The dollar index is pushing upward: how the Middle East conflict is affecting the crypto markets

Geopolitical tensions in the Middle East have triggered a major reassessment of global assets. The US dollar index (DXY) shows a confident rise of 0.5%, reaching its highest level since January 19 after Israel launched new military operations against Tehran and Beirut, and Iranian drones struck the US embassy in Riyadh. This sequence of events has triggered a cascade of negative reactions across cryptocurrency markets, traditional stocks, and precious metals.

Overall, global investor behavior demonstrates a classic shift toward capital protection: as uncertainty increases, investors retreat to the most liquid and “safe” asset—the US dollar. The dollar index serves as a barometer of this phenomenon, and its growth is directly correlated with pressure on risky assets, including cryptocurrencies.

The dollar index and its impact on crypto: safe haven displaces risk

Bitcoin (BTC) started the week optimistically, climbing toward $70,000, but shifted to a defensive stance at $66,500 during Tuesday’s trading, remaining within its characteristic range since early February. The current BTC price is $67,380, reflecting its stay within the established trading corridor. This slow erosion indicates that the dollar index, which continues to support Bitcoin’s decline with its rise, remains the dominant factor in short-term dynamics.

Gold, traditionally considered an alternative hedge against volatility, shows a similar dilemma. Early in the week, precious metals approached a monthly high of $5,410, but Tuesday’s dip to $5,260 revealed that investor focus is truly concentrated on one asset—the dollar. The dollar index is emerging as the preferred safety instrument, even displacing traditional competitors.

The altcoin market has proven much more vulnerable to this dynamic. Cryptocurrencies such as ADA (24h: -2.08%), ZEC (24h: -7.79%), and DASH (24h: -2.60%) have lost over 4% since Tuesday’s trading began, demonstrating a typical pattern: when large capital seeks safety, smaller assets are the first to feel the pressure.

Derivatives positioning: from panic to calculation

The derivatives market tells a more optimistic story about the depth of the bullish stance. Open interest in BTC futures stabilized around $15.3 billion, where a gradual unwinding of long positions reached a certain balance. This indicates that the liquidation was primarily organized, without chaotic sell-offs.

Retail sentiment remains cautiously optimistic, with funding rates in the 0-10% range, suggesting small traders still believe in further growth. Conversely, institutional confidence has slightly weakened— the 3-month annualized basis rate has fallen below 3%, signaling a conscious reduction by large players in anticipation of new developments. This divergence depicts a typical scene: small traders are still betting on a rebound, while big players are preparing for the next decline.

The options market shows a more pronounced shift in sentiment. Daily volume of put options has risen to a 63/37 ratio, indicating a move from widespread panic to hedging. The one-week 25-delta skew (a measure of protection costs) has dropped from extreme 27% to a more moderate 14%, pointing to a sharp decline in the cost of downside insurance. Even more telling: the implied volatility term structure has shifted into contango—short-term premiums have fallen below the stable 49-50% of long-term options, meaning immediate fear is being replaced by expectations of medium-term growth.

Data from Coinglass shows $392 million in liquidations over 24 hours, balanced between longs and shorts. BTC leads with $163 million in liquidations, ETH with $96 million. Analysts note that the $69,800 level remains a critical support/resistance zone during significant upward swings, according to Binance’s heatmap.

Tokens at a crossroads: who will survive consolidation?

Memecoins and DeFi indices from CoinDesk showed modest gains: CDMEME up 0.95%, DeFi Select (DFX) up 0.71%. This reflects that smaller market segments are sporadically seeking momentum but without confidence in a clear direction.

NEAR demonstrated notable dynamics, bouncing 13.3% after extreme oversold conditions, indicating some altcoins are recovering lost positions faster than others. However, the overall trend remains delayed: cryptocurrencies like PEPE (7d: -11.89%), ATOM (7d: -8.59%), SHIB (7d: -8.30%), and BCH (7d: -2.51%) lost double-digit percentages over the past week, despite BTC holding within its trading corridor.

Some DeFi tokens, however, resisted the overall consensus: JUP and MORPHO grew 23% and 10.58% respectively over the past week, continuing their upward momentum even after Tuesday’s fluctuations. This divergence highlights that the altcoin market is in a phase of differentiation, where success depends on specific fundamental project stories rather than overall sentiment.

Cryptocurrency outlook: Latin America as a growth platform

Against the backdrop of global consolidation, the Latin American crypto market shows opposite dynamics. Transaction volume in 2025 increased by 60% to $730 billion, driven by increased demand for crypto payments and cross-border remittances. Brazil remains the leader in absolute volume, while Argentina accelerates adoption through international transfers and practical use of stablecoins.

Stablecoins play a critical role in this growth, providing concrete use cases: international remittances, access to funds from large platforms like PayPal, and integration with traditional banking networks. Isn’t this the influence of the dollar index manifesting through dependence on the US dollar via stablecoins? Absolutely. But here, it acts as a bridge for crypto adoption rather than an obstacle to risk assets.

In conclusion, the dollar index remains the dominant factor controlling short-term movements of risk assets. However, underlying structural changes are underway: institutional traders are leading early entries, DeFi tokens show strength within a weaker altcoin market, and regional crypto ecosystems will continue to reflect the inherent volatility of the space.