Bitcoin (CRYPTO: BTC) is up 12% since the Iran war began, outperforming gold by 22 percentage points as the cryptocurrency emerges as an apolitical alternative to weaponized financial rails, according to Bitwise’s Matt Hougan.

The Surprising Performance

Bitcoin has performed well since the start of the Iran conflict on February 28, catching many off guard. The S&P 500 (NYSE:SPY) lost 1% over the same period.

Many assumed Bitcoin would fall during a risk-off geopolitical shock. Some pundits argued geopolitics is irrelevant for Bitcoin, while others pointed to war-driven money printing as the explanation.

Both arguments are wrong, according to Bitwise CIO Matt Hougan. Bitcoin’s strength during this crisis stems directly from the conflict itself.

The Two Bets

Buying Bitcoin makes two bets at once. First, you’re betting Bitcoin will become “digital gold” and compete with physical gold in the $38 trillion store of value market.

Second, you’re betting Bitcoin might someday act like a traditional currency. Hougan has historically viewed this as an out-of-the-money call option on an unlikely future.

The SWIFT Turning Point

Things started to change in 2022 when the U.S. kicked Russia out of the SWIFT dollar network. 

France’s finance minister called it a financial “nuclear bomb,” and countries took notice.

China quickly set up a parallel financial network, as did others. Russia moved 99% of its financial activity onto these rails. 

If countries grew reluctant to deal in dollars, it stood to reason that they might prefer an apolitical alternative at some point.

During the Iran conflict, Iran told the Financial Times it would begin collecting a $1 per barrel toll (the equivalent of $20 million per day) in Bitcoin from any ships passing through the Strait of Hormuz.

The Options Framework

Options gain value when either the probability of hitting the price target improves or the volatility of the underlying market increases.

In the Iran conflict, both occurred. The probability of Bitcoin being used as a currency increased, and the volatility of the global monetary order increased.

This means Bitcoin will likely rise during future geopolitical conflicts, particularly in regions trapped between the U.S. and Chinese systems. 

Moreover, it also means Bitcoin’s addressable market probably exceeds the $38 trillion gold market.

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