Bitcoin Plunges as U.S. Strikes on Iran Trigger Oil Shock and $672M Liquidation Cascade

In less than 24 hours, global financial markets have undergone a dramatic upheaval following escalating tensions in the Middle East. June 22, U.S. airstrikes targeted key Iranian nuclear facilities, significantly escalating the Israel-Iran conflict. Reports emerged of Iranian politicians considering the closure of the Strait of Hormuz, a critical global oil passage.

"After U.S. strikes on Iran last night, 50+ large oil tankers were scrambling to leave the Strait of Hormuz. Markets have been closed, but an immediate drop in supply is expected to send prices higher. JP Morgan described this as their worst-case scenario in the Israel-Iran war," The Kobeissi Letter stated.

The following analysis synthesizes data from on-chain platforms and MarsBit reporting. The crypto market reacted sharply to the developments. Bitcoin plunged from a high near $112,000 in a swift downturn.

However, after 12 hours of panic selling, market sentiment saw a dramatic recovery. Bitcoin rebounded past $101,000 before pulling back, now trading at approximately $100,801, with a daily gain of 1.93%.

Meanwhile, WTI crude oil futures opened higher but declined, reflecting market expectations that the Middle East conflict may have only a temporary impact.

Market Crash: A Dual-Path Collapse

The recent geopolitical shock has impacted global markets through two primary channels, affecting both the energy and cryptocurrency sectors.

1. Energy Market: "Hormuz Fear" and Stagflation Risks

   1. Root of Fear: Markets quickly priced in the worst-case scenario, with oil prices potentially surging to $120–$130 per barrel if the Strait of Hormuz were closed—a move that, if approved by Iran’s top security body, could disrupt the flow of over 20 million barrels of oil per day.

   2. Transmission of Panic: Fears of an energy crisis translated into concerns about global inflation, with oil price shocks potentially pushing U.S. CPI back to 5% — its highest since March 2023 — and forcing central banks to delay rate cuts. Stagflation risks loomed over all risk assets.

2. Crypto Market: "Leverage Avalanche"

   

   1. The Powder Keg: Extreme Leverage: Coinglass data revealed $672 million in liquidations over 24 hours.

   2. Longs’ Tragedy: Of this, $537 million were long liquidations, compared to $135 million in shorts. Bitcoin alone saw $194 million in long liquidations, highlighting the market's extreme leverage before the event.

   3. Chain Reaction: Liquidation Cascade: The imbalance in long and short liquidations triggered forced liquidations of over-leveraged positions, leading to a cascade that affected over 178,966 traders globally.

Thus, Bitcoin's crash was fundamentally a deleveraging event, with geopolitics serving as the catalyst. CryptoQuant analyst Axel Adler Jr observed that, over the past 24 hours, 14.7K BTC was sold at a loss and 3.1K with profit on CEX exchanges. In total, 17.8K BTC was realized by short-term holders, with net capitulation amounting to 11.6K BTC. The market is now in a state of heightened vigilance.

Demand Weakness Amid Rebound and Key Support Levels

Following the market turmoil, there was a rebound. However, deeper data indicates concerning trends: overall Bitcoin demand is cooling.

1. Energy Market: "Reality Check"

   1. WTI crude oil futures’ "high open, low close" movement reflected market psychology. Early panic dissipated as no catastrophic escalation occurred, leading to profit-taking and a pullback in oil prices.

2. Crypto Market: Cooling Demand and Key Support Levels

   1. Broad Demand Weakening: Bitcoin demand is slowing after its rapid rise to $112,000, with spot demand growth below historical trends.

   2. Whales and ETFs Halve Buying Volume: Major players are significantly reducing their purchasing activity.

   3. Retail Outflow and Rising Shorts: New investor demand is waning, while short positions are increasing in the futures market.

Fragile Equilibrium with Unresolved Risks

From the recent market crash to the subsequent rebound, the market's rollercoaster ride reflects the complex interplay of geopolitics, market structure, and macroeconomic expectations.

• The drop exposed the over-leveraged long bubble in the crypto market.

• The rebound is a short-term technical recovery, not a sustainable demand-driven rally.

Risks remain significant, with rising oil prices threatening global inflation and Bitcoin's vulnerability becoming more apparent in the absence of strong demand support.

A new report from CryptoQuant further highlights these risks, warning that Bitcoin could drop to $92,000 or lower if demand fails to rebound. ETF flows have declined by 60% since April, whale buying has slowed by half, and short-term holders have dumped 800,000 BTC since late May.

Whether Bitcoin can hold critical support levels at $92,000 and $81,000 will be a key test for the current bull market, and investors are advised to stay alert to these developments.