Bitwise Chief Investment Officer Matt Hougan says the recent rally of Bitcoin (BTC) since the beginning of the war with Iran is no coincidence. According to him, a structural revaluation of BTC is occurring, both as digital gold and as currency.

The argument revolves around a framework that Hougan calls 'two bets in one.' Over the past five years, the market has valued Bitcoin almost solely as a store of value. But because Iran is now asking for crypto-toll on one of the busiest shipping routes in the world, he believes there is a second, much larger application of Bitcoin.

Bitcoin is no longer just digital gold and the price targets have not yet been adjusted.

In a recent post, Hougan pointed out this week the strength of BTC during the war. Since the US and Israel carried out airstrikes on Iran on February 28, Bitcoin has risen by 12.25%.

The cryptocurrency is performing much better than gold (which fell 8.69%) and the S&P 500 (up only 1.29%). This is unexpected, as normally BTC is expected to drop as a risky asset during geopolitical uncertainty.

“Some argue that geopolitics is irrelevant to bitcoin, while others say that war often leads to money printing, which strengthens bitcoin in the long run. Both arguments are wrong. The strength of bitcoin during this crisis comes directly from the conflict itself,” he said.

Hougan says that every Bitcoin buyer is actually making two bets simultaneously. The first is the well-known digital gold expectation.

"You are betting that bitcoin becomes 'digital gold' and can compete with physical gold in the $38 trillion store of value market. That is the current application of bitcoin and I find this a very attractive bet. As I explained earlier, bitcoin could become worth $1 million if it only captures 17% of this market in the next ten years," he added.

But the second bet makes it really interesting. It concerns the chance that Bitcoin 'can function as a traditional currency.'

“I have always seen this second bet as an out of the money call option: a speculative bet on an unlikely future,” noted Hougan.

Until recently, this idea seemed far off. Yet Hougan points to the decision in 2022 by the US, the European Commission, France, Germany, Italy, the UK, and Canada to remove selected Russian banks from SWIFT.

Subsequently, countries like China have developed alternative financial systems and Russia has transitioned almost all of its transactions to them.

“I thought at the time that the use of SWIFT might eventually make room for bitcoin: if countries become reluctant to trade in dollars, a apolitical alternative could be preferred. And indeed, during the conflict with Iran, we saw one of the first (and more challenging) examples of this happening,” explained Hougan.

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Iran's Bitcoin toll activated the currency expectation.

BeInCrypto reported that Iran planned to charge $1 per barrel toll to ships passing through the Strait of Hormuz, settling in Bitcoin. This move raises concerns about compliance with sanctions. According to Hougan,

“At the same time, it points to a reality that transcends the current conflict: In a world where countries weaponize their financial networks, bitcoin emerges as a apolitical alternative.”

Hougan examines the potential of BTC as currency through options pricing theory. An out of the money call option becomes more valuable if two things happen: the probability of hitting the strike price increases or the volatility in the underlying market rises.

The Iran conflict brought both. The chance that Bitcoin will function as a currency increased due to the Iranian toll system. Also, the volatility of the global monetary order increased.

According to Hougan, this results in two significant consequences for the price of Bitcoin. First, the asset may rise in price during geopolitical tensions, especially in areas between US and Chinese spheres of influence. Additionally, the potential market for Bitcoin becomes larger than just the $38 trillion of gold.

“We have only talked about bitcoin as a 'store of value' for the past five years. If bitcoin takes on a dual role, both as a store of value (like gold) and as a real currency (like the dollar), we may need to adjust our targets upwards,” said Hougan.

The 'store of value' narrative of the past five years has therefore brought Bitcoin much. What comes next could be even bigger.

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