Crypto in Crisis: How Geopolitics is Reshaping Bitcoin and Stablecoin Markets

In New York Morning Trade, we are looking at the crypto majors lower with Bitcoin holding below the 70,000 level.

Now, the escalating crisis in the Middle East is doing more than just reshaping geopolitics.

Now, new analysis reveals that crypto markets have split into two parallel realities during the conflict.

At the institutional macro layer, Bitcoin is behaving strictly as a risk asset, tied to institutional risk budgets through ETFs.

Bitcoin did sell off alongside equities as geopolitical stress triggered a major risk-off environment.

But there is also a second vital story unfolding on the ground.

At the regional on-chain layer, stablecoins have become the functional currency for countries that are grappling with war sanctions and also economic collapse.

So from huge inflows in Lebanon and Turkey to state-level sanctions evasion by Iran, crypto is stepping in where traditional financial systems have broken down.

Joining us this morning to break down these shifting market dynamics as well as investor behavior is Dushyant Shahrawat, Senior Analyst of Crypto Market Structure at Bloomberg Intelligence.

Deshant, great to have you here.

Thank you so much for joining me.

Thank you very much, Remy, for having me and for having Bloomberg.

Well, we are keeping a close eye on all asset classes given the volatility, especially given the Mideast conflict.

So first and foremost, what do you make of what we're seeing in crypto right now?

So it's a tale of two stories.

One, what's going on with the large majors.

So Bitcoin has had somewhat of a comeback in the last couple of weeks.

But I think the bigger, longer story has been that Bitcoin, as you said in the opening remarks, has stopped acting as a safe haven asset.

So the low correlations that we saw many years ago have now replaced correlations up to like 0.55, 0.56.

It hit 0.6 a couple of months ago, a couple of weeks ago, actually.

So Bitcoin is no longer acting as a safe haven asset.

Some of that is because of institutional involvement in that space.

Ironically, that we thought would bring stability, which to some extent it has, but it's also changed the complexion of how Bitcoin tends to operate in stress-like situations like these in the Middle East.

But there's a whole lot that's happening on the other side that is non-token related in terms of blockchain as an infrastructure on which tokenization and stablecoin and all of that stuff is being built.

So I think the picture is very different than it was, you know, three, four years ago when it was a very retail driven market.

Now it's much more of an institutional driven market and hopefully we could talk a little bit about the research we're doing about how particularly the Middle East and Africa, the nature of investment or the investors that are operating in Bitcoin are quite different than other regions.

Yeah.

And speaking of which, there are many layers to the story.

So I do want to start out by talking about the narrative behind Bitcoin.

And you are joining us less than 24 hours after the Fed meeting.

And we did get an unchanged rate decision.

But at the same time, we heard from Powell.

And it is hard to separate politics, geopolitics from what is happening across the markets.

So first, what did you make of the comments and how does it affect the macro outlook?

So I'm not an economist.

I'm here representing Bloomberg's perspective on what's going on in the crypto and blockchain space.

So I'm not probably the best person to talk about what the impact of the public comments are going to be on the economy.

But I will say when it comes to my sector, which I'm covering right now, I'm a traditional finance person for the last five years, pretty active in this space.

So I think overall, you know, there's a high chance that interest rates do not get cut. in June.

In fact, there's talk that maybe interest rates are risen.

I mean, that's not an official statement.

I'm just saying, you know, my comment.

But overall, what it means, particularly of the crypto universe, crypto sector is it's less driven by, you know, what or it's equally driven by what Bob Powell is saying, but also what's generally happening in geopolitics, macroeconomic environment, what's happening in the Middle East.

Those tend to be very big factors impacting the price of crypto tokens in the next couple of years.

And of course, I do want to get your take on Stablecoin.

So what is its role right now?

And what is the geopolitical situation actually telling you when you're looking at the data?

Yeah.

So actually again you know I'll talk about what's happening in the Middle East because it's very topical right.

I mean stable coins really have come into their own over the last couple of years.

We all know that.

We saw the massive IPO of Circle last year.

What happened in the Middle East has been very interesting because it's demonstrated how stable coins have played a very big role across the region when it comes to Iran. which has been using Bitcoin and crypto rails to bypass US sanctions, Western sanctions.

They have pushed a lot of money.

The IRGC converted about five to six hundred million dollars of real into USDT, Tether, on the Tron chain.

So there are countries like Iran that have used the crypto rails as a way to bypass sanctions.

On the flip side, there are countries like Lebanon, which unfortunately are caught in the quagmire.

And the entire traditional banking system, the payment system is shut down.

And while the traditional banking system and the traditional payment rails have been shut down, crypto and stable coins in particular are stepping in.

People are paying groceries with stable coins, remittances from all the Lebanese folks that live all over the world, remittances coming back in stable coins.

Turkey has made $136 billion of Turkish Lira have been transferred into USDT over the last 12 months with pressure on the Turkish Lira.

So across the Middle East, when you see all of this stuff happening for good, bad and sometimes for worse, Countries, state actors, and individual citizens are using stablecoins as a way to get past whatever's happening with their own local currencies.

So it's a mixed bag, but it's net-net, it's about greater usage of stablecoins.

Yeah, and you bring up an important point because you and I were here at the New York Stock Exchange in the United States, in North America, and oftentimes the conversation in the U.S. when we're talking about use cases is quite different from the necessity in other economies, as you highlighted, given the conflict in the Middle East.

So when it comes to what you're seeing below the surface, especially when it comes to Lebanon, give us an overview and what are the key takeaways?

Well, you mean in terms of the U.S. or what's happening in the Middle East?

In Lebanon.

Well, in Lebanon, actually, like I said, it's a perfect case study of how blockchain and crypto rails can step in, as I said, when traditional banking and payments, you know, do not work.

And the Lebanon is just an extreme case of that.

But, you know, completely opposite when February 28th, when, you know, Israel and U.S. attack Iran, it happens on a Saturday, oil markets are closed, and NYMEX is closed, the world's largest crude exchange operator.

And in the decentralized finance space, suddenly on hyperliquid, oil futures start spiking.

That's the only place, because in hyperliquid, decentralized finance doesn't sleep open 24-7, 365.

And the oil contracts went up from the average trading volumes of about $20 million, and that weekend it became to $1.3 billion.

So that's an example of decentralized finance and blockchain infrastructure that never sleeps.

When New York Stock Exchange is closed, there are still decentralized finance exchanges where market operators can hedge risks, speculate, and do other things.

So all of that is very important.

Coming back to the States, I think one thing I did want to mention, it's not directly Related to macroeconomics, but yesterday or this week actually was a very important announcement by Paul Atkins the SEC chair along with CFTC finally clarifying the rules around You know cryptocurrencies and what our tokens and that was an absolute landmark You know direction of travel and it clarifies a lot of the stuff that was very ambiguous over the last couple of years so that augurs very well for stablecoin usage as a settlement currency for happens with things like tokenization.

We are here talking about the New York Stock Exchange.

I would not have thought that two years ago we'd be sitting in the New York Stock Exchange talking about tokenizing stocks, but here we are.

Yeah, and you mentioned what we heard out of the SEC, and of course we are looking for even more clarity.

So as we head into the rest of 2026, we'll see what comes out of the nation's capital.

But before we move away from the Middle East, I want to get your take on the UAE, in particular Dubai, as a financial conduit.

So tell us what's actually happening when it comes to on-chain activity.

Sure.

So you know UAE as we all know over the last five years has done a stellar job like Singapore has in terms of first of all getting the attention on what's going on in the crypto space.

In the U.S. when we had a tougher SEC administration under the Biden administration around what was going on in the crypto space lots of lawsuits filed there.

There was some amount of ambiguity in terms of what the regulatory rails were.

Jurisdictions like Dubai, Vera, created a very clear guideline in what was okay and not okay when it came to crypto and Bitcoin and all of that, you know, blockchain-based activity.

That meant that a lot of market makers, exchanges, folks like crypto exchanges like Deribit, now part of Coinbase, went and headquartered there.

There's obviously a lot of capital, so Dubai and UAE created this very solid environment, regulatory environment, clarity of environment that attracted a lot of capital.

And a lot of firms building product in the blockchain space.

Like I said up front that this infrastructure crypto blockchain infrastructure can be used for the good.

It can also be used for bad.

So there was a lot of sanctioned countries like Iran actually pushing activity through to Dubai.

Now that was not. you know, that's not supported by the Dubai government by any means.

In fact, they've tried their best to make sure that they are complying with all international law.

But having said that, Dubai was used as a way for particularly the Iranians to push Iranian Riyal, convert that into USDT through their holdings in the UAE currency.

So Dubai has actually played a very important role in global crypto, but also unfortunately at times has been the can't do it for some of the sanctioned activity that's going through Dubai.

Having said that, I think they're very conscious of it, and they are working to fix that issue.

Well, Dushan, it was great having you here live at the New York Stock Exchange.

Thank you so much for joining us today, and thank you so much for sharing all of your insights and perspectives.

Thank you very much, Rami, appreciate having me.