With the escalation of the Middle East situation, traders are quickly unwinding leverage.
Bitcoin briefly fell to a two-month low and has since seen a slight rebound.
In the past 24 hours, $420 million worth of positions were liquidated.
On Monday, in response to the sudden shift in the Middle East situation, traders rushed to "pull the escape rope" and unwind leveraged positions. The U.S. airstrikes on Iranian military facilities over the weekend caused a significant pullback in the cryptocurrency market, leading Bitcoin to briefly drop below $100,000, then rebound slightly to $102,000.
According to CryptoQuant data, when Bitcoin fell to its two-month low, the estimated leverage ratio (ELR) also experienced a sharp drop. ELR measures how much leverage traders are using relative to the Bitcoin held by the exchanges. It serves as an indicator of market risk appetite, and the steep drop reflects large-scale risk-averse behavior.
In other words, traders are actively unwinding high-leverage positions, or they are being liquidated. Coinglass data shows that over $420 million in positions were liquidated in the past 24 hours, with more than two-thirds being long positions. This large-scale risk-averse behavior indicates that traders are more cautious about market fluctuations and prefer to exit the market rather than bet on a quick Bitcoin rebound.
However, what’s interesting is that this phenomenon contradicts the common belief among Bitcoin supporters that it serves as a hedge against geopolitical shocks. Currently, some traders are even building short positions on Bitcoin in the options market, betting that it might drop to $95,000 this week. On Polymarket’s crypto market predictions, investors are similarly pessimistic about Bitcoin’s near-term performance. In just one week, the market’s expectation of Bitcoin reaching a new high in July has dropped sharply from 70% to 10%.
The current pessimism may be more of an overreaction than a complete loss of confidence. BitMEX co-founder Arthur Hayes stated that Bitcoin’s weakness is only temporary, and he still expects Bitcoin to reach $250,000 this year.
While Bitcoin has rebounded, the market situation remains uncertain if the Middle East situation continues to deteriorate.
Jonathan de Wet, Chief Investment Officer at digital asset trading firm Zerocap, said in an email: "Today and this week’s potential variable is the Strait of Hormuz, a critical passage for about 20% of global oil shipments. If Iran blocks this passage, it could become a new test for Bitcoin's ‘safe-haven property.’"