Affected by the Iran-Israel conflict, the crypto market fell sharply on June 13, with more than $1 billion in long orders liquidated within 24 hours, of which Ethereum longs suffered particularly heavy losses, with liquidations accounting for as much as 60%. The plunge caused ETH to break through $2,800, which was characterized as a lure to more, and Trend Research, an institution that had been aggressively bullish earlier, was also ridiculed by the market as a reverse indicator. It is worth mentioning that after the outbreak of the Russian-Ukrainian conflict in March 2022, Bitcoin had a callback of nearly 70% within three months, so the escalation of the geopolitical crisis in the Middle East was also considered by many investors as a signal of history repeating itself.
The current market's concern about the geopolitical crisis in the Middle East is that rising oil prices may push up US inflation again, forcing the Federal Reserve to postpone the timing of interest rate cuts. According to the pricing of federal interest rate futures, after Israel's air strikes on Iran, the market's expectations for a US interest rate cut in the second half of the year were reduced from 45 basis points to 34.5 basis points. The probability of the first rate cut in September also dropped from 58% on June 7 to 47% on June 15. This change fully demonstrates that the geopolitical crisis has indeed reduced the market's expectations for rate cuts.
However, although the geopolitical crisis in the Middle East may still push up oil prices, the current global crude oil market is still well supplied. This is mainly due to the continued increase in production by major oil-producing countries, among which the total output of crude oil in the United States has exceeded 13.4 million barrels per day (shale oil production has surged), approaching the historical peak. These factors can effectively alleviate the supply shock caused by geopolitical conflicts. JPMorgan Chase expects that the geopolitical crisis may bring a risk premium of $10-15 per barrel in the short term, but oil prices will still return to the $60-70 range dominated by fundamentals in the medium and long term. Unless the Strait of Hormuz is blocked (with a probability of only 5%-10%), it will be difficult to see a sustained surge.
In summary, the Middle East crisis has limited impact on long-term inflation in the United States, and is more of a short-term market disturbance. If the market continues to fall due to escalating conflicts, there may be a good opportunity to buy at the bottom.
On June 18, the U.S. Senate passed the landmark GENIUS Stablecoin Act with an overwhelming majority of 68 votes in favor and 30 votes against, marking a key step in the regulation of cryptocurrencies in the United States. Given that the House of Representatives is currently dominated by Republicans (220 seats to 215 seats for Democrats), this bill that will reshape the crypto market landscape is only one step away from final legislation. According to the provisions of the bill, the reserve assets of stablecoin issuers can only be low-risk liquid assets such as cash, bank deposits, short-term Treasury bonds (with a term of less than 93 days) and repurchase agreements (with a term of less than 7 days). This provision poses a compliance challenge to Tether, the world's largest stablecoin issuer. Only about 80% of its current reserve composition meets the requirements, and the remaining 20% is 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 about $10 billion worth of bitcoin (100,000 coins) in its reserves and replace them with compliant assets. If this large-scale sell-off is carried out directly in the secondary market, it may cause sharp fluctuations in the price of Bitcoin. Considering that the current average daily trading volume of the Bitcoin market is about $20-30 billion (only mainstream exchanges are counted), the scale of Tether's sell-off is equivalent to 30-50% of the market's daily liquidity. This concentrated reduction may cause Bitcoin to fall by 10%-15%. However, the 10%-15% decline is only a worst-case assumption, because Tether can also mitigate the impact on the secondary market through over-the-counter transactions and batch sales. In addition, Tether still has $5.6 billion in net assets on its account, and in theory it can retain some Bitcoin as its own assets, thereby further reducing the pressure to sell.
Of course, some people may say that Tether is registered in the British Virgin Islands and can theoretically choose to withdraw from the US market to circumvent regulation, but considering:
1. USDT's circulation in the US market accounts for as much as 35% (based on Chainalysis' regional circulation estimates), and it is technically almost impossible to refuse to provide services to Americans;
2. The US Treasury Department has clearly included "any stablecoin transactions settled in US dollars" in its jurisdiction, including offshore transactions;
3. If it involves money laundering or sanctions circumvention cases, Tether may be deemed to have "substantially assisted" illegal activities (refer to OFAC's sanctions against Tornado Cash);
Therefore, no matter what risk isolation measures Tether takes, it will ultimately be difficult to get rid of the US's "long-arm jurisdiction". In other words, actively adapting to US regulatory requirements has become a realistic choice that Tether has to face.
With geopolitical risks not yet fully released, the US stock market and the crypto market may continue to be under pressure in the short term. However, it is worth noting that the current balance of Bitcoin exchanges continues to decline rapidly, ETF funds still maintain a net inflow trend, and institutional investors are still willing to buy on dips. In this case, panic selling is likely to cause investors to lose high-quality chips and even miss the next major uptrend of Bitcoin. Therefore, a sharp drop at this position is likely to be a golden pit.
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