Worldwide financial markets were thrown into chaos after tensions in the Middle East escalated dramatically, as Israel directed a large-scale military operation aimed at Iran.

The Iranian nuclear program and military targets were the focus of an apparent attempt to “eliminate the Iranian nuclear threat” that involved dozens of Israeli Air Force strikes, coordinated with ground assaults by elite infantry units. The operation’s results are hard to judge, as the press has been aiming mostly at shielded targets: among those hit in Iran’s chaos were forces in the IRGC, the senior commander of which, Hossein Salami, is apparently a casualty of the operation.

The attack, which startled the markets, is now sending shockwaves through the geopolitical and financial landscapes. Israel’s offensive posture toward Iran is now one of the most substantial escalations we’ve seen in recent years, and all attention is fixated on how Iran is going to respond. That response, which we may well see in the next few days, is a factor likely to determine the direction of both regional stability and the stability of global asset prices.

Crypto Market in Freefall: Over $1 Billion in Liquidations

One of the most immediate casualties of the geopolitical fallout was the cryptocurrency market, which saw a sharp and sudden sell-off as investors rushed for the exits. Bitcoin (BTC) shed about 3%, while Ethereum (ETH) took a much worse beating, falling around 9% at its intraday low. Market anxiety was bubbling over, as evidenced by Bitcoin’s 2% drop and Ethereum’s 4.4% plunge within just an hour of the announcement that Israel had struck Hamas.

As per data from CoinGlass, the 24 hours subsequent to the strike experienced an unparalleled $1.019 billion in crypto liquidations. This event took place across numerous centralized exchanges and effectively wiped out positions for seemingly around 215,000 traders. Most of these traders had seemingly been using the 24-hour period prior to the strike to set up long positions on exchange because approximately $945 million of the liquidated positions were long bets.

The most significant liquidation happened on Binance, where a long position in the BTC/USDT pair was closed for an astonishing $201 million, making it one of the largest sell-offs forced by market conditions in recent cryptocurrency trading history.

In a marketplace routinely characterized as unstable, even in ordinary conditions, the response was immediate and harsh. Market participants hurried to insulate themselves from potential losses or to cut back on borrowed money they were using to invest, with both the options marketplaces and the recent surge in sold-short investments across various digital currencies showing an increased appetite for loss-limiting trades.

Oil Surges While Capital Markets Stagger

In addition to the world of cryptocurrency, traditional markets also reacted to the quickly developing situation. Oil prices not only didn’t go down, they surged upward, with Brent crude at one point vaulting by as much as 11%. That increase reflected supply concerns, with traders fearful that the situation could escalate, and that a wider regional conflict might affect major supply routes or critical energy corridors like the Strait of Hormuz.

The risk asset class, which includes equities and crypto, shows marked weakness that stands in stark contrast to the surge in oil prices. Despite a mixed and somewhat nervous reaction from the world’s stock markets, the dominant sentiment seems to be one of renewed caution. Given what’s unfolding, is it any wonder? Gold, a slightly more liquid safe-haven asset, saw some modest inflows on Friday as did the U.S. dollar. The volatility index (VIX), also known as the fear index, registered an uptick.

The direct effect was sensed throughout the capital markets, but while stocks fluctuated, they did so for a much shorter period than the crypto market, which has been under sustained pressure ever since the announcement.

Currently, those who are in the market are keeping a close watch on any formal replies issuing from Iran. If Tehran were to lash out and do so in kind, it could well provoke a fresh wave of volatility across many markets in the event that they were to retaliate militarily or target Israel or its allies. On the other hand, if Iran could somehow keep a lid on such things, a restrained response might soothe investor nerves and help stabilize risk assets.

Looking Ahead: A Market on Edge

The intertwining of global markets with geopolitical developments has never been so apparent as now. Information travels at the speed of light in today’s world, and in a nanosecond, the markets will have reacted to whatever is happening, for good or ill. What bases can we count on when it seems that both traditional asset classes and decentralized ones like cryptocurrencies are vulnerable to the specter of war?

The implications of Israel’s recent advance for markets are quite clear: even more volatility seems to be on the way. And if the last few days of trading are any indication, the stakes—and the possible payoffs—appear to be rising considerably. Here’s why: traders, institutions, and policymakers are trying to get their heads around what’s really gone down and what it all means.

Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.

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