On March 4th, the suddenly tense situation in the Middle East plunged global financial markets into turmoil, triggering a rare sell-off in Asia-Pacific stock markets. However, amidst the widespread gloom in traditional markets, crypto assets, typically known for their high risk, demonstrated remarkable resilience. This market divergence, sparked by the Middle East situation, not only challenges the traditional binary classification of “safe-haven” versus “risk” assets but also prompts a re-evaluation of the fundamental nature and pricing logic of assets.
Amidst the looming threat of war, global stock markets entered a “misery-comparison mode,” with the Asia-Pacific region, heavily reliant on external energy, bearing the brunt. South Korea’s Korea Composite Stock Price Index (KOSPI) plunged over 1.2% at the close, marking its largest single-day drop in history. Consequently, the index has accumulated a decline of nearly 20% over the past two trading sessions, with total market capitalization evaporating by approximately $430 billion, the worst consecutive decline since the 2008 global financial crisis. South Korea’s junior Kosdaq index plummeted by 14%, triggering circuit breakers multiple times during the session.
Japan’s stock market did not escape unscathed either; the Nikkei 225 index closed sharply lower by 3.7%, its largest single-day drop in nearly five months. The Middle Eastern markets themselves were at the epicenter of the storm. The main index of the Dubai Financial Market in the UAE plunged as much as 4.7% in early trading. Saudi Arabia’s benchmark index had also tumbled nearly 5% previously, and the Kuwait Stock Exchange even suspended trading temporarily to avert a crash-selling spree.
In stark contrast to the widespread losses in traditional stock markets, the cryptocurrency market’s performance has been eye-catching. Bitcoin (BTC.CC) quickly stabilized and rebounded after an initial brief bout of panic selling, briefly surging above $74,000, hitting a two-week high. This divergence is not a coincidence but the result of multiple factors interacting.
Firstly, the 24/7 trading nature of the crypto market grants it higher pricing efficiency. When the conflict erupted over the weekend, the crypto market was the only venue available for trading, allowing investors to digest and price in geopolitical risks in advance. Therefore, by the time Asia-Pacific stock markets opened on Monday, the price discovery process was largely complete.
Secondly, the two markets are at different valuation cycle stages. Major global stock markets had been consistently climbing earlier this year, accumulating significant unrealized gains, making valuation bubbles highly susceptible to bursting upon “black swan” events. In contrast, the crypto market had already undergone multiple deep corrections, allowing risks to be partially released, with valuations and leverage levels at relatively low positions.
Furthermore, the impact of inflation logic on the two asset classes is diametrically opposite. Surging energy prices push inflation higher, forcing central banks to delay rate cuts or even maintain high interest rates, creating a dual squeeze on stocks from “valuation + earnings.” For Bitcoin, with its fixed total supply, an inflationary environment strengthens its attribute as a “digital gold” hedge against fiat currency devaluation, attracting some capital seeking safe havens.
Lastly, the evolution of market participant structure has also reduced volatility in the crypto market. Data indicates that changes in the positions of long-term Bitcoin holders have moderated. Concurrently, the launch of spot Bitcoin ETFs in the U.S. has attracted more institutional capital focused on long-term value, forming a solid base of liquidity support. Before the outbreak of this crisis, the crypto derivatives market had already undergone multiple rounds of deleveraging, helping to avert large-scale cascading liquidations.
