for contracts expiring in the next two weeks saw the largest increase, rising from 59% to 71% in just two days, indicating that expectations for near-term volatility are rising.

“In this case, traders are likely to be more pessimistic because they are uncertain but are willing to pay more for options to be protected against price swings,” McCarthy said. “They may pay a high premium to buy downside protection.”

Digital asset investment firm Ryze Labs, formerly Sino Global Capital, said in comments on Friday that it expects “short-term market weakness” in crypto assets due to the upcoming tax season in the United States.

Another Kaiko report shows that previous halvings showed mixed short-term effects, while the long-term effects were bullish. The report explains that in two of the three previous halvings, prices surged one month and three months later. In all three halvings, prices surged nine and 12 months later.

However, Kaiko stressed that a sample size of three is not necessarily enough to draw conclusions, and Kaiko believes it is important to be mindful of other incidents in the industry.

Glassnode : Based on history, BTC may still experience a larger correction

Glassnode said in its analysis report that compared with historical cycles, the current market is still in a relatively early stage of price discovery. Historical data shows that in previous frenzy phases, Bitcoin prices have experienced multiple retracements of more than 10%, most of which were larger, and retracements of more than 25% were very common. In this cycle, since Bitcoin broke through its historical high, the current market has only experienced two adjustments of more than 10%.