Middle East geopolitical tensions have hit the crypto market once again. Bitcoin dropped more than 1% to $65,700 on July 22, despite touching an intraday high of $66,886 earlier that day. The pullback was triggered by Trump’s latest post on Truth Social regarding the reignited conflict.
The former US president stated he would destroy an Iranian bridge or power plant for every vessel attacked by the country in the Strait of Hormuz. Targets mentioned by Trump included infrastructure facilities located around the capital, Tehran.
The threat instantly dismantled the peace agreement under the Islamabad Memorandum of Understanding signed just this past June. The accord, originally designed to restore commercial shipping traffic in the waterway, is now effectively gone.
Retaliation in the Middle East
The Iranian government responded immediately, stating it was prepared to retaliate with strikes on regional infrastructure. This threat was underscored by claims that IRGC forces had previously launched missiles at an Amazon data facility in Bahrain.
The conflict expanded further as the Houthi group threatened to blockade the Bab el-Mandeb Strait. As a result of the blockade threat, at least seven major oil tankers were forced to reroute to avoid the conflict zone.
Commodity markets reacted instantly. With 20% of global oil consumption relying on the Strait of Hormuz according to EIA data, oil prices surged to their highest levels since June 11. WTI crude traded at $88.60, while Brent touched $95.50 per barrel.
Rapid Shift in Interest Rate Bets
Rising energy costs have disrupted US inflation expectations, putting downward pressure on Bitcoin prices. Prior to the escalation, headline US CPI had slowed to 3.5% in June from 4.2% in May, which had pushed July rate hike odds down to 10%.
The tide has quickly turned. Market data from CME FedWatch showed the probability of a Fed rate hike at the July 28-29 meeting jumped to 33.7%, up from 25.7% within a single day. Traders on Polymarket even priced in a 65% chance that the central bank will hike rates at least once in 2026.
From a price action perspective, Bitcoin is struggling to weather the sentiment. Daily chart analysis shows the asset remains capped below the Supertrend resistance at $67,303. The RSI sits at 59.36, remaining above its signal average of 53.96. The key deciding support level currently lies at the 78.6% Fibonacci retracement mark of $65,021.
Stock Market Short Squeeze Potential
Additional risk for sellers is emerging from the stock market. The Kobeissi Letter reported that S&P 500 short interest has reached 3.7% of free float - the highest level on record since 2010. The Russell 3000 index also posted a 6.1% short interest, nearing its all-time high.
These elevated short positions open the door to a potential short squeeze that could punish short sellers. For Bitcoin, analyst Ali Charts highlighted the short-term holder realized price at $69,340 as the next key wall. If that level is breached, a swift rally toward $70,000 could follow.
The Middle East conflict and inflation figures will guide crypto price action this week. Market participants are now monitoring not only economic data, but also oil tanker shipping traffic in coastal waters. Reported by crypto.news.
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Disclaimer: This article is for informational and educational purposes only, not financial advice. Cryptocurrency assets are highly volatile and carry significant risk. Always do your own research (DYOR) and never invest more than you can afford to lose.
