Iran-US news: how Bitcoin prices reacted to Soleimani’s death
Bitcoin often makes gains in response to geopolitical tensions, and Iran-US news of Qassem Soleimani’s death in an American airstrike was no different
At the beginning of January, top Iranian general Qassem Soleimani was killed by a US airstrike on Iraqi soil. The assassination took the world – and especially Iran – by surprise. Tehran vowed it would enact “crushing revenge” on America, fuelling fears that the two nations could become embroiled in conflict. Oil prices surged as traders digested the Iran-US news and markets were derailed from their bullish start to 2020.
It was especially interesting to see how crypto prices reacted to the renewed geopolitical tensions. The value of Bitcoin, the world’s biggest digital currency in terms of market capitalisation, rose 10 per cent in the three days after Maj Gen Soleimani’s death. On some local peer-to-peer crypto exchanges, Iranians were selling BTC for $24,000 a pop – three times more than the global market price. Meanwhile, data from Google Trends also showed that interest in BTC had risen substantially following on from the attack.
On 8 January, Iran subsequently launched missiles towards two air bases in Iraq that housed US and coalition forces, with 34 American troops suffering traumatic brain injuries as a result. Initially, the Pentagon had maintained that nobody was injured. Tehran later admitted that a plane that crashed shortly after take-off from its capital, killing all 176 people on board, had been downed unintentionally by two missiles.
Although a war of words between American and Iranian officials has continued – with one Iranian lawmaker recently claiming there was a $3m reward for anyone who killed President Donald Trump – violent, retaliatory attacks soon started to subside. BTC/USD prices also fell away. So: what does this tell us about investor sentiment surrounding Bitcoin – and is it really “digital gold”?
The Iran-US news is not the first time that BTC has spiked in reaction to some major international developments. Bitcoin was languishing in the mid $3,000s back in March 2019, but its price ballooned throughout the year – and major spikes seemed to be timed with negative developments in the US-China trade war.
It could be argued that Bitcoin’s jump following Maj Gen Soleimani’s death was the result of Iranians seeking a safe haven for their assets, with the country imposing strict capital controls in response to punishing economic sanctions. When it comes to regulation, Iran has something of a muddied approach – although mining coins is legal in certain areas, the country’s government has declared that crypto is not legal tender, with one central bank official warning it is illegal to buy or sell BTC. This helps explain why coins offering anonymity – such as Monero – rose by 33 per cent following America’s drone strike.
There are analysts who believe that BTC is appealing during times of geopolitical uncertainty because of how it is decentralised and free from the control of a sovereign state. However, other experts warn that Bitcoin could become a victim of its own success if it becomes too popular, with countries embarking on a more aggressive clampdown as capital flows out of their economy.
Of course, fleeing to Bitcoin isn’t a perfect solution either. High levels of volatility mean that this “safe haven” could inflict as much damage on an investor’s holdings as the inflationary fiat currencies they are trying to flee.
The new gold?
Certain crypto commentators have drawn parallels between Bitcoin and gold. In decades past, many investors would flock to the precious metal during times of political and economic uncertainty – and now, BTC also seems to be regarded as a store of value in times of distress. Indeed, there are parallels between the two – just like gold is finite in supply, the total number of Bitcoins in circulation will never exceed 21 million.
Economists have pointed to how gold and Bitcoin have moved in similar patterns over the past year – and there have even been campaigns urging investors to drop gold, arguing that cryptocurrency is far more relevant in a digital age.
If Iran-US news begins to flare up again, or other geopolitical dramas begin to come to the fore, we shouldn’t be surprised if Bitcoin experiences another boost. But correlation doesn’t necessarily imply causation – and of course, other factors may be to blame for the cryptocurrency’s sudden swings upwards and downwards. Enthusiasts continue to maintain that BTC can reach $100,000, $500,000 or even $1m in the not-too-distant future – but given how the cryptocurrency is yet to surpass the all-time high of $20,089 seen in December 2019, it might be worth treating such predictions with a healthy dose of scepticism.
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