Bitwise's investment chief Matt Hougan says that Bitcoin's (BTC) rise since the Iran war started is not coincidental. It reflects a structural repricing of BTC as both digital gold and currency.
The argument revolves around a framework Hougan calls 'two bets in one.' For five years, the market has priced Bitcoin almost exclusively as a store of value. Iran's decision to impose crypto tariffs on one of the world's busiest shipping lanes suggests that another, much larger use case is now at stake.
Bitcoin is no longer just digital gold, and the price targets have not kept up.
In a recent post this week, Hougan pointed out BTC's strength amid the war. Bitcoin has risen 12.25% since U.S. and Israeli airstrikes on Iran began on February 28.
The cryptocurrency has performed far better than gold (down 8.69%) and the S&P 500 (up only 1.29%), contradicting expectations that BTC would be sold as a risky asset during geopolitical turmoil.
“Some have argued that geopolitics is irrelevant to bitcoin, while others have pointed out that war often leads to money printing, which typically strengthens bitcoin in the long run. Both arguments are wrong. Bitcoin's strength in this crisis stems directly from the conflict itself,” he said.
Hougan claimed that every Bitcoin buyer is making two bets at once. The first is the well-known digital gold narrative.
“You are betting that bitcoin becomes 'digital gold' and competes with physical gold in the store of value market, which is worth $ 38 trillion. This is bitcoin's current use, and I believe it is a very attractive bet. As I have explained earlier here, bitcoin could reach $ 1 million if it captures just 17% of this market over the next ten years,” he added.
But the second bet is where things get really interesting. It concerns the possibility that Bitcoin “can function as a traditional currency.”
“I have previously regarded this second bet as an 'out-of-the-money' call option: a speculative bet on an unlikely future,” noted Hougan.
Until recently, that idea seemed distant. However, Hougan refers to the 2022 decision by the U.S., European Commission, France, Germany, Italy, the United Kingdom, and Canada to remove selected Russian banks from SWIFT.
In response to this, China, among others, developed alternative financial systems, while nearly all of Russia's transactions now take place on these networks.
“At that time, I wondered if the use of SWIFT as a weapon could one day open the door for bitcoin: If countries became reluctant to use the dollar, it is reasonable to believe that they would eventually choose a politically neutral alternative. And during the Iran conflict, we actually saw one of the earliest (and perhaps more uncomfortable) examples of exactly this,” explained Hougan.
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Iran's Bitcoin toll activated the currency narrative
BeInCrypto reported that Iran planned to impose a toll of $ 1 per barrel for ships sailing through the Hormuz Strait, payable in Bitcoin. This raises questions around sanctions compliance. According to Hougan,
“At the same time, this points to a reality that transcends the current conflict: In a world where countries have made financial infrastructures into weapons, bitcoin appears as a politically neutral alternative.”
Hougan assessed BTC's potential as a currency based on options pricing theory. An 'out-of-the-money' call option gains value when two things happen: the probability of reaching the strike price improves, or the volatility in the underlying market increases.
The Iran conflict provided both. The likelihood that Bitcoin could function as a currency increased after the introduction of Iran's toll system. Additionally, volatility in the global money supply soared.
Hougan argued that this perspective sheds light on two central consequences for Bitcoin's development. First, it suggests that this asset could strengthen during periods of geopolitical tension, especially in areas caught between American and Chinese interests. It also points to the fact that Bitcoin's potential market extends far beyond gold's store of value of $ 38 trillion.
“We have spent the last five years talking about bitcoin exclusively as a 'store of value.' If bitcoin begins to take on a dual role, both as a store of value (like gold) and as an actual currency (like the dollar), we may need to raise our price targets,” said Hougan.
Therefore, the five-year 'store of value' narrative has served Bitcoin well. What comes next could be even bigger.
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