Geopolitics refused to fade this week. What began as a sharp shock has settled into something more uncomfortable: A slow-burning conflict with no clear exit, a Fed boxed in from both sides, and markets that keep trying to rally and keep failing to hold. BTC above USD 70,000 looks calm. The broader picture is anything but.
Macro: Stagflation, Depleted Reserves & A Boxed-In Fed
Two weeks into the Iran war and the market is pricing something more troubling than a temporary supply disruption. Trump briefly gave markets a lifeline on Monday, suggesting the conflict was “almost completely over” – oil pared gains sharply on the headline, equities bounced, and risk sentiment lifted. The optimism was short lived. The subsequent coordinated reserve release (from IEA and US primarily) of 572 million barrels that followed provided some much relief on oil prices but failed to hold them down, and WTI Light Crude is back around USD 96/bbl. The market has learned to fade the noise quickly.
The arithmetic explains why. With the Strait of Hormuz blocking approximately 20 million barrels per day, the 572-million-barrel release covers roughly 29 days of lost flow, most of which has already elapsed. The U.S. domestic portion will drop reserves to their lowest level since the 1980s, with the effective available buffer sitting at less than five days of normal Hormuz flow. Meanwhile Trump has signaled enthusiasm for extending the conflict another three to four weeks.
On the macro side, February CPI printed in line at 0.3% month-on-month and 2.4% year-on-year – a number that in any other environment would have been a relief. Instead it was largely ignored. With sustained oil at current levels, this threatens to push inflation materially higher, simultaneously foreclosing rate cuts and amplifying growth risk. The first fully priced-in cut has been pushed all the way to December. The stagflation trade is no longer a tail scenario. And with sustained oil disruption threatening to keep inflation elevated, the conversation is quietly shifting. Not just toward cuts being off the table, but toward whether the next move for central banks could be higher. Rate hikes are being entertained again. That is a very different world to the one markets were pricing at the start of the year.
Crypto: Holding the Line
BTC near USD 72,000 this morning is a more impressive number than it looks. Two weeks into the Iran war, a stagflation regime taking hold, equities under pressure. BTC is holding firm. Beneath the surface, the picture is nuanced. Funding rates and open interest have seen some modest rebuilding over the past week. OI has ticked higher and funding has managed some positive days – but both remain subdued overall, pointing to cleaner positioning and less crowded longs than we have grown accustomed to.
On the ETF flows side, spot BTC ETFs have accumulated USD 583 million on the week with ETH ETFs telling a more modest story, pulling in just USD 90.7 million over the same period, reflecting the continued preference for the large-cap anchor over secondary exposure. BTC dominance holding above 59% confirming capital is not reaching down the risk curve. Whilst BTC continues to hover around its 50-day moving average, a sustained break above USD 75,000 is needed to attract the next leg of momentum and confirm a genuine breakout rather than a range trade.
Looking Ahead: The Waiting Game
The Iran war will likely keep risk sentiment in check for the time being, and today’s PCE and JOLTS prints will do much of the work in framing where inflation expectations and labor market conditions go from here.
BTC’s higher lows remain the most constructive feature in the current landscape and defensive positioning has paradoxically become a source of support.
We remain cautiously constructive on BTC and selective elsewhere. The market has been defensively positioned throughout this entire episode – and that cuts both ways. Any credible de-escalation signal, however brief, carries meaningful short squeeze potential from here. The pain trade is still higher.
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