How Prolonged Global Conflict Could Drive Bitcoin Higher Through Monetary Expansion

According to macroeconomist Mark Connors, extended geopolitical tensions between major powers could create ideal conditions for bitcoin to appreciate significantly. The mechanism is straightforward: warfare necessitates substantial government expenditure, which historically leads to currency debasement and expanded liquidity in financial markets—conditions that have historically supported alternative assets like bitcoin.

Connors, who previously led research at 3iQ and served as global head of portfolio and risk advisory at Credit Suisse before founding his own advisory firm Risk Dimensions, explained this dynamic in recent analysis. “Liquidity drives bitcoin,” he stated. The underlying economic principle involves how governments finance military operations through increased debt issuance, which expands the money supply and weakens currency purchasing power.

The War Spending-Liquidity Dynamic

Wars represent one of the most expensive undertakings for governments. When nations finance military campaigns, they typically issue additional debt securities, flooding the financial system with fresh currency. This expansion of monetary supply inherently debases existing dollars while simultaneously creating the loose liquidity conditions that historically correlate with bitcoin strength.

The current backdrop illustrates this principle in real time. U.S. federal debt has been expanding at an annualized rate of approximately 14% since mid-2025, with projections suggesting year-over-year increases could reach 15% if spending trends persist. “That’s debasement,” Connors emphasized, highlighting how rapid debt growth effectively reduces the value of existing currency in circulation.

Bitcoin has already begun reflecting these dynamics. Since the initial U.S. military strike on Iran, bitcoin gained approximately 3.6%, with the cryptocurrency currently trading around $70.60K, up 4.28% over the past 24 hours.

Federal Reserve Policy Constraints and Interest Rate Outlook

A critical factor in this equation involves the Federal Reserve’s operational constraints. Beyond its traditional dual mandate of price stability and maximum employment, the central bank operates under a de facto third mandate: ensuring Treasury market functionality and broader financial system stability. Historical disruptions—including the 2019 repo market crisis and the 2023 regional bank failures following aggressive rate hikes—demonstrate the stakes involved.

This constraint fundamentally shapes policy priorities. As government borrowing accelerates to finance expanded military spending, the Fed faces pressure to maintain market functioning by potentially lowering interest rates, particularly as debt structures shift toward shorter-term Treasury bills that require more frequent refinancing. Incoming Fed chair Kevin Walsh, nominated by President Trump partly for his dovish monetary policy stance, could reinforce this bias toward lower rates when he assumes leadership in May pending Senate confirmation.

Connors argues this creates a favorable setup for bitcoin. “When rates go lower and debt keeps rising, that’s the backdrop where bitcoin tends to perform well,” he noted. Lower interest rates reduce government borrowing costs while accommodating continued deficit expansion—precisely the liquidity-rich environment historically associated with bitcoin strength.

Navigating Stagflation Scenarios

One complicating factor could emerge from conflict-driven oil price surges. Extended geopolitical tensions typically inflate energy costs, potentially triggering stagflationary conditions—an environment where growth slows while prices accelerate simultaneously. Traditionally, such scenarios pose challenges for both bonds and stocks.

However, Connors contends stagflation could paradoxically support bitcoin if policymakers prioritize financial stability and government financing over inflation control. In such scenarios, authorities would likely maintain accommodative monetary policy to prevent market disruptions, sustaining the liquidity conditions bitcoin has historically thrived within. The policy choice between fighting inflation and maintaining system stability would likely tip toward the latter—favoring non-dollar alternatives.

Current Market Dynamics

Bitcoin’s recent market behavior supports these theoretical arguments. The cryptocurrency rallied overnight into the U.S. morning session as investors repositioned portfolios to hedge geopolitical uncertainty, pulling capital from traditional equities into alternative assets.

Separately, XRP exhibited weakness during recent sessions, declining to approximately $1.42 with 24-hour gains of 2.74%. The token has remained trapped within a downtrend marked by lower highs since mid-2025, with recent recovery attempts encountering resistance between $1.55-$1.60. Traders are monitoring whether XRP sustains the $1.40 support zone; a breakdown could expose downside toward $1.30-$1.32 levels, while holding stability could enable consolidation and retesting of $1.44-$1.45 resistance.

The divergent performance between bitcoin and certain altcoins underscores bitcoin’s positioning as a macro hedge against monetary expansion and currency debasement—precisely the conditions that extended conflict could intensify.