Crypto’s paradox over Iran: tool of US financial power may also push for Middle East de-escalation

Uriel Araujo, Anthropology PhD, is a social scientist specializing in ethnic and religious conflicts, with extensive research on geopolitical dynamics and cultural interactions.

Crypto markets have stalled as the Middle East conflict drags on, according to asset manager Grayscale - and this slowdown may carry significant political implications.

Before hostilities with Iran escalated, stronger economic data and easing inflation had raised expectations of interest rate cuts. Rising oil prices quickly changed that outlook, fueling inflation fears and pushing investors away from risk assets such as crypto.

Bitcoin, for example, fell to around $65,000 after the US and Israel launched strikes against the Persian nation in February, before recovering to about $70,000 in March - only to drop again as fighting resumed.

Although it has remained broadly stable overall, investors remain cautious. Stablecoins, meanwhile, have continued to expand, reaching about $320 billion in total market cap. Yet a sustained recovery in crypto markets would likely require lower geopolitical tensions, cheaper oil, and lower interest rates.

This dynamic creates pressure on the Trump administration, whose coalition now includes influential crypto, Big Tech, and venture capital interests. After once calling Bitcoin a “scam”, Trump became one of crypto’s strongest supporters by his second term. The industry spent over $130 million on the 2024 election, prominent crypto investors publicly backed him, and his administration has embraced crypto-friendly policies (amid talks of conflicts of interest) - while Trump family members also entered the sector. Crypto has thus become an important constituency to say the least, as I’ve commented before.

Digital sector assets interests now overlap with US foreign and monetary policy in important ways: many American-based crypto firms advocate the expansion of dollar-backed stablecoins, arguing that they can strengthen the dollar's global role - a position supported by the Treasury Department and further advanced by Trump's signing of the GENIUS Act, the so-called stablecoin law.

Sanctions, however, present a more complex picture: while some argue decentralized cryptocurrency could weaken US financial leverage (the “dollar bomb”), others note blockchain is often easier to trace than cash. The Trump administration has supported legal crypto while maintaining sanctions against Moscow, Tehran, Pyongyang, and illicit networks. It also sees blockchain as part of strategic competition with China, whose state-backed digital yuan contrasts with America’s market-driven approach.

In any case, crypto is but one influence on Trump's foreign policy, alongside “America First” priorities, domestic politics, energy security, and the issue of rivalry with China. Trump has consistently backed industries that support his agenda and fit his deregulatory vision: from oil and AI to manufacturing, and now the blockchain industry. Foreign policy remains of course shaped by many actors, including the White House, Congress, the national security bureaucracy, allies, and economic lobbies - not to mention the “double government” (or “Deep State”). Crypto is now one such stakeholder, with substantial say in financial regulation and the monetary system.

Still, the aforementioned Grayscale’s analysis is economically plausible: geopolitical conflict raises oil prices, fuels inflation, delays rate cuts, and hurts crypto. That creates incentives for crypto investors, and much of Big Tech, to favor lower energy prices and a more restrained approach, even as other strategic concerns pull in the opposite direction. Crypto's biggest impact comes through financial stability and dollar policy, where expanding stablecoins benefits from calmer markets.

Recent signals of US-Iran diplomacy and temporary pauses in fighting helped lower oil prices and boost market confidence. This feedback loop should give a President who values strong markets reason to weigh economic effects alongside security.

This partly explains why influential technology figures such as Elon Musk himself, plus other Silicon Valley figures and investors generally prefer macroeconomic stability. This despite some businesses benefiting from defense spending (and despite Big Tech AI demands driving a race for minerals) - while defense interests and pro-Israel lobbies favor a more confrontational posture toward Tehran. Even that could change however, regarding the former: despite the war, shares of major defense contractors have fallen sharply. In a nutshell, Trump’s coalition today encompasses such conflicting demands rather than a single strategic vision.

To make matters more complicated, the US President’s personality makes face-saving compromises tricky, amid speculation over sources of political vulnerability (see the Epstein affair).

A major escalation in Washington’s Iranian quagmire would risk disrupting global energy markets, reviving inflation, and damaging the world economy - with little prospect of an American military victory, due to depleted weapons stockpiles. Moreover, a full-scale invasion is widely viewed as unrealistic, and efforts at regime change also face significant obstacles: Khamenei’s large funeral crowds have revealed a large amount of popular support and national unity under external threats.

The point is that crypto has become one important voice in an administration trapped in Iran and facing competing pressures. Its preferences often line up with technology, markets, and dollar primacy advocates who want macroeconomic calm. Those shared interests can tilt toward selective de-escalation, even as other forces tug harder. The balancing of them will define the tightrope ahead.

To sum it up, cryptocurrency today may often function as a tool of US financial power and dollar hegemony. Yet, paradoxically, it may also become one of the forces, alongside parts of Big Tech, pushing for market stability and peace efforts, or at least de-escalation, in Iran and the Middle East. This reflects the competing interests inside an increasingly divided coalition around the Trump administration. In another political configuration, Vice President J. D. Vance, given his links to the technology sector, could perhaps have played a role in pursuing such a course. As of now, Trump and his erratic policies stand in the way, threatening the global economy and world peace.