Why are Bitcoin and crypto prices going down today?

Bitcoin and most cryptocurrencies retreated on Tuesday as geopolitical risks intensified ahead of the upcoming Federal Reserve interest rate decision.

Bitcoin (BTC) dropped from this week’s high of $108,915 to an intraday low of $105,500. Ethereum (ETH) retreated by over 2.2%, while the total market capitalization of all cryptocurrencies declined to $3.28 trillion.

Additional data shows that crypto liquidations surged by 25% in the past 24 hours to over $359 million. Some of the top laggards were coins like SPX6900 (SPX), Immutable (IMX), Fartcoin (FARTCOIN), Pepe (PEPE), and Worldcoin (WLD).

The ongoing sell-off in the crypto industry mirrored that of the stock market, as the Dow Jones and Nasdaq 100 indices fell by 165 and 100 points, respectively.

Bitcoin and crypto prices fell amid growing fears of a wider war in the Middle East rose. These concerns intensified after Donald Trump urged residents of Tehran to evacuate, signaling that he anticipates further bombing in the coming days.

Fears also escalated after two oil tankers collided and caught fire near the Strait of Hormuz, a critical chokepoint for millions of barrels of oil daily. As a result, crude oil prices rebounded, with Brent and West Texas Intermediate gaining over 2.2%.

The rising concerns about the crisis in the Middle East is a big reversal from Monday’s optimism that pushed crypto prices higher. The optimism was because of media reports that Iran was seeking talks to end the conflict.

Impact of the Middle East crisis on Bitcoin and crypto prices

The escalating crisis is impacting Bitcoin, altcoins, and other risk assets due to its effects on crude oil and inflation.

Crude oil and shipping costs have already jumped in the past few days. Data shows that the World Container Index rose to $3,543, its highest point since January.

Higher energy and transportation costs contribute to rising inflation, which could prevent the Federal Reserve from cutting interest rates as Donald Trump has requested. Historically, crypto prices tend to perform better when the Fed is cutting rates or signaling future cuts.

Still, history shows that Bitcoin and other cryptocurrencies often rebound after major geopolitical or macroeconomic shocks. For instance, in March 2020, Bitcoin plunged from over $10,000 to below $4,000 after COVID was declared a pandemic, only to rally to a record high later that year.

Most recently, Bitcoin dropped to $74,457 in April after the Liberation Day speech and then bounced back to a new record high in May. Bitcoin is also seen as a safe-haven asset, with BlackRock data showing that it outperforms stocks after major events.