🧱The outbreak of war: Why is cryptocurrency facing a "bloodbath"? An in-depth analysis of market collapse amid geopolitical conflicts!
Currently, the impact of geopolitical conflicts on the cryptocurrency market is evident. As you mentioned, the escalation of the conflict between Iran and Israel, along with significant past events like the Russia-Ukraine war and the Israel-Palestine conflict, have led to notable declines in the cryptocurrency market, commonly referred to as a "waterfall". The main reasons behind this are as follows:
⚠️ 1️⃣ Risk aversion and selling of risk assets
When geopolitical tensions escalate, investors generally experience panic. This panic prompts them to withdraw from higher-risk assets and turn to what are considered "safe-haven" assets, such as gold, the US dollar, and even US Treasuries. Although some view cryptocurrency as "digital gold", most investors still classify it as a risk asset.
📉 2️⃣ Tightening market liquidity
Wars and conflicts can create uncertainty about the global economic outlook, which in turn affects overall market liquidity. When investors anticipate potential economic shocks, they may choose to hold more cash and reduce investments. This can lead to capital flowing out of markets, including cryptocurrency, thereby driving prices down.
💥 3️⃣ Chain reaction of highly leveraged trading
A notable feature of the cryptocurrency market is the presence of substantial high-leverage trading. When the market experiences a rapid decline, investors using high leverage face the risk of **forced liquidation (margin call)**. A significant number of liquidations can further increase selling pressure in the market, creating a vicious cycle that accelerates price drops, which is what you may be seeing today as the "waterfall" effect.
🧐 4️⃣ The controversy of Bitcoin as a "safe-haven asset"
Although Bitcoin has been used for fund transfers in extreme situations, such as when certain countries are sanctioned, showcasing its "borderless and censorship-resistant" characteristics, it has not genuinely played the role of a traditional "safe-haven asset" in most geopolitical crises. Its price volatility far exceeds that of traditional safe-haven assets like gold, making it more prone to being sold off during times of crisis.
