A brief discussion on Iran's threat to retaliate against the US and the impact of blocking the Strait of Hormuz on the cryptocurrency market. Currently, the probability of Iran blocking the Strait on Polymarket has reached 54% @Polymarket

Firstly, Asian economies are the most affected. EIA estimates show that in 2024, 84% of the crude oil and 83% of the liquefied natural gas transported through the Strait of Hormuz will go to the Asian market. The US imports about 500,000 barrels, accounting for 5% and 2% of crude oil imports and consumption, respectively. However, ↓

Although the US has basically achieved self-sufficiency in crude oil production, rising oil prices still have a global effect. Rough calculations suggest that for every 10pp increase in oil prices, there will be a short-term boost to US inflation of about 0.2pp. This means that if the blockade of the Strait of Hormuz causes oil prices to double, the annual growth rate of US inflation could rise by 2pp to an important 4-4.5% in the coming months. Although the energy shock itself is similar to a tariff shock, it will only lead to a one-time increase in price levels (rather than the inflation rate) as long as inflation expectations remain anchored. However, considering that this kind of 'stagflationary shock' in the second half of the year may combine with tariffs, it will increase the pricing motivation for manufacturing companies. Therefore, the possibility of the Federal Reserve cutting interest rates this year will further decline (possibly not cutting rates).

This passive hawkish environment could lead to a repeat of the situation in 2022 (albeit to a milder extent). In this environment, the dollar faces certain upward pressure for a rebound, the interest rate curve flattens, and global risk assets will decline (such as BTC ...). If inflation expectations remain anchored, it may be bearish for gold in the short term (strong dollar + high interest rates) rather than bullish.