U.S. Assassination Of A Major Iranian Official Poses An Unprecedented Test Of Bitcoin’s Role As A Safe Haven Asset

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The bitcoin price got a shot in the arm as news came out last night that the U.S. assassinated Qassem Soleimani, head of the feared and formidable Iranian Revolutionary Guard Corps (IRGC).

As of this writing, the bitcoin price is up 4.74%, approaching $7,400. It is tempting to take this observation and assume that bitcoin will continue to climb as tensions between the two countries continue to ratchet upwards. 

All of this feeds the narrative that bitcoin is a safe haven asset.

This may be true, and the price of bitcoin may continue to rise. However, the expected fallout will serve as a defining test of Bitcoin’s presumptive role as “currency of last resort” or the “final port in the storm”.

It is hard to overstate the impact of Soleimani’s assassination. While few outside of Iran will mourn his passing, there is no denying the level of power and influence that he held in Iran and around the region as a whole. 

A veteran of the devastating decade-long Iran-Iraq War in the 1980’s, one which most people outside of the region have likely never heard of, Soleimani grew to become a glorified and almost mythical figure within Iran. 

By leading the IRGC, he was a central player in virtually every major Iranian action in the region, including defense of the Assad Regime in Syria, securing Iranian influence in Iraq (lest the two countries ever go to war again), or supplying and supporting Hamas and Hezbollah against Israel. Some of his lesser-known activities included backing the Houthi rebels in Yemen and other groups across Afghanistan and Pakistan.

Taking out Soleimani was analogous to the U.S. losing a Secretary of Defense or National Security Advisor.

Close-up Middle East map of strait of Hormuz
Map Strait of Hormuz and Persian gulf countriesGETTY

‘A Stick of Dynamite into a Tinderbox’

With this context, it is unsurprising that Joe Biden likened the Soleimani assassination to “tossing a stick of dynamite into a tinderbox”. After all, while the world is surely better without Soleimani, nobody really knows what will happen next. All we do know is that the Iranian Supreme Leader Ayatollah Khamenei vowed to take “tough revenge” against the U.S.

The anticipated response in and of itself should be enough to rattle markets and drive investors toward safe havens. Iranian-backed forces reach as far west as Turkey, south as Yemen, and east as Pakistan. If we take into account cyber or terrorist attacks, the entire world comes into play.

Further complicating the issue is the fact that this drama is playing out during a period of already heightened tensions in the region. U.S-Iranian relations were already poor following President Trump’s withdrawal from the 2015 Iranian Nuclear Deal and application of his “maximum pressure” campaign against the country.

Arab Spring-esque protests have also broken out across the region in countries such as Lebanon, Iraq, Algeria, and even Iran against causes such as income inequality or political freedom. In fact, Iraqi Prime Minister Adel Abdul Mahdi and Lebanese Prime Minister Saad Hariri both resigned in recent months in response to their inability to calm the protests.

Plus, there is currently a proxy war playing out in Libya pitting Turkey and the United Nations against Egypt, the United Arab Emirates, and Russia, among others.

It is hard to think of a worse time in the region for someone to light a match.

What Comes Next

Iran is unlikely to provoke all-out war against the U.S., as Khamenei and the rest of the leadership in Tehran are well aware that the fighting will largely take place in their home country (Iran does not have conventional military means of reaching the U.S.).

More likely, they are going to leverage their proxies across the region to attack U.S. allies and soft targets as they seek to exact revenge. For instance, they could try a repeat of their attack on Saudi oil infrastructure in September 2019 or disrupt the transit of oil through the Strait of Hormuz (which accounts for 20%) of the global supply.

The U.S. is on heightened alert, is deploying thousands of troops back into the region, and the State Department asked all Americans to leave Iraq immediately. 

Middle East Conflict
Map of the Middle East with Saudi Arabia in focus with bullets draped acrossGETTY

Trial By Fire

If there ever was a time for bitcoin and crypto to prove itself, this is it.

Safe havens like bitcoin, gold, and U.S. treasuries are up, while emerging market currencies have seen their biggest fall since September 2019.

These broad trends will likely continue if tensions escalate and people will seek alternatives to preserve their wealth.

However, the story is not this simple. 

For the bitcoin price to continue to climb in the face of this instability, it needs to prove its resiliency and relevancy in local market conditions. Put another way, it must demonstrate utility. This means that there need to be on-ramps to the network, consistent Internet access or dense mesh networks, and users must have ways to simultaneously maintain privacy (perhaps from governments), but still find counterparties for commerce. Leigh Cuen from CoinDesk wrote an excellent piece detailing some of these challenges in emerging markets around the world. 

Now, this may be too much to ask of bitcoin right now, as it remains in its infancy, but at the same time it is hard to imagine a better proving ground for crypto. 

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