The Capital Game in the Fire of War: Virtual Currencies, War, and the US Stock Market Trio

Amidst the smoke over the Middle East, global capital markets tremble accordingly. The moment the Strait of Hormuz was declared closed not only signifies a blockage of the energy artery but also marks the beginning of a new round of intense fluctuations in virtual currencies and the US stock market. As "war correspondents," we need to look beyond surface-level rises and falls to understand the complex and profound interconnected logic between these three.

1. Escalation of Conflict: From Battlefield to Market Transmission Chain

Late on March 2, an advisor to the Iranian Islamic Revolutionary Guard Corps delivered a heavy message: the Strait of Hormuz has been closed, and Iran will target all ships attempting to pass. This effectively blocks a critical global oil transportation route, risking disruption of about 20% of worldwide crude oil flow. Meanwhile, U.S. President Trump sent a tougher signal—excluding the possibility of deploying ground troops to Iran if necessary, with potential operations lasting 4 to 5 weeks.

Once the news broke, markets reacted sharply. Crude oil prices surged over 7%, gold rose nearly 2%. However, while these traditional safe-haven assets gained popularity, another market's performance was particularly noteworthy: cryptocurrencies.

2. Bitcoin’s "Safe-Haven Myth" Faces New Test

Many have regarded Bitcoin as "digital gold," hoping it would serve as a safe haven during geopolitical crises. Yet reality once again provided a different answer.

At the onset of the conflict, Bitcoin quickly declined, dropping from $63,000 to lower levels, with the total market value of cryptocurrencies evaporating by $128 billion within minutes. This was not an isolated event—historically, on the day the Russia-Ukraine war broke out in 2022, Bitcoin plunged over 9%; during Iran’s airstrikes on Israel in April 2024, Bitcoin also fell about 7%.

Why did Bitcoin fall instead of rise during wartime? Four economic logical layers are superimposed behind this:

First, the global capital's immediate response is "risk reduction." When geopolitical conflicts erupt, institutional investors typically reduce overall portfolio volatility by shifting funds from high-volatility assets (cryptocurrencies) to low-volatility assets (gold, US Treasuries). This is not a rejection of crypto assets but a risk appetite instinct—prioritizing stability and risk management before seeking returns.

Second, rising oil prices boost inflation expectations, delaying rate cuts. The conflict caused crude oil prices to jump, raising concerns about inflation, and forcing the Federal Reserve to postpone rate cuts. Like tech stocks and other risk assets, cryptocurrencies are highly sensitive to interest rate expectations—weak rate cut expectations mean high borrowing costs, naturally putting pressure on high-risk assets.

Third, weekend liquidity is weak, and leverage amplifies declines. The conflict news broke over the weekend when US markets were closed, and global trading volume was low, while crypto markets trade 24/7 with higher leverage. Small sell-offs can trigger chain liquidations, significantly magnifying price drops.

Fourth, the US dollar strengthens, putting passive pressure on dollar-denominated assets. During geopolitical tensions, global funds tend to buy US dollars as a safe haven. A stronger dollar index naturally exerts downward pressure on assets priced in dollars, such as gold, oil, and cryptocurrencies.

3. US Stocks: Resilience Behind the Open-High Close-Low Pattern

Compared to cryptocurrencies’ initial decline and subsequent rebound, US stocks show a different rhythm.

On March 2, the three major US indices opened sharply lower but then repeatedly saw bottom-fishing buy orders during the day, with the Nasdaq and S&P 500 stubbornly closing higher. Most large tech stocks gained strength, with Nvidia soaring about 3% and Microsoft up over 1%.

This trend reflects investors’ judgment of the conflict’s nature. Bill Smead, founder of Smead Capital Management, said, “Market participants believe this is only temporary; issues in the oil sector will eventually subside.” Morgan Stanley strategist Michael Wilson’s team pointed out that past military conflicts in the Middle East did not cause long-term market declines. For war to cause a significant and sustained blow to US stocks, oil prices might need to surge above $100 per barrel.

Historical data also supports optimism: after geopolitical risk events, the S&P 500’s average gains over 1 month, 6 months, and 12 months are 2%, 6%, and 8%, respectively.

4. Bitcoin and US Stocks: Synchronous Resonance of Risk Assets

A noteworthy phenomenon is the increasing correlation between Bitcoin and US stocks. GTC Zehui Capital analysis indicates that Bitcoin’s recent price movements demonstrate a rising correlation with traditional high-risk assets, and the safe-haven attribute of "digital gold" faces a severe test amid extreme military conflicts.

Hayden Hughes, managing partner of Tokenize Capital, emphasizes a key timing point: true price discovery occurs after the US stock and Bitcoin ETF markets open on Monday. This means that although 24/7 crypto trading reacts to news first, the actual pricing power largely resides with institutional investors in traditional markets.

From ETF fund flows, institutional attitudes seem more positive than expected. Data shows that US spot Bitcoin ETFs saw over $800 million in net inflows last week, with $458 million on the conflict day alone—one of the strongest single-day fund inflows this quarter. This may indicate that large institutions view the volatility caused by war as a "manageable shock" rather than systemic risk.

5. Market Outlook: Opportunities and Risks in the Interplay of Bulls and Bears

At this juncture, bullish and bearish factors are still fiercely contesting.

Bullish factors:

· If the conflict becomes prolonged, it may force the Fed to cut rates or expand quantitative easing to support war expenditures, which would benefit risk assets like Bitcoin.
· Continued institutional inflows into Bitcoin ETFs indicate ongoing allocation demand.
· Historical experience shows that declines caused by geopolitical shocks are often short-lived.

Bearish factors:

· If the Strait of Hormuz remains closed, high energy prices will reinforce inflation expectations, further delaying rate cuts.
· A strengthening dollar exerts ongoing pressure on dollar-denominated assets.
· The weekend’s sharp declines have led to over 100,000 liquidations totaling $370 million, and market sentiment recovery will take time.

6. Observer’s Notes: Volatility as Opportunity

As a "war correspondent" at Gate Square, I believe the current situation offers several insights for investors:

First, the narrative of Bitcoin as "digital gold" has yet to be fulfilled; its high-risk asset nature is more prominent at this stage. Using it as a war hedge may be overly optimistic.

Second, 24/7 trading is both an advantage and a trap—weak weekend liquidity means any sudden news can be amplified by leverage. Position management is crucial at this moment.

Third, the increasing linkage between US stocks and cryptocurrencies suggests paying attention to the opening rhythm of traditional markets may help capture cross-market pricing differences.

Fourth, the developments in the Strait of Hormuz remain a core variable. Any news about the reopening of the channel or escalation of conflict will quickly transmit to oil prices, influencing inflation expectations, Federal Reserve policies, and risk asset valuation logic.

War has never been a friend of markets, but volatility is always the trader’s soil. In this intertwined landscape of geopolitical risk and capital logic, staying alert, managing positions, and focusing on structural long and short opportunities may be the best approach to steady progress amidst the smoke.

(This article is based on market information up to March 4, 2026, for reference only and does not constitute investment advice.)