Affected by the Israel-Palestine conflict, the cryptocurrency market plummeted sharply on June 13, with over $1 billion in long positions liquidated within 24 hours, particularly heavy losses for Ethereum bulls, with a liquidation ratio as high as 60%. This crash pushed ETH below $2800, which was characterized as a trap for bulls. Earlier, the aggressively bullish institution Trend Research was mocked by the market as a contrary indicator. Notably, after the outbreak of the Russia-Ukraine conflict in March 2022, Bitcoin had a nearly 70% pullback within three months, thus the escalation of the Middle East geopolitical crisis is seen by many investors as a signal of historical repetition.
The current market concern regarding the Middle East geopolitical crisis is that rising oil prices may again push up US inflation, thereby forcing the Federal Reserve to postpone interest rate cuts. According to the pricing of federal funds futures, after Israel's airstrikes on Iran, the market has reduced its expectation for the interest rate cut in the second half of the year from 45 basis points to 34.5 basis points. The probability of the first interest rate cut in September has also decreased from 58% on June 7 to 47% on June 15. This change clearly indicates that the geopolitical crisis has indeed lowered the market's expectations for interest rate cuts.
However, despite the fact that the Middle East geopolitical crisis may still push up oil prices, the current global crude oil market supply remains sufficient. This is mainly due to the continued increase in production by major oil-producing countries, where US crude oil production has surpassed 13.4 million barrels per day (thanks to a surge in shale oil production), nearing historical peaks. These factors can effectively alleviate supply shocks caused by geopolitical conflicts. JPMorgan expects that the geopolitical crisis may bring a risk premium of $10-15 per barrel in the short term, but in the medium to long term, oil prices will still return to a fundamental range of $60-70 per barrel. Unless the Strait of Hormuz is blocked (with only a 5%-10% probability), a sustained price surge is unlikely.
In summary, the Middle East crisis has limited long-term inflation impact on the United States, more so just short-term market disturbances. If the market continues to decline due to escalating conflicts, it may present a good buying opportunity.
On June 18, the US Senate overwhelmingly passed the landmark (GENIUS Stablecoin Act) with 68 votes in favor and 30 against, marking a key step forward in US cryptocurrency regulation. Given that the current House of Representatives is led by the Republican Party (220 seats to 215 for the Democrats), this bill, which is set to reshape the cryptocurrency market landscape, is just a step away from final legislation. According to the bill's provisions, stablecoin issuers can only reserve assets in cash, bank deposits, short-term Treasury bills (maturities less than 93 days), and repurchase agreements (maturities less than 7 days), which are all low-risk liquid assets. This regulation poses compliance challenges for Tether, the world's largest stablecoin issuer, as only about 80% of its current reserves meet the requirements, with the remaining 20% consisting of non-compliant assets such as gold, Bitcoin, and secured loans.
If Tether decides to fully comply with the new US regulations, it will be forced to sell approximately $10 billion worth of Bitcoin (100,000 BTC) from its reserves and convert it into compliant assets. If this large-scale sell-off is conducted directly in the secondary market, it could trigger significant volatility in Bitcoin prices. Considering the current daily trading volume of Bitcoin is around $20-30 billion (only counting major exchanges), Tether's sell-off scale would account for 30-50% of the market's daily liquidity, and such concentrated selling could lead to a 10%-15% decrease in Bitcoin. However, a 10%-15% drop is just a worst-case scenario, as Tether could also mitigate the impact on the secondary market through over-the-counter trading and batch sales. Additionally, Tether still has $5.6 billion in net assets, theoretically allowing it to retain some Bitcoin as self-held assets, further reducing selling pressure.
Of course, some may argue that Tether's registration is in the British Virgin Islands, theoretically allowing it to exit the US market to evade regulation, but considering:
1. The circulation of USDT in the US market accounts for as much as 35% (based on Chainalysis's regional circulation estimates), and technically, it is almost impossible to refuse to provide services to Americans;
2. The US Treasury has explicitly included 'any stablecoin transactions settled in US dollars' within its jurisdiction, including offshore transactions;
3. If involved in money laundering or sanctions evasion cases, Tether may be deemed to be 'substantially assisting' illegal activities (refer to OFAC's sanctions precedent against Tornado Cash);
Therefore, regardless of what risk isolation measures Tether takes, it will ultimately be difficult to escape the 'long-arm jurisdiction' of the United States. In other words, proactively adapting to US regulatory requirements has become a reality that Tether must face.
In the context where geopolitical risks have not been fully released, the US stock market and cryptocurrency market may continue to face pressure in the short term. However, it is noteworthy that the current balance of Bitcoin on exchanges is rapidly decreasing, ETF funds are still showing a net inflow, and institutional investors remain strongly willing to buy on dips—under these circumstances, panic selling could likely cause investors to lose quality assets, or even miss out on the upcoming main uptrend of Bitcoin. Therefore, a sharp drop at this position is highly likely to be a golden buying opportunity.