TL;DR

BlackRock's iShares Bitcoin Trust (IBIT) shed $527.84 million on Wednesday, the second-largest single-day outflow in the fund's history. JPMorgan analysts say the "debasement trade" that pushed Bitcoin and gold higher through early 2026 is losing steam as investors begin pricing in a potential US-Iran peace deal. That bet looks premature: fresh US-Iran missile exchanges Thursday morning sent Brent crude up 2.1% to $96.29, while Polymarket ceasefire odds for end-of-May fell from a 70% weekend peak to just 8% today. Bitcoin is trading near $72,737, a six-week low, and $897 million in leveraged long positions were liquidated across crypto markets.

What Happened

Two opposing forces are colliding in crypto markets. Some institutional investors are cutting macro hedges. At the same time, the underlying geopolitical risk that justified those hedges is re-escalating.

Wednesday's IBIT outflow of $527.84 million was the second-largest in the fund's history. Combined with outflows across other US spot Bitcoin ETFs, the total for the day reached roughly $733 million, pushing the monthly figure to approximately $2 billion. Ethereum spot ETFs have now logged 11 consecutive days of outflows, totaling $401 million for May.

JPMorgan's research team flagged the trend Thursday morning. The bank said outflows from both Bitcoin and gold ETFs, alongside reduced institutional futures positions, reflect a broad pullback from inflation-hedge strategies. The analysts suggested investors are positioning ahead of an anticipated US-Iran peace agreement.

The situation in the Middle East, however, is deteriorating. US forces struck targets in southern Iran on Thursday. Iran's Revolutionary Guard Corps (IRGC) responded by targeting the American airbase involved and warned that future retaliations would be "more decisive," according to the New York Times. Kuwait intercepted hostile drones and missiles aimed at the five US bases it hosts.

Prediction markets reacted sharply. Polymarket odds of a permanent deal by month-end fell to 8%, down from a 70% peak at the weekend. Kalshi traders are now betting Strait of Hormuz traffic will stay subdued well into next week.

Why Bitcoin Is Not Following the Ceasefire Rally

Earlier Thursday, negotiators reported reaching a 60-day ceasefire framework that is awaiting White House approval. Equity markets responded positively, with the S&P 500 and Nasdaq holding near record levels. Crypto markets largely did not follow.

Several factors explain the divergence. Institutional demand is shifting: the same funds that bought Bitcoin as an inflation hedge are trimming positions on the assumption that a deal will ease energy prices and reduce inflation risk. That rotation is happening now, ahead of any official confirmation.

A technical and liquidity headwind is adding pressure. A US Treasury debt management operation running from May 28 through June 5 is expected to drain roughly $150 billion from the financial system. Tight liquidity conditions weigh on risk assets broadly, and crypto is among the most sensitive.

The technical picture has also deteriorated. Bitcoin has broken below its 50-day and 100-day moving averages. A rising wedge structure that held since April has resolved to the downside. Wednesday's mass liquidation of $897 million in leveraged longs cleared overleveraged positioning but leaves the market vulnerable if selling continues.

As covered in our earlier analysis of April's PCE inflation data, the energy price surge from the Hormuz blockade has pushed headline PCE to a three-year high of 3.8%. That data, combined with the ongoing conflict, gives the Federal Reserve limited room to ease policy. Reduced rate-cut expectations remove one of Bitcoin's key tailwinds from earlier this year.

In ChartDojo's review of trader behavior during comparable geopolitical macro shocks, the pattern holds: impulsive entries near the lows of a liquidation flush rarely hold. Traders who waited for institutional flow confirmation, specifically a reversal in ETF inflows, consistently captured cleaner setups.

Implications for Traders

Crypto and Bitcoin traders: The ETF outflow data is the clearest signal of institutional conviction right now. A second consecutive day of large outflows, with BlackRock as the primary source, carries more weight than generic macro weakness. The next meaningful support zone for BTC sits in the $68,000 to $70,000 range. A recovery above $75,000 would be the first credible signal of renewed buying interest.

Equities traders: The decoupling between stocks and crypto reflects different exposure profiles. Equities are benefiting from strong earnings momentum and the hope of lower energy costs from a peace agreement. Watch whether the Nasdaq can hold record territory if Brent stays above $95 per barrel into next week.

Oil and futures traders: The conflict-driven premium remains sticky. Brent crude advanced 2.1% to $96.29 Thursday, with analysts at Investec warning that confidence in a permanent resolution, not just a temporary truce, is required before oil retreats meaningfully. WTI is back above $90 per barrel.

Potential Positives vs Negatives

Positives: A credible, confirmed peace deal would reverse the institutional positioning shift quickly. Bitcoin's on-chain data shows long-term holders are accumulating, not selling. A genuine de-escalation could bring ETF inflows back in force and push BTC above $77,000. Lower energy costs would also ease PCE pressure and revive Fed rate-cut expectations, adding a broader tailwind for risk assets.

Negatives: The $150 billion liquidity drain arriving alongside deteriorating technicals creates compounded downside risk. If outflows continue at Wednesday's pace for another 48-72 hours, the $68,000 to $70,000 support zone comes into play. Ethereum's 11-day outflow streak raises questions about institutional conviction in the broader crypto market, not just Bitcoin.

What Could Happen from Here

Base case: BTC holds in the $70,000 to $74,000 range over the next 48-72 hours. ETF outflows moderate as the Treasury operation is priced in. Ceasefire talks continue without a firm announcement. Oil stays in the $90-$97 range. Confirmation: daily ETF flow data stabilizes below $200 million in net outflows.

Upside scenario: A signed ceasefire framework with a confirmed Hormuz reopening timeline triggers a sharp reversal. Institutional macro funds rebuild positions, inflows return to spot ETFs, and BTC reclaims $75,000 to $77,000 within 72 hours. Confirmation: Polymarket ceasefire-by-June odds rise above 60%, oil pulls back below $85.

Downside scenario: The IRGC escalation widens the conflict. Additional US bases are targeted, fresh Hormuz disruption reports emerge, and oil spikes above $100 per barrel. The $150 billion liquidity drain amplifies Bitcoin selling toward the $68,000 to $70,000 support zone. Confirmation: Polymarket end-of-May odds fall below 5%, confirmed new vessel incidents in the strait.

What to Watch Next

  • Daily spot Bitcoin and Ethereum ETF flow data, published after US market close
  • Any White House or Iranian government statement on ceasefire terms
  • Brent crude settlement; a close above $97 signals market pricing of a prolonged conflict
  • Polymarket and Kalshi ceasefire probability markets as real-time confirmation signals
  • Federal Reserve speakers addressing whether energy-driven PCE changes the rate outlook

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Sources

Header image source: wikimedia by Steve Jurvetson from Los Altos, USA. License: CC BY 2.0.