The resumption of direct hostilities between the US and Iran has sent shockwaves through financial markets, leaving Bitcoin hovering near the $77,000 mark after a sharp retreat from recent highs.

Following Washington's announcement on September 1 of expanded strikes against Iran, Bitcoin tumbled from above $79,000 to approximately $77,200, with intraday losses reaching 2.1% and prices briefly dipping below $76,500. This pullback follows August's impressive rally, during which the cryptocurrency surged roughly 25% for its best August performance since 2017, climbing from around $64,000 to above $81,000 in the latter part of the month. Earlier gains were fueled by exchange-traded fund inflows and concentrated short covering, but as the scope of the US-Iran conflict widened, rising oil prices, a firmer dollar, and higher Treasury yields triggered a retreat in crypto assets alongside technology stocks.

The US Central Command announced on September 1 that its forces had completed another round of strikes targeting Iran's Islamic Revolutionary Guard Corps facilities, including air defenses, radar systems, maritime assets, mine-laying capabilities, and communications infrastructure. Washington characterised the operation as a response to recent Iranian plots against commercial shipping in the Strait of Hormuz and attacks on American personnel. Iran subsequently launched missiles and drones at multiple locations across the region, with President Donald Trump warning of even stronger retaliation if Tehran continues its reprisals. The airstrikes came after a roughly month-long lull in military activity ended on August 30, when two tankers departing the Strait of Hormuz were attacked. Though the two sides had reached an interim arrangement in June, shipping through the strait has yet to return to normal.

Notably, the Strait of Hormuz handled approximately 20% of global oil shipments before the conflict, while Iran's de facto blockade has persisted for months, intensifying the strain on international energy supply chains. Crude prices have soared on geopolitical risk premiums, with WTI jumping $4.46, or 5.2%, to settle at $90.22 per barrel, while Brent rose $4.16, or 4.6%, to close at $94.65. Both benchmarks posted their highest closing levels in five weeks. Traders have once again priced in greater odds of Middle East supply disruptions following the renewed US strikes. Before the war erupted, Brent was trading near $72 per barrel, meaning the September 1 close represents a gain of roughly 31% from that pre-conflict level.

Higher energy costs are now feeding directly into corporate expenses. The International Air Transport Association projects that average jet fuel prices in 2026 will climb nearly 70% from 2025 levels, pushing global airline fuel expenditures from $252 billion to approximately $350 billion. American Airlines (AAL.US) has disclosed that its fuel and related taxes for the first half of 2026 will increase by $2.6 billion, a 48.7% jump compared to the same period last year. PVM analyst John Evans contends that the renewed exchange of missile strikes between Washington and Tehran heightens the likelihood of a prolonged conflict. Analysts surveyed by Reuters in August anticipated that shipping disruptions would keep oil prices above $80 per barrel through 2026. Should tanker traffic through the Strait of Hormuz remain depressed, refiners and shipping firms will continue absorbing the costs of longer transport routes, elevated insurance premiums, and delivery delays.

The surge in energy prices has lifted inflation expectations, prompting Treasury investors to demand higher yields. The US 10-year Treasury yield climbed to 4.792% on September 1, touching 4.798% intraday, its highest level since January 2025. According to CME FedWatch, traders now assign a 66.2% probability that the Federal Reserve will raise interest rates by at least 25 basis points at its September 15-16 meeting, up from just 39.6% a week earlier. Elevated risk-free rates have compressed equity valuations, with the S&P 500 falling 0.7% on September 1, the Dow Jones down 0.8%, the Nasdaq off 1%, and the Russell 2000 slipping 1.2%. The dollar strengthened in tandem, while spot gold dropped approximately 2.5% to around $4,330 per ounce. The interest rate pressure stemming from higher oil prices has outweighed the safe-haven demand generated by geopolitical tensions, as rising Treasury yields increase the opportunity cost of holding bullion. The bond selloff has also spread across Europe and Asia, with the UK 10-year yield briefly touching 5.25%, Japan's 10-year yield reaching 3%, and European natural gas prices climbing to three-year highs. Ole Hansen, head of commodity strategy at Saxo Bank, believes that near-term real interest rates and dollar strength will continue to weigh on gold, though persistent gains in energy and agricultural prices could eventually reignite bullion's appeal as an inflation hedge over the longer cycle.

Despite the challenging macro backdrop, the microstructure of crypto markets reveals that capital continues to flow in. Farside Investors data shows that US spot Bitcoin ETFs recorded net inflows of $216.7 million on August 31, resuming the positive trend that had been interrupted the previous trading day. Aggregated data also indicates that during the late-August short squeeze window tracked by Glassnode, US spot Bitcoin ETFs accumulated approximately $2.23 billion in net inflows. Ether spot ETFs attracted $87.68 million in net inflows on August 31, marking their 11th consecutive day of positive flows, with cumulative inflows of roughly $1.6 billion over that period. According to Bitfinex estimates, weekly fund demand for Ether products relative to market size was approximately four times that of Bitcoin, suggesting that institutional investors were increasing crypto exposure through regulated vehicles even before the conflict escalated. The Bitfinex trading desk notes that the recent rally has been driven primarily by spot buying, with futures open interest rising only gradually and futures premiums over spot remaining subdued. Leveraged longs did not accumulate rapidly during the advance, so the September 1 pullback has yet to trigger any cascading liquidations. As of August 31, Bitcoin futures open interest remained below 700,000 BTC, well short of the cycle high of around 801,000 BTC recorded on June 4, while 30-day implied volatility has dropped below 40%. On Deribit, the most actively traded put options cluster around strike prices of $70,000, $73,000, and $74,000, indicating that some traders have already purchased downside protection against further conflict escalation or Fed rate hikes. Bitfinex identifies $77,100 as near-term support, while Glassnode flags the $81,000 to $86,000 zone as a dense selling region.

Institutional views suggest growing divergence in market sentiment. Jasper De Maere, an over-the-counter trader at Wintermute, believes that under-allocated investors continue to buy on dips, with Bitcoin likely to remain rangebound ahead of the September Federal Reserve meeting. He cites $75,000 and $72,000 as downside support levels, with selling pressure around $82,000. Joel Kruger, a strategist at LMAX Group, argues that the simultaneous rise in oil prices, Treasury yields, and the dollar will constrain Bitcoin's near-term upside. J.P. Morgan Asset Management's mid-year outlook warns that prolonged disruption to the Strait of Hormuz could push the global economy toward stagflation, characterised by persistently high inflation and slowing growth, which would compress the scope for rate cuts in 2026. The US is set to release August non-farm payroll data on September 4, with market expectations of approximately 55,000 new jobs and the unemployment rate holding at 4.1%. Kyle Rodda, an analyst at Capital.com, suggests that weaker-than-expected employment figures would make it more difficult for the Federal Reserve to raise rates amid an economic slowdown. The September 15-16 rate decision will then serve as the pivotal event updating the cost of capital for the dollar, Treasury yields, and Bitcoin, ultimately determining the direction of markets in the next phase.