Bitcoin’s Surprising Reaction to Trump’s Iran Threats and Rising US Margin Debt

BTC tends to move south after such reports come out, but there’s more to the story now.

Bitcoin recovered most of the losses seen during the day after dipping to $62,400 and is now back above $64,000. What’s intriguing about this rebound is that it came after some unfavorable reports for risk-on assets.

The first one focused on more threatening developments on the US/Israel-Iran war front, while the second was on the continuously growing US margin debt.

Two Major Signals

The tension in the Middle East skyrocketed a couple of weeks ago when the US and Iran broke the ceasefire with new attacks. There’s been little to no reporting on potential peace talks since then. In contrast, Trump’s new attack plan was recently leaked, while a new report from Axios outlined the next possible steps.

The Trump Administration has reportedly conveyed to Israel that it will send ‘dozens more’ refueling planes ahead of a potential ‘massive offense’ against Iran. Some of the more threatening details include possible bombing against key Iranian infrastructure like power plants and nuclear sites.

The report added that the POTUS is expected to order the escalation ‘in the coming days.’ As expected, oil prices reacted with an immediate increase, as USOIL is up by over 20% since the war restarted.

Separately, the Kobeissi Letter noted that the US margin debt has risen by over $86 billion in June to a new record of $1.5 trillion. This marked the third monthly increase in a row. Moreover, the margin debt has skyrocketed by nearly $500 billion in the past year.

The analysts concluded that “US investors have never been more leveraged,” as the broader measure of such positions is up to approximately 1.4% of the S&P’s total market cap. This is close to the 2018 peak and far exceeds the 2000 Dot-Com bubble of 1.1%.

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BTC Rebounds

The primary cryptocurrency tends to slip following similar reports, especially escalations in the Middle East. However, the past few hours have shown a very different reaction. The asset had fallen to a multi-day low of $62,400 before the bulls took charge and helped it recover nearly $2,000.

Nevertheless, bitcoin remains below the recent local peak of $65,600 reached after the US CPI numbers for June came out on Tuesday. The market is still in a fragile place, and it’s unlikely that new attacks between the US and Iran will have a longer-term beneficial effect.