TL;DR

Bitcoin broke below $73,000 early Thursday after fresh US strikes on an Iranian military site near the Strait of Hormuz sparked broad risk-off selling. Nearly $1 billion in leveraged crypto positions were liquidated in 24 hours, with 93 percent of them long bets, with Bitcoin and Ether leading the losses. With spot ETF demand already weakening and the Federal Reserve signaling it may raise rates, the downside pressure now has multiple reinforcing inputs.

Bitcoin Liquidations: What Happened

US forces carried out overnight strikes on a military site near Bandar Abbas, a strategic Iranian port city adjacent to the Strait of Hormuz, according to Reuters and CNBC. Iran's Islamic Revolutionary Guard Corps (IRGC) responded by claiming it had targeted a US airbase, and Kuwait's military reported its air defenses were intercepting "hostile" drones and missiles in the early hours of Thursday local time.

The news hit crypto markets at approximately 4:25 a.m. UTC on May 28. Bitcoin, which had been trading near $76,000 to $77,000 following an earlier escalation reported earlier Thursday, dropped through $73,000 as the full scope of the new strikes became clear. CoinDesk reported nearly $1 billion in total crypto liquidations within a 24-hour window, with long positions accounting for 93 percent of the total wipeout. Ether and most major altcoins followed Bitcoin lower.

Why Crypto Markets Moved

The Strait of Hormuz has been the central fault line in this conflict since it began in late February 2026. Roughly 25 percent of the world's seaborne oil and 20 percent of global LNG supply transits the strait. Any escalation that threatens that corridor triggers a reflex across risk assets: energy prices move higher, and crypto and equities face selling pressure as traders reduce exposure to growth-sensitive bets.

The crypto sell-off has a specific structure worth examining. When macro uncertainty spikes, leveraged long positions built during calmer periods face forced liquidation. The 93 percent long-side weighting in this round points to a market that was positioned for recovery rather than retreat. That positioning makes drawdowns faster and steeper when geopolitical shocks arrive suddenly.

The Federal Reserve backdrop is also turning harder. Minneapolis Fed President Neel Kashkari said Wednesday that fighting inflation remains the top priority, while Chicago Fed President Austan Goolsbee flagged that energy inflation tied to the Iran conflict has been "more persistent than expected." Goolsbee had earlier raised the prospect of a stagflation-like shock reaching Asian markets. Higher-for-longer rates reduce liquidity and make yield-bearing assets more competitive versus speculative investments like crypto.

Separately, data from Swissblock shows US spot Bitcoin ETFs have accumulated a net 4,500 BTC since the start of 2026, with May reversing the buying pattern built through March and April. That ETF demand softening and a move of Bitcoin's selling-pressure gauge into a high-risk zone were already flagged before this escalation hit. The Iran strikes appear to have accelerated institutional outflows.

Implications for Traders

In tracking user trade reviews on chartdojo.io, entries made near macro shock events without a defined risk level are among the most common source of avoidable losses. The pattern below reflects exactly the kind of setup that benefits from a clear pre-planned response rather than reactive decision-making.

Crypto spot traders: Bitcoin is testing its lowest level in recent weeks and sits closer to the $63,000 trough recorded at the February 28 start of the conflict than to its recent high above $77,000. A confirmed break below $73,000 on volume raises $70,000 as the next area of interest.

Crypto derivatives traders: The one-sided long book has been partially cleared by forced selling, but that does not mean the market returns to neutral quickly. Sustained geopolitical pressure tends to rebuild a cautious short lean and reduce the appetite for new speculative longs until a credible de-escalation signal appears.

Multi-asset and futures traders: Oil is moving in the opposite direction: Brent crude is up to approximately $96 per barrel, with WTI near $90. US Treasuries are under pressure as well, with Bloomberg noting yields are resuming their climb as the strikes push energy prices higher. This is a classic stagflationary combination: energy up, rate expectations higher, risk assets down.

Potential Positives vs Negatives

Positives:

  • The $1 billion liquidation flush clears out a large portion of overleveraged long positions, which can reduce the fuel for further forced selling once the cascade completes.
  • Washington and Tehran are reportedly still in negotiations. Citi noted earlier this week that markets had been "pricing out worst-case supply disruption scenarios." A credible diplomatic step forward would reverse much of this move quickly.
  • Bitcoin has shown resilience across earlier rounds of Iran-linked selling in this cycle; the drop to $63K in late February was followed by a recovery toward $77K as peace-deal optimism grew through March and April.

Negatives:

  • The Fed has shifted from pricing rate cuts to pricing rate hikes in some scenarios, a structural headwind for crypto that exists independent of the geopolitical situation.
  • Each major escalation in this conflict has reset Bitcoin's floor lower. The pattern of partial recovery followed by a deeper drawdown on the next strike wave is now three rounds old.
  • LNG freight is surging and US gas buyers are canceling cargoes, per Bloomberg. That suggests energy-market disruption is widening beyond oil, keeping inflation pressure elevated for longer.
  • Kuwait's air defense activation marks a geographic widening of the conflict that markets had not priced in before Wednesday night.

What Could Happen from Here

Base case (50%): The escalation-and-negotiate cycle continues at a measured pace. Bitcoin holds between $70,000 and $75,000 over the next 48 to 72 hours as the shock is absorbed. Oil stays in the $93 to $98 range. ETF outflows slow. Confirmed by: no major new military action, diplomatic contacts continue at working level. Invalidated by: another large strike wave within 12 hours.

Upside case (25%): A ceasefire announcement or a credible Strait of Hormuz reopening timeline emerges from ongoing talks. Bitcoin recovers toward $77,000 to $80,000, replicating the post-escalation recovery seen earlier in this cycle. Oil pulls back toward $85 to $88. Confirmed by: joint statement from US and Iranian officials, verified by Reuters or AP. Invalidated by: fresh strikes within the next 24 hours.

Downside case (25%): Kuwait's activation signals broader regional spillover. Iran disrupts Strait transit more aggressively, oil pushes above $100, and Bitcoin breaks through $70,000 toward the $63,000 to $65,000 range seen at the war's start. Confirmed by: Hormuz shipping halted by IRGC action, other Gulf nations drawing in, or a Fed official explicitly endorsing a June rate hike. Invalidated by: diplomatic de-escalation confirmed within 24 hours.

What to Watch Next (Next 24 Hours)

  • Any statement from Washington or Tehran on ceasefire talks or resumed diplomatic contact
  • Strait of Hormuz shipping data; Reuters reported three oil and LNG tankers already exiting with transponders off; further disappearances would signal acute disruption
  • Bitcoin spot ETF flow data for Thursday; outflows above $200 million in a single session would confirm institutional de-risking beyond the retail liquidation already seen
  • Fed speaker schedule; any commentary framing June as a live meeting for rate action
  • Brent crude relative to $100 per barrel, the threshold likely to amplify inflationary headlines and accelerate risk-off flows

Frequently Asked Questions

Why does a Middle East conflict cause Bitcoin to fall?
Bitcoin trades as a risk asset during macro-driven sell-offs rather than as a safe haven. When geopolitical shocks force broad exposure reduction, leveraged crypto positions are among the first to be cut. The speed of crypto markets also makes them a fast-reacting barometer for sentiment shifts before traditional markets open.

What is a liquidation cascade and why does it matter for crypto traders?
In crypto derivatives markets, traders can borrow to amplify their bets. When prices fall far enough to breach a position's loss limit, the exchange automatically closes it, a process called a liquidation. When many longs are liquidated simultaneously, the forced selling pushes prices lower, which triggers more liquidations. The $1 billion figure here, with 93 percent in long positions, shows a market that was positioned bullishly heading into this escalation.

Sources

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Header image source: pexels by David McBee. License: PEXELS.