The Variations of War and Currency: Virtual Currency's New Coordinates in Global Turmoil

In the first week of March 2026, the smoke from the Strait of Hormuz and the alarms at Tehran's nuclear facilities together compose a variation in the global capital markets. Crude oil prices broke through $85, the US dollar index rose above 108, and gold hovered around the $2150 mark—while Bitcoin, a digital asset born from the aftermath of the financial crisis, is undergoing an unprecedented repositioning amid this geopolitical storm.

War and peace, inflation and recession, easing and tightening—these intertwined macro contradictions have pushed virtual currencies to a crossroads: Are they merely amplifiers of risk sentiment, or new anchors of value? As traditional assets seek direction amid the flames of war, Bitcoin and the encrypted world behind it are providing their own answers.

1. The Shockwave of the Strait of Hormuz

On March 2, a statement from a senior advisor to the Iranian Revolutionary Guard made the Strait of Hormuz a focal point of global attention. "The strait has been closed; we will strike all ships attempting passage." This was not just diplomatic rhetoric but a direct threat to the heart of global energy.

Eight days later, the situation has not eased but evolved from a "lightning war" to a "war of attrition":

Physical blockade at sea. Satellite images show that over 150 ships are stranded around the strait, including 120 oil tankers. Major shipping companies worldwide have suspended new bookings passing through the strait and are levying war risk surcharges. Freight rates on the Eurasian route increased by 15% in a single week, European natural gas prices surged by 8%, and rising aviation fuel costs are beginning to pass through to ticket prices. This is a slow-spreading supply chain crisis, with impacts extending from energy to broader economic levels.

Approaching nuclear thresholds. The latest IAEA report confirms Iran has injected uranium gas into thousands of new centrifuges, enriching uranium to nearly 60%, just a step away from weapons-grade. IAEA Director-General warns that "the window for diplomatic resolution is closing." The rising nuclear risk subtly shifts the nature of this conflict—from regional military confrontation to a strategic crisis that could undermine the global non-proliferation system.

U.S. dual response. Militarily, the USS *Truman* carrier strike group has entered the Gulf of Oman, with F-35C stealth fighters in position; financially, the White House is drafting an emergency supplemental budget of $50-80 billion. The increase in war expenditures means further expansion of the U.S. fiscal deficit and lays the groundwork for future inflation.

The shockwave from the Strait of Hormuz is reshaping global asset pricing logic through three channels: energy prices, inflation expectations, and risk aversion sentiment.

2. The Macro Puzzle: The Triple Play of the Dollar, Inflation, and the Fed

The Double Face of a Strong Dollar

The dollar index broke through 108, reaching a new high since November last year. Behind this trend is a resonance between geopolitical tensions and monetary policy expectations: on one hand, war fears drive safe-haven capital into the U.S.; on the other, the Eurozone economy remains weak, and the Bank of Japan stays on hold, making other major currencies relatively weaker.

For cryptocurrencies, the impact of a strong dollar is complex and contradictory:

In the short term, a stronger dollar means tighter global dollar liquidity, putting pressure on risk assets. The negative correlation between Bitcoin and the dollar index reached -0.45 in February, a new high for this cycle. When the dollar appreciates, Bitcoin priced in dollars often faces downward pressure.

But from a long-term perspective, the dollar's strength may be unsustainable. High fiscal deficits, persistent trade deficits, and the long-term trend of de-dollarization will eventually weaken the dollar's dominance. Some analysts note, "The deeper the U.S. involvement in Iran, the greater the likelihood of the printing press running full tilt. When the Fed is forced to pay for war, the true bull market for Bitcoin will arrive."

Structural Divergence in Inflation Expectations

Rising oil prices are reshaping inflation expectations. The 5-year breakeven inflation rate in the U.S. has risen to 2.65%, up 20 basis points from before the conflict.

Interestingly, this round of inflation expectations differs fundamentally from the broad inflation of 2022:

Structural vs. comprehensive—currently, price increases are mainly concentrated in energy and commodities, with relatively moderate pressure on core goods and services. This suggests the Fed may adopt a "selective tolerance" rather than a blanket tightening.

Supply shocks vs. demand-driven inflation—geopolitical conflicts causing supply shocks differ fundamentally from the demand-pull inflation triggered by fiscal stimulus in 2021-2022. Supply shocks are harder to mitigate with monetary policy but are more likely to trigger stagflation—slower economic growth combined with inflation. This macro environment challenges traditional asset valuation models but may create unique opportunities for virtual currencies.

The Swings in Rate Cut Expectations

Market expectations for the Fed to cut rates within the year are subtly shifting. Federal funds futures show traders now expect a 58% chance of a rate cut in June, down from 75% before the conflict; the total expected rate cuts for the year have been lowered from three to two.

This change exerts a dual pressure on cryptocurrencies: on one hand, high interest rates suppress risk asset valuations; on the other, delayed rate cuts mean the anticipated liquidity easing may not materialize.

However, macro logic is never purely linear. If the war significantly increases recession risks, the Fed might be forced to cut rates earlier—this "stagflation + easing" combination is theoretically most favorable for non-sovereign currencies like gold and Bitcoin. This is the core contradiction in the current market: traders worry about inflation forcing the Fed to tighten, yet also fear recession prompting easing, with expectations oscillating and causing asset prices to fluctuate wildly.

3. The Performance of Virtual Currencies in Wartime: Data and Insights

Volatility and Divergence

Reviewing asset performance since the outbreak of this conflict, the evolution of virtual currencies' positioning is clear:

Bitcoin fell from $68,000 to $65,800, a 3.2% decline. During this period, it touched a low of $63,000 and a high of $70,500, with an 11.9% amplitude. This volatility far exceeds that of the S&P 500 (about 3.5% in the same period), but has begun to converge compared to historical levels—during the March 2020 pandemic shock, Bitcoin's weekly volatility once exceeded 50%.

Ethereum dropped from $3400 to $3200, a 5.9% decline, underperforming Bitcoin. This continues the trend since 2025: during uncertain market periods, capital tends to concentrate in leading assets.

Mainstream altcoins generally declined between 10% and 20%, showing higher beta, while tokens related to energy and commodities held up better, reflecting a market focus on "physical anchoring."

The Reality Check of the "Digital Gold" Narrative

In this conflict, Bitcoin and gold diverged again, reigniting discussions about Bitcoin's "digital gold" positioning. Spot gold rose 3.2% during the same period, reaching a high of $2150, demonstrating classic safe-haven attributes. Bitcoin's decline seems to confirm its more risk-oriented nature.

However, this simple comparison may obscure more complex truths:

Time dimension differences—gold market participants are mainly institutions, central banks, and long-term allocators, leading to relatively stable price discovery. Bitcoin markets, with 24/7 trading, a high proportion of retail investors, and active leverage, tend to overreact to short-term shocks. Comparing Bitcoin's immediate reactions to gold's smoother movements is not entirely fair.

Liquidity mechanism differences—during panic, Bitcoin often acts as a "cash machine": investors sell liquid assets to raise cash rather than buy new safe havens. This was evident in Bitcoin's weekend crash on March 2, when traditional markets were closed, and cryptocurrencies became the only tradable liquidity asset, absorbing all selling pressure. Once traditional markets reopen, genuine safe-haven demand begins to emerge, and Bitcoin may stabilize.

Holding structure differences—goldholders are mainly central banks and long-term investors, whose behavior is relatively stable. Bitcoin holders include a higher proportion of short-term traders and leveraged speculators, leading to overreactions to news. But with the proliferation of spot ETFs, institutional holdings are increasing—since the launch of the U.S. spot Bitcoin ETF, net inflows have exceeded $20 billion, which could alter Bitcoin's volatility profile in the future.

On-Chain Data and Market Sentiment

On-chain data offers another dimension to observe market sentiment:

The number of whale addresses (holding over 1000 BTC) increased by 2.3% during the conflict, reaching a three-month high. This indicates large holders are accumulating during the decline, contrasting with retail panic selling.

Exchange net flows show that initially, during the outbreak, about 45,000 BTC flowed into exchanges, indicating some investors were exiting. But in the following days, net flows turned negative, and current levels have mostly returned to pre-conflict levels.

Analysis of holding durations shows short-term holders (less than 155 days) were the main sellers, with spent output profit ratios dropping to 0.98, indicating these groups sold at a loss. Long-term holders (more than 155 days) remained relatively stable, showing stronger confidence.

These data sketch a fragmented market picture: retail investors retreat in panic, while institutions and large holders buy the dip; short-term funds chase trends, long-term funds anchor on value. This split precisely indicates that Bitcoin is in a transition from a "retail speculative asset" to an "institutional allocation asset," accelerated by the war shock.