Cryptocurrencies have stood out as winners among asset classes since the outbreak of the war with Iran, but the resilience of digital assets may be a matter of timing.
Bitcoin, the largest token, and a cohort of smaller digital assets have been an oasis of calm relative to the volatility in equities, gold and oil. As crude oil has surged more than 40%, bullion is down roughly 5% for the month and the MSCI World Index is down 4%. Meanwhile, Bitcoin pushed through a crucial psychological mark of $75,000 on Tuesday in Asia, taking its gains since the war started at the end of February to nearly 14%.
This marks a sharp contrast to the spectacular crash in October, which saw the original cryptocurrency's value halve from its high above $126,000. Yet a tentative recovery that started in late February amid geopolitical uncertainty has picked up pace this month, as crypto traders poured back into exchange-traded funds.
"Bitcoin's resilience here is less about narrative and more about mechanics," said Rachael Lucas, an analyst at BTC Markets. "Institutional buyers, particularly corporate treasuries, are absorbing supply on every dip."
US-traded spot Bitcoin ETFs have seen roughly $1.5 billion in inflows this month, according to data compiled by Bloomberg.
The latest bullish signals in crypto markets appear to be partly driven by traders unwinding their options bets that Bitcoin would continue to fall below the $55,000 to $60,000 level, according to Markus Thielen, head of research at 10x Research. As traders closed out their negative positions, Bitcoin rallied.
"The selling or closing of Bitcoin put options reduces downside hedging pressure and forces market makers to buy BTC to rebalance their exposure, creating supportive flows that can push prices higher," Thielen wrote in a research note.
About $1.5 billion of Bitcoin puts are clustered around $60,000, while there are $1.3 billion of calls at $75,000, according to data from the derivatives trading platform Deribit.
Bitcoin briefly plummeted after the US and Israel initiated a bombing campaign against Iran on Feb. 28, falling as low as $63,038. The subsequent rally was "backed by genuine positioning" said Hayden Hughes, managing partner at Tokenize Capital.
"What started as a structurally supported recovery has transitioned into a momentum trade, where the original edge holders have already taken profit," he said.
Bitcoin continues to see upside momentum. Perpetual futures for Bitcoin show a positive funding rate, which requires traders holding long positions to pay a fee to those who are short. The current Coinbase premium on Bitcoin's price also indicates strong demand in the US. Strategy Inc., which buys and holds Bitcoin, has recently purchased more of the cryptocurrency.
However, the underlying momentum is not yet "accompanied by significant upside call buying, suggesting that the move has so far been driven more by hedge unwinds than by aggressive bullish positioning," Thielen wrote.
Tokenize Capital's Hughes suggested the current rally could soon reverse. While Bitcoin could touch $80,000 in the short term, he said the rally may fizzle out by next month and worsen by August.