A sharp escalation in Middle East tensions sent shockwaves through global financial markets in the early Asian trading hours, triggering a significant spike in oil prices and prompting a flight to safety.
Bitcoin (BTC) was not immune to the turmoil, experiencing a notable price drop as traders scrambled for downside protection, evidenced by a dramatic crash in short-term options skew.
The seven-day skew for Bitcoin options, a key metric that measures the relative cost of bullish calls versus bearish puts listed on Deribit, plummeted to -3.84%.
This marked its lowest point since April 16, according to data from Amberdata.
In practical terms, this means put options, which offer traders protection against price declines, became the most expensive relative to call options in three months.
The surge in demand for these protective puts also dragged the 30-day and 60-day skews into negative territory, signaling a broader shift towards caution among market participants.
Traders typically purchase put options either to hedge existing long positions in the spot or futures markets or to directly profit from an anticipated fall in prices.
The clear preference for puts indicates a growing unease about Bitcoin’s near-term trajectory amidst the heightened geopolitical uncertainty.
Bitcoin’s price reflected this nervousness, falling to its 50-day simple moving average (SMA) at $103,150, extending its 24-hour losses to 4.59%, according to CoinDesk data.
This decline represented a significant retreat from earlier in the week when prices had briefly topped the $110,000 mark.
Market bulls are now likely hoping that the 50-day SMA will provide a crucial support level, as a sustained break below it could attract further selling pressure, a pattern observed when this support level failed back in February.
Oil surges as geopolitical cauldron boils over
The catalyst for this market turbulence was a dramatic escalation in the Middle East.
The per-barrel price of WTI crude oil surged by over 6% to $74.30, reaching its highest level since February 3 and extending its weekly gain to an impressive 13%, according to data from TradingView.
This sharp upward movement in oil prices reportedly followed news of Israeli airstrikes on Iran, which supposedly drew retaliatory missile action from Tehran, though details remained fluid.
Inflationary shadows and Fed policy under scrutiny
Sudden and significant spikes in oil prices tend to have a global inflationary impact, and this latest surge is no exception.
Concerns are now mounting that this could inject fresh inflationary pressures into economies worldwide, at a time when President Donald Trump’s ongoing trade war already threatens to disrupt economic stability and fuel inflation, particularly in net-importer countries.
This confluence of factors could significantly dent market expectations for Federal Reserve rate cuts.
If inflation re-accelerates, the Fed may be less inclined to ease monetary policy, potentially adding to downside volatility in both stocks and cryptocurrencies.
As of writing, futures tied to the S&P 500 were trading 1.5% lower on the day, reflecting the broader risk-off sentiment.
Traditional markets reel from geopolitical shock
The reaction in traditional markets was swift and pronounced. US stock index futures were down approximately 1.5% across the board following the news from the Middle East.
European market futures mirrored this decline, also trading down by roughly the same margin.
In a classic flight to safety, bond prices moved higher as investors sought refuge from the volatility.
Gold, another traditional safe-haven asset, also saw increased demand, adding about 0.75% in the past hour to trade at $3,428 per ounce.
Crude oil, as previously noted, had soared by an even more dramatic 9% to $74 per barrel in the immediate aftermath of the reports.
The 10-year Treasury yield dipped two basis points to 4.32%, indicating increased demand for US government debt.
Currency markets also reflected the shifting risk landscape, with the US dollar gaining against the euro and the British pound, but losing ground against traditional safe-haven currencies like the Japanese yen and the Swiss franc.
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