Recently, tensions in the Middle East have escalated, and market sentiment has been volatile. I noticed an interesting phenomenon: when geopolitical risks are at their highest, crypto assets tend to perform strongly.

The progress of US-Iran negotiations has become the focus in the past two days. The US has imposed a maritime blockade on Iranian ports, with over 15 warships deployed in the Hormuz Strait to intercept. According to the latest news, the two sides may hold the next round of direct talks in Islamabad on the 16th. Trump stated that both parties are eager to reach an agreement, with the nuclear issue being the key sticking point.

The energy supply crisis is at the core of this conflict. The International Energy Agency director said that the near-closure of the Hormuz Strait has halted about 13 million barrels of daily supply, an unprecedented event in history. He warned that hostile actions have damaged over 80 energy facilities, and recovery could take up to two years. Interestingly, oil prices have not fully reflected the severity of this crisis—WTI crude eventually fell below $100 and even gave back most of the intraday gains.

Market reactions are quite complex. The fear index surged 12% but then declined, while cryptocurrencies moved against the trend—Bitcoin rose over 5% to $77.70K, and Ethereum surged over 8% to $2.32K. The dollar hit a 1.5-month low of 98.3. In commodities, London aluminum futures hit a four-year high due to disrupted aluminum exports from the Middle East, rising 3.81% to $3,645 per ton. Spot gold prices fell 2.41%.

U.S. stocks rose across the board, with the Dow up 0.63%, the S&P 500 up 1.02%, and the Nasdaq rebounding 1.23%. Tech stocks led the rally, with Oracle up over 12%, Intel up over 4%, and Microsoft up over 3%. Crypto mining and hardware stocks performed well, with HUT8 up over 5% and Coinbase nearly 4%.

Institutional views are divided. Chicago Fed President Goolsbee believes that the futures prices for oil indicate the market sees the surge as temporary. As long as consumption remains strong, economic growth will stay robust. However, he also pointed out that if oil prices stay above $90-100 for several months, the inflationary effects could spread to other sectors, potentially impacting consumer confidence.

BlackRock has resumed an overweight stance on U.S. stocks, believing that the impact of the Middle East conflict on global economic growth is manageable. They see two positive signals: the resumption of shipping through the Hormuz Strait and limited economic impact from the war. BlackRock emphasizes that a ceasefire is crucial and that the threshold for returning to full-scale conflict remains high. Even during the conflict, corporate earnings expectations continue to rise, especially in the tech sector.

Another noteworthy data point is the Federal Reserve’s balance sheet. The New York Fed disclosed that unrealized losses on the Fed’s bond holdings last year amounted to $844.2 billion, smaller than the $1.06 trillion projected for 2024. While mainly an accounting matter, it reflects the Fed’s record in using its balance sheet as a market tool.

Overall, the market reaction to this Middle East crisis follows a logic: supply shocks are short-term manageable → corporate earnings remain strong → risk assets are worth allocating. The rise of cryptocurrencies in this context somewhat reflects market confidence in economic resilience.