Cryptocurrency is selling a geopolitical conflict narrative

World War III? The deepening conflict in the Middle East this weekend has traders worried that the world is on the brink of World War III. Should you buy the dip?

Iran said on Friday it would carry out "precision" strikes against Israel in retaliation for an April 1 Israeli airstrike on its consulate in Damascus that killed seven senior Iranian military commanders. On Saturday, Iran launched more than 300 drones and ballistic missiles at Israel (Israel claimed to have intercepted 99% of them).

Markets were hit hard during Friday's trading session as the war escalated, with a sell-off that sent bitcoin prices to $60,000, down 16% from Monday's local high.

While Bitcoin has managed to hold onto its $60k range low, altcoins have not been so lucky, finding themselves victims of indiscriminate selling that has seen prices fall back to levels that many would have considered unthinkable the day before; ETH fell below $3,000 for the first time since February, while SOL dropped to $120 to retest 2023 highs.

Cryptocurrency prices bottomed out within an hour of the attack and began a recovery process around 6 p.m. ET on Saturday after Iran’s UN mission tweeted that they considered the matter “closed,” prompting a rally throughout the rest of the weekend.

Historically, buying the dips following sudden geopolitical conflicts has proven to be a winning strategy, but it is unclear whether the looming war is the only downside catalyst or whether the worst of this particular conflict is over.

Equity funds experienced outflows of nearly $20 billion and were heavily sold off last week, suggesting that market participants may be aware of other risk factors. Although risks rebounded at the open on Monday, the broad-based S&P 500 opened in the green above Friday's close, with asset prices plunging throughout the trading session.

Israeli authorities have now pledged some form of response to Iran, and while the United States and other allies have urged caution to prevent escalation and are currently reluctant to participate in any offensive attacks, the situation is likely to continue to deteriorate.