Geopolitical tensions further escalated over the weekend, with US bombers launching swift and precise strikes on three deep-layer nuclear facilities within Iran. US reports claim significant facility damage, though official confirmation of nuclear material destruction or prior evacuation remains unverified.
Markets instinctively sold off risk assets, and as the only asset class continuously trading over the weekend, cryptocurrencies were naturally the first to be impacted, with BTC falling approximately 4% from above 102k to around 99k. It's worth noting that in the eyes of traditional financial investors, cryptocurrencies continue to be viewed as frontier/high-risk assets.
Due to the escalating situation, markets initially feared a severe risk reaction on Monday's opening, but such concerns quickly dissipated during the Asian morning session. A perspective emerged that this action might represent a successful "escalate to de-escalate" strategy, using key military demonstrations to advance negotiations. Additionally, the practical difficulties of blocking the Hormuz Strait (with Iranian oil and natural gas primarily flowing to China) have alleviated market concerns about uncontrolled oil price surges.
Monday morning's price performance seems to confirm this view, with US stock futures nearly recovering to last Friday's levels, oil prices stabilizing around $75 per barrel, spot gold retracing previous gains, and the US dollar against the Israeli new shekel falling back to pre-conflict lows.
Generally, geopolitical pressures tend to be short-lived and only temporarily impact stock markets. A recent Citigroup study shows that the SPX index typically experiences negative reactions before geopolitical event risks escalate, but often performs not poorly once the event actually occurs. If we believe stock markets have a certain efficiency and can prospectively reflect known and foreseeable unknown risks, such a conclusion seems reasonable. Unless an unimaginable large-scale destructive weapon attack or other extreme unexpected event occurs, we expect risk markets will gradually adapt to this conflict and refocus on ongoing tariff negotiations and economic development.
In the interest rate market, despite ongoing discussions about massive US interest expenditures and potential inflation risks, implied rate volatility has fallen to medium-term lows, indicating that markets do not expect substantial actions from developed countries' central banks, with overall forward rate trajectories remaining stable and bond traders returning to normal operations.
Meanwhile, according to most Wall Street perspectives, current market liquidity remains quite abundant, allowing risk assets like stocks to continue climbing the "wall of worry", with the SPX index strongly rebounding even after Liberation Day, ongoing Russia-Ukraine conflict, and Iran-Israel tensions.
Despite macro observers potentially maintaining long-term pessimistic positions, investors are voting with actual funds, with risk sentiment still notably bullish amid various warnings, and the overall economy continuing to operate with steady corporate profit growth.
Unfortunately, the cryptocurrency market differs. BTC dropped 4%, touching around $98.9k, while ETH plummeted about 10% to $2,150, reaching its lowest intraday price since early May. With the Iran airstrike news, cryptocurrencies, as the only trading asset, naturally faced selling pressure, with over $1 billion in futures positions liquidated during the weekend.
Although stock, oil, and gold prices reversed weekend trends in early trading, cryptocurrency prices struggled to rebound simultaneously. Investors remained in long positions during the conflict, with significant account volatility over the past month, and cryptocurrency prices have been unable to effectively break through since the first quarter, with BTC also failing to surpass February's high point.
Glassnode conducted an excellent analysis last week, showing that despite TradFi community's strong interest in BTC, on-chain trading activity has significantly slowed. In short, while mainstream investors attempt to gain BTC exposure through traditional tools like ETFs and futures, driving off-chain (OTC) trading, on-chain activity has not recovered since FTX, evident in DeFi and Altcoin performance's low ebb and lack of new narratives beyond stablecoins/RWA.
Similarly, power-law distribution phenomena are increasingly prevalent in the cryptocurrency realm. On one hand, BTC's market cap dominance continues rising; on the other, its on-chain transfer activity is becoming more concentrated among large wallets. According to Glassnode data, transactions exceeding $100,000 have increased from 66% in 2022 to 89% today, further confirming the "whale" market dominance perspective, with small accounts' influence and participation increasingly diminishing.
Unfortunately, as the cryptocurrency industry matures and accelerates institutionalization, this trend will likely continue—perhaps an unavoidable outcome.
Moreover, as BTC becomes a mainstream asset class, it must naturally follow other macro asset operating rules, primarily driven by the largest fund participants, with off-chain trading far more active than on-chain trading. Long-term observers note that this cycle differs from previous ones, lacking Altcoin enthusiasm or emerging narratives—something already anticipated. TradFi participants prefer engaging through familiar tools (off-chain), finding self-custody and on-chain narratives less attractive. However, given their significantly larger fund scale, their behaviors and preferences will increasingly dominate price trends.
This macro correlation change can be observed through the substantial increase in BTC futures open interest, with dramatic changes since Q4 2024 being the primary reason for more frequent liquidation gaps (as seen last weekend). Off-chain activity and futures-driven price movements indicate higher macro correlations, with cryptocurrency's native momentum becoming increasingly weak.
Meanwhile, the activity of cryptocurrency options trading has significantly increased in this cycle. The overall market's daily trading volume has risen from $1.5 billion in 2024 to a recent high of $5 billion, indicating that increasingly mature market participants are adopting more option strategies to manage risks.
Returning to the current point, BTC's demand momentum seems weak. According to CryptoQuant's data, its demand momentum index has hit a historical low. Even with a series of bullish policies (such as As genius Act, Hong Kong stablecoin policy, etc),), the price still cannot effectively break through the previous high point, and the supply from short-term token holders (i.e., new funds) appears to be slowing down.
In the volatility market, price changes show that traders were caught off guard, with implied volatility suddenly surging from its previous unilateral downward trend. Put options have seen significant buying, especially for ETH, indicating that market participants are seeking downside protection while holding long delta, and the market may face further downward pressure in the short term.
Looking forward, we believe the market will quickly digest this geopolitical event and may even see some peaceful breakthrough in Russia-Iran situations and substantial progress in tariff negotiations. The market will naturally rise due to these developments, but the focus will return to valuation issues. The SPX index already reflects a +12% earnings growth expectation to $296 (equivalent to a 20x forward P/E ratio), yet the US economy seems to be actually sltoowing down (employment indicators CEO,off expectations, etc).
As we always maintained, we do not recommend shorting the current stock market upward trend, but believe this reboundance is near its end, the stage should focus more on risk reduction. cryptocurrency. In the cryptocurrency market, given recent price performance, we, more that the market experience a significant adjustments, washing out recent high-entryrant funds and floating chips. We are also wary of many listed companies increasingly incorporating BTC into their corporate holdings as a ""financial engineering" operation, which might actually be a negative FOMO signal.
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